<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 8-K
_________________________
CURRENT REPORT
Pursuant to Section 13 Or 15(D) of the Securities Exchange Act Of 1934
Date of Report (Date of earliest event reported): May 20, 1999
TITAN EXPLORATION, INC.
-----------------------
(Exact name of Registrant as specified in its charter)
Delaware 000-21843 75-2671582
------------------------- --------- ----------
(State or other jurisdiction of Commission (I.R.S. Employer
incorporation or organization) File Number Identification No.)
500 West Texas, Suite 200
Midland, Texas 79701
------------------------- -----
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, including area code: (915) 498-8600
Not applicable
-------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
TITAN EXPLORATION, INC.
FORWARD LOOKING INFORMATION AND RISK FACTORS
Titan Exploration, Inc. (the "Company") or its representatives may make
forward looking statements, oral or written, including statements in this
report, press releases and filings with the Securities and Exchange Commission,
regarding estimated future net revenues from oil and natural gas reserves and
the present value thereof, planned capital expenditures (including the amount
and nature thereof), increases in oil and gas production, the number of wells
the Company anticipates drilling through 1999, potential reserves and the
Company's financial position, business strategy and other plans and objectives
for future operations. Although the Company believes that the expectations
reflected in these forward looking statements are reasonable, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected effects on its business or operations. Among the factors that could
cause actual results to differ materially from the Company's expectations are
general economic conditions, inherent uncertainties in interpreting engineering
data, operating hazards, delays or cancellations of drilling operations for a
variety of reasons, competition, fluctuations in oil and gas prices, government
regulations and other factors set forth in the Company's Annual Report on Form
10-K. All subsequent oral and written forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
<PAGE>
Item 2. Acquisition or Disposition of Assets
Completed Dispositions:
In the fourth quarter of 1998, the Company approved a plan to dispose
of non-strategic assets, including its Gulf of Mexico, Gulf Coast and certain
Permian Basin assets. The Company's reason to dispose of these assets varied
depending on the portfolio of assets being considered. The disposition would
allow the Company to (a) realize full value for certain assets whose value was
not fully reflected in the public valuation of the Company in the capital
markets, (b) redeploy capital to higher return projects or acquisitions, (c)
invest in projects that may accelerate cash flow to the Company, (d) eliminate
certain administrative costs and (e) reduce the Company's debt obligations.
In April 1999, the Company entered into an agreement with Coastal Oil
& Gas Corporation to sell the Company's assets in the Gulf of Mexico for $71.3
million in cash subject to due diligence, adjustments and certain other
conditions ("Coastal Agreement"). On May 20 and 21, 1999, the Company received
the cash proceeds pursuant to the Coastal Agreement. The proceeds were used to
reduce the Company's bank debt.
The assets sold pursuant to the Coastal Agreement are briefly
described below:
. The Company's interest (through a wholly-owned subsidiary) in
certain oil and gas properties, all located in the Gulf of
Mexico.
. Certain oil and gas properties, all located in the Gulf of
Mexico, owned by an entity in which the Company has a 15%
interest.
. The Company's 1% interest in Dauphin Island Gathering Partners
("DIGP"), which owns the Dauphin Island Gathering System (DIGS).
DIGS consists of a regulated offshore transmission system and
non-regulated offshore gathering system which delivers gas to two
market outlets.
. The Company's .86% interest (and related purchase option) in
Mobile Bay Processing Partners ("MBPP") which has constructed a
natural gas processing plant, to which the DIGS system is
connected.
. The Company's .86% interest (and related purchase option) in Gulf
Coast NGL Pipeline, L.L.C., which owns a 16.67% interest in Tri-
States NGL Pipeline, L.L.C., the entity that is constructing a
natural gas liquids pipeline.
During the period from January 1999 through April 1999, the Company
has disposed of other oil and gas properties for proceeds of approximately $6
million. The proceeds were used to reduce the Company's bank debt.
Pending Dispositions:
Currently, the Company has plans to dispose of other non-strategic oil
and gas properties in the Permian Basin with expected proceeds ranging from $10
million to $15 million. The proceeds from such dispositions will be used to
reduce the Company's bank debt.
<PAGE>
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information
The unaudited pro forma combined financial statements of Titan
Exploration, Inc. (the "Company") have been prepared to give
effect to (i) the pending disposition of certain non-strategic
assets ("Pending Sales") and (ii) the completed disposition of
certain non-strategic assets ("Completed Sales") collectively
"Assets Sold"). The unaudited pro forma combined balance sheet
are presented as if the sale of the Pending Sales occurred at
the balance sheet date and the unaudited pro forma combined
statements of operations are presented as if the Assets Sold
were disposed of on January 1, 1998.
(c) Exhibits
10.10 Purchase and Sale Agreement, dated April 28, 1999, by and among
OEDC Exploration & Production, L.P., a Texas limited
partnership ("Seller), and Coastal Oil & Gas USA, L.P., a
Delaware limited partnership ("Buyer").
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
TITAN EXPLORATION, INC.
The unaudited pro forma combined financial statements have been prepared to
give effect to (i) the pending disposition of certain non-strategic assets
("Pending Sales") and (ii) the completed disposition of certain non-strategic
assets ("Completed Sales") (collectively "Assets Sold"). The unaudited pro forma
combined balance sheet is presented as if the sale of the Pending Sales occurred
at the balance sheet date and the unaudited pro forma combined statements of
operations are presented as if the Assets Sold were disposed of on January 1,
1998.
The unaudited pro forma combined financial statements included herein are
not necessarily indicative of the results that might have occurred had the
transactions taken place at the dates specified and are not intended to be a
projection of future results. In addition, future results may vary significantly
from the results reflected in the accompanying unaudited pro forma combined
financial statements because of normal production declines, changes in product
prices, future acquisitions and divestitures, and other factors.
The following unaudited pro forma combined financial statements should be
read in conjunction with the consolidated financial statements and the related
notes of Titan Exploration, Inc. (the "Company") included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 and in the
Quarterly Report on Form 10-Q for three months ended March 31, 1999.
<PAGE>
TITAN EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
The Pro Forma
Company Adjustments Combined
----------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,086 $ 1,086
Accounts receivable:
Oil and gas 10,027 (129) (a) 9,898
Other 770 (188) (a) 582
Inventories 1,416 1,416
Assets held for sale 84,301 (84,301) (a) -
Prepaid expenses and other current assets 371 371
----------- ---------
Total current assets 97,971 13,353
----------- ---------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of
accounting:
Proved properties 301,903 301,903
Unproved properties 7,803 7,803
Other property and equipment 6,353 6,353
Accumulated depletion, depreciation and amortization (102,860) (102,860)
----------- ---------
213,199 213,199
----------- ---------
Other assets 734 (377) (a) 357
----------- ---------
$ 311,904 $ 226,909
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and liabilities:
Trade $ 8,651 $ 8,651
Accrued interest 1,624 1,624
Other 5,638 (565) (a) 5,073
----------- ---------
Total current liabilities 15,913 15,348
----------- ---------
Long-term debt 148,300 (83,422) (a) 64,878
Other liabilities 5,077 (3,709) (a) 1,368
Stockholders' equity:
Preferred Stock - -
Common Stock 405 405
Additional paid-in capital 278,109 278,109
Treasury stock, at cost (20,020) (20,020)
Deferred compensation (3,790) (3,790)
Accumulated deficit (112,090) 2,701 (a) (109,389)
----------- ---------
Total stockholders' equity 142,614 145,315
----------- ---------
$ 311,904 $ 226,909
=========== =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
TITAN EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Pro Forma
Company Assets Sold Adjustments Combined
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Gas Sales $ 42,844 $ (9,533) $ 33,311
Oil Sales 30,032 (3,448) 26,584
--------- ----------- ---------
Total revenues 72,876 (12,981) 59,895
--------- ----------- ---------
Expenses:
Oil and gas production 27,078 (7,277) 19,801
Production and other taxes 5,725 (463) 5,262
General and administrative 9,163 (2,215) 6,948
Amortization of stock option awards 5,055 - 5,055
Exploration and abandonment 17,596 (2,111) 15,485
Depletion, depreciation and amortization 27,090 (6,259) 20,831
Impairment of long-lived assets 25,666 (17,309) 8,357
Restructuring costs 625 - (625) (b) -
--------- ----------- ---------
Total expenses 117,998 (35,634) 81,739
--------- ----------- ---------
Operating income (loss) (45,122) 22,653 (21,844)
--------- ----------- ---------
Other income (expense):
Equity in net loss of affiliates (458) 458 -
Interest income 125 - 125
Interest expense (8,648) - 5,759 (c) (2,889)
Gain on sale of assets 923 - (923) (d) -
Other 582 (579) 3
--------- ----------- ---------
Income (loss) before income taxes (52,598) 22,532 (24,605)
Income tax benefit (5,381) - (5,381)
--------- ----------- ---------
Net income (loss) $ (47,217) $ 22,532 $ (19,224)
========= =========== =========
Net loss per share $ (1.22) $ (0.50)
========= =========
Net loss per share - assuming dilution $ (1.22) $ (0.50)
========= =========
Weighted average common shares outstanding 38,808 38,808
========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
TITAN EXPLORATION, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Three Months ended March 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Pro Forma
Company Assets Sold Adjustments Combined
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Gas Sales $ 8,411 $ (1,716) $ 6,695
Oil Sales 6,369 (820) 5,549
--------- ----------- ----------
Total revenues 14,780 (2,536) 12,244
--------- ----------- ----------
Expenses:
Oil and gas production 4,953 (1,182) 3,771
Production and other taxes 1,207 (79) 1,128
General and administrative 2,169 (361) 1,808
Amortization of stock option awards 1,263 - 1,263
Exploration and abandonment 2,545 (229) 2,316
Depletion, depreciation and amortization 4,826 (1,242) 3,584
Impairment of long-lived assets 25,900 (25,900) -
--------- ----------- ----------
Total expenses 42,863 (28,993) 13,870
--------- ----------- ----------
Operating income (loss) (28,083) 26,457 (1,626)
--------- ----------- ----------
Other income (expense):
Equity in net loss of affiliates (115) 115 -
Interest income 11 - 11
Interest expense (2,551) - 1,408 (c) (1,143)
Gain on sale of assets 202 - (202) (d) -
Other 533 (500) 33
--------- ----------- ----------
Income (loss) before income taxes (30,003) 26,072 (2,725)
Income tax benefit - - -
--------- ----------- ----------
Net income (loss) $ (30,003) $ 26,072 $ (2,725)
========= =========== ==========
Net loss per share $ (0.79) $ (0.07)
========= ==========
Net loss per share - assuming dilution $ (0.79) $ (0.07)
========= ==========
Weighted average common shares outstanding 37,935 37,935
========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 1998 and March 31, 1999
Note 1. Basis of Presentation
The unaudited pro forma combined financial statements of Titan Exploration,
Inc. (the "Company") have been prepared to give effect to (i) the pending
disposition of certain non-strategic assets ("Pending Sales") and (ii) the
completed disposition of certain non-strategic assets ("Completed Sales")
(collectively "Assets Sold"). The unaudited pro forma combined balance sheet is
presented as if the sale of the Pending Sales occurred at the balance sheet date
and the unaudited pro forma combined statements of operations are presented as
if the Assets Sold were disposed of on January 1, 1998.
Following is a description of the individual columns included in the
unaudited pro forma combined financial statements:
The Company. Represents the consolidated balance sheet of the Company as of
March 31, 1999 and the consolidated statements of operations of the Company for
the year ended December 31, 1998 and the three months ended March 31, 1999.
Assets Sold. Reflects the results of operations (before income taxes) for
Assets Sold for the year ended December 31, 1998 and the three months ended
March 31, 1999.
Note 2. Pro Forma Entries
(a) To record the sales of the Assets Sold (including the related income tax
effects) that were pending at March 31, 1999 and apply the proceeds to
reduce the outstanding bank indebtedness.
(b) To eliminate the restructuring costs which were costs directly attributable
to the termination of staff employed in the operation of the Assets Sold.
(c) To adjust interest expense for the application of the sales proceeds from
the Assets Sold to reduce the Company's long-term debt.
(d) To eliminate the gain on sale of assets related to the Completed Sales in
1998 and 1999.
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
December 31, 1998 and March 31, 1999
Note 3. Income Taxes
The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes. "
Note 4. Supplemental Oil and Gas Reserve Information (Unaudited)
The following unaudited pro forma combined supplemental information
regarding the oil and gas activities of the Company is presented pursuant to the
disclosure requirements promulgated by the Securities and Exchange Commission
and Statement of Financial Accounting Standards No. 69, "Disclosures About Oil
and Gas Producing Activities". The pro forma combined reserve information is
presented as if the Assets Sold had occurred on January 1, 1998.
Management emphasizes that reserve estimates are inherently imprecise and
subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available; such changes could
be significant.
Quantities of oil and gas reserves
Set forth below is a pro forma summary of the changes in the net quantities
of oil and natural gas reserves for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Oil and
Natural Condensate
Gas (MMcf) (MBbls)
---------- ----------
<S> <C> <C>
Total Proved Reserves:
Balance, January 1, 1998 304,184 27,255
Revisions of previous estimates (10,220) (8,078)
Purchase of minerals-in-place 5,746 1,373
Extensions and discoveries 11,250 1,932
Production (21,935) (2,206)
---------- ----------
Balance, December 31, 1998 289,025 20,276
========== ==========
Proved Developed Reserves:
January 1, 1998 189,446 20,921
December 31, 1998 202,203 13,233
</TABLE>
<PAGE>
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (continued)
December 31, 1998 and March 31, 1999
Standardized measure of discounted future net cash flows
The pro forma combined standardized measure of discounted future net cash
flows is computed by applying year-end prices of oil and gas (with consideration
of price changes only to the extent provided by contractual arrangements) to the
estimated future production of oil and gas reserves less estimated future
expenditures (based on year-end costs) to be incurred in developing timing of
the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties, plus
available carryforwards and credits, and applying the current tax rate to the
difference.
<TABLE>
<CAPTION>
December 31,
1998
-------------
(in thousands)
<S> <C>
Future:
Cash Flows $ 627,931
Production costs (204,186)
Development costs (43,101)
Future income taxes (28,908)
-------------
Future net cash flows 351,736
10% annual discount for estimated timing of cash flows (150,059)
-------------
Standardized measure of discounted net cash flows $ 201,677
=============
</TABLE>
Changes relating to the standardized measure of discounted future net cash flows
The principal sources of the change in the pro forma combined standardized
measure of discounted future net cash flows for the year ended December 31, 1998
are as follows (in thousands):
<TABLE>
<S> <C>
Standardized Measure, beginning of year $ 304,651
Extensions and discoveries less related costs 13,910
Revisions of previous quantity estimates (32,244)
Net change in income tax 84,712
Net change in prices and production costs (95,275)
Sales, net of production costs (34,832)
Accretion of discount 30,465
Other (69,710)
-------------
Standardized measure, end of year $ 201,677
=============
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TITAN EXPLORATION, INC.
By: /s/ Jack Hightower
------------------
Jack Hightower
President and Chief Executive Officer
By: /s/ William K. White
--------------------
William K. White
Vice President, Finance and
Chief Financial Officer
Date: June 1, 1999
<PAGE>
Exhibit 10.10
-------------
TITAN EXPLORATION, INC.
-----------------------
Purchase and Sale Agreement, dated April 28, 1999, by and among OEDC Exploration
& Production, L.P. and Coastal Oil & Gas USA, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. SALE AND PURCHASE OF THE ASSETS........................................................................... 1
-------------------------------
1.1 Acquired Assets................................................................................ 1
---------------
1.2 Records........................................................................................ 2
-------
1.3 Excluded and Reserved Assets................................................................... 3
----------------------------
2. PURCHASE PRICE............................................................................................ 3
--------------
2.1 Purchase Price................................................................................. 3
--------------
2.2 Payment........................................................................................ 3
-------
2.3 Allocation..................................................................................... 3
----------
2.4 IRC Section 1060............................................................................... 3
----------------
3. EFFECTIVE TIME AND CLOSING DATE........................................................................... 3
-------------------------------
3.1 Closing........................................................................................ 3
-------
3.2 Effective Time................................................................................. 4
--------------
3.3 Ownership Prior to Effective Time.............................................................. 4
---------------------------------
3.4 Ownership After Effective Time................................................................. 4
------------------------------
4. INDEMNIFICATION........................................................................................... 4
---------------
4.1 Seller's Indemnification....................................................................... 4
------------------------
4.2 Buyer's Indemnification........................................................................ 5
-----------------------
4.3 Notification................................................................................... 5
------------
4.4 Environmental Laws............................................................................. 6
------------------
4.5 Indemnity Limit............................................................................... 6
---------------
5. CLOSING................................................................................................... 7
-------
5.1 Delivery by Seller............................................................................. 7
------------------
5.2 Delivery by Buyer.............................................................................. 7
-----------------
5.3 Further Cooperation............................................................................ 7
-------------------
6. ACCOUNTING ADJUSTMENTS.................................................................................... 7
----------------------
6.1 Closing Adjustments............................................................................ 7
-------------------
6.2 Strapping and Gauging.......................................................................... 7
---------------------
6.3 Taxes.......................................................................................... 7
-----
6.4 Adjustments to Purchase Price.................................................................. 8
-----------------------------
6.5 Actual Figures................................................................................. 9
--------------
6.6 Post-Closing Adjustments....................................................................... 9
------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7. DUE DILIGENCE; TITLE MATTERS............................................................................. 9
----------------------------
7.1 General Access................................................................................ 9
--------------
7.2 Covenants Relating to Title................................................................... 10
---------------------------
7.3 Seller's Title................................................................................ 10
--------------
7.4 Good and Marketable Title..................................................................... 10
-------------------------
7.5 Defect Letters................................................................................ 11
--------------
7.6 Effect of Title Failure....................................................................... 12
-----------------------
8. REPRESENTATIONS AND WARRANTIES OF SELLER................................................................. 13
----------------------------------------
8.1 Seller's Representations and Warranties....................................................... 13
---------------------------------------
8.2 Disclaimers................................................................................... 16
-----------
8.3 Definition of "Sellers Knowledge"............................................................. 17
---------------------------------
9. REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................. 17
9.1 Buyer's Representations and Warranties........................................................ 17
10. CERTAIN AGREEMENTS OF SELLER............................................................................. 18
----------------------------
10.1 Maintenance of Assets......................................................................... 18
---------------------
10.2 Consents...................................................................................... 19
--------
10.3 Cooperation................................................................................... 20
-----------
10.4 Assets Prior to Closing....................................................................... 20
-----------------------
11. CERTAIN AGREEMENTS OF BUYER.............................................................................. 20
---------------------------
11.1 Cooperation................................................................................... 20
-----------
11.2 Disclosure.................................................................................... 20
----------
11.3 Notification.................................................................................. 20
------------
12. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............................................................. 20
--------------------------------------------
12.1 No Litigation................................................................................. 20
-------------
12.2 Representations, Warranties and Covenants..................................................... 20
-----------------------------------------
12.3 Consents...................................................................................... 21
--------
12.4 No Substantial Changes........................................................................ 21
----------------------
13. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER........................................................ 21
13.1 No Litigation................................................................................. 21
13.2 Representations and Warranties................................................................ 21
14. TERMINATION.............................................................................................. 21
14.1 Causes of Termination......................................................................... 21
14.2 Effect of Termination......................................................................... 22
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
15. MISCELLANEOUS............................................................................................ 22
-------------
15.1 Casualty Loss................................................................................. 22
-------------
15.2 Non-Compete................................................................................... 23
-----------
15.3 Notice........................................................................................ 23
------
15.4 Survival of Representations, Warranties, Indemnities,
Covenants and Agreements.................................................................... 24
------------------------
15.5 Compliance with Express Negligence Test....................................................... 25
---------------------------------------
15.6 Public Announcements.......................................................................... 25
--------------------
15.7 Governing Law................................................................................. 25
-------------
15.8 Exhibits...................................................................................... 25
--------
15.9 Fees, Expenses and Taxes...................................................................... 25
------------------------
15.10 Assignment.................................................................................... 25
----------
15.11 Entire Agreement.............................................................................. 26
----------------
15.12 Severability.................................................................................. 26
------------
15.13 Captions...................................................................................... 26
--------
15.14 Remedies...................................................................................... 26
--------
15.15 Postponement of Closing....................................................................... 26
-----------------------
15.16 Change of Operatorship........................................................................ 27
----------------------
</TABLE>
LIST OF EXHIBITS
Exhibit 1.1(A) Leases, Working Interests, Net Revenue Interests and Wells
Exhibit 1.3 Excluded Assets
Exhibit 2.3 Allocate Value
Exhibit 5.1 Assignment and Bill of Sale
Exhibit 8.1(O) Call on Production
Exhibit 8.1(R) Preferential Rights
Exhibit 8.1(S) Gas Imbalances
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
---------------------------
This Purchase and Sale Agreement (this "Agreement") is entered into this
28th day of April, 1999 by and between OEDC Exploration & Production, L.P., a
Texas Limited Partnership ("Seller") and COASTAL OIL & GAS USA, L.P.a Delaware
Limited Partnership, ("Buyer"). Buyer and Seller are collectively referred to
herein as the "Parties" and sometimes individually referred to as a "Party."
WITNESSETH:
----------
In consideration of the mutual agreements contained in this Agreement,
Buyer and Seller agree as follows:
1. SALE AND PURCHASE OF THE ASSETS.
-------------------------------
1.1 Acquired Assets. Subject to the terms and conditions of this
---------------
Agreement, Seller agrees to sell, convey and deliver to Buyer and
Buyer agrees to purchase and acquire from Seller all of Seller's
right, title and interest in and to the following (collectively, the
"Assets"):
(A) All of Seller's oil and gas and associated hydrocarbons ("Oil and
Gas") and related rights, titles and interests, including, but
not limited to, leasehold interests, royalty interests,
overriding royalty interests, payments out of production,
reversionary rights, and contractual rights to production in and
to (i) those interests described in the leases, subleases,
assignments and other instruments described in Exhibit 1.1(A)
(collectively "Leases"); (ii) those wells described in Exhibit
1.1(A) (the "Wells"); (iii) all easements, rights of way,
platform leases, and other rights, privileges, benefits and
powers with respect to the use and occupation of the surface of,
and the subsurface depths under, the land covered by the Leases;
(iv) all rights in respect of any pooled or unitized acreage
located in whole or in part within each Lease, including all
production from the pool or unit allocated to any such Lease and
all interests in any wells within the unit or pool associated
with such Lease, regardless of whether such unit or pool
production comes from wells located within or without the Leases;
(B) All licenses, servitudes, gas purchase and sale contracts
(including interests and rights, if any, with respect to any
prepayments, take-or-pay, buydown and buyout agreements), crude
purchase and sale agreements, farmin agreements, farmout
agreements, bottom hole agreements, acreage contribution
agreements, operating agreements, unit agreements, processing
agreements, options, leases of equipment or facilities, joint
venture
1
<PAGE>
agreements, pooling agreements, transportation agreements,
rights-of-way and other contracts, agreements and rights, which
are owned by Seller, in whole or in part, and are (i) appurtenant
to the Leases, or (ii) used or held for use in connection with
the ownership or operation of the Leases, or the sale,
distribution or disposal of oil and gas or water, (collectively,
the "Contracts");
(C) All of the real, personal and mixed property and facilities
located in, on or adjacent to the Leases or used in the operation
thereof (whether located on or off such Leases), which is owned
by Seller, in whole or in part, including, without limitation,
platforms, well equipment; casing; tanks; crude oil, natural gas,
condensate or products in storage severed after the Effective
Time; tubing; compressors; pumps; motors; fixtures; machinery and
other equipment; pipelines; field processing equipment; inventory
and all other improvements used or useful in the operation
thereof (the "Related Assets");
(D) All governmental permits, licenses and authorizations including
environmental permits, licenses and authorizations, as well as
any applications for the same, related to the Leases or the use
thereof;
(E) All of the files, records and data relating to the items
described in subsections (A), (B), (C), and (D) above, including,
without limitation, title records (title curative documents);
surveys, maps and drawings; contracts; correspondence; Federal
Energy Regulation Commission files; microfiche lists; geological,
geophysical and seismic records, data and information; production
records, electric logs, core data, pressure data, decline curves,
graphical production curves and all related matters and
construction documents (except to the extent the delivery or
copying of such records may be restricted by contract with a
third party, in which event Seller shall cooperate with Buyer in
efforts to provide on site access to such records until a release
from such restriction may be obtained) (the "Records");
(F) Any and all other assets of Seller appurtenant or related to or
used or useful in connection with the Leases; and
1.2 Records. Seller shall have the right to make and retain copies of
-------
the Records as Seller may desire prior to the delivery of the Records
to Buyer. Buyer, for a period of seven years after the Closing,
defined below, shall make available to Seller (at the location of such
Records in Buyer's organization) access to such copies of the Records
as Buyer may have in its possession (or to which it may have access)
upon written request of Seller, during normal business hours;
provided,
2
<PAGE>
however, that Buyer shall not be liable to Seller for the loss of any
Records by reason of clerical error or inadvertent loss or destruction
of Records.
1.3 Excluded and Reserved Assets. Seller reserves unto itself and hereby
----------------------------
deeds and reserves from its sale the Assets described on Exhibit 1.3
hereto.
2. PURCHASE PRICE.
--------------
2.1 Purchase Price. The purchase price for the Assets is Sixty-four
--------------
Million Fifty Thousand Dollars ($64,050,000.00), subject to the
adjustments provided for herein (the "Purchase Price").
2.2 Payment. The Purchase Price shall be paid by Buyer to Seller, by
-------
wire transfer of readily available funds on the Closing Date
(hereinafter defined).
2.3 Allocation. The Purchase Price shall be allocated to the Assets in
----------
accordance with the Exhibit set forth in Exhibit 2.3. Buyer and Seller
covenant and agree that the values allocated to various portions of
the Assets, which are set forth on Exhibit 2.3 (singularly with
respect to each item, the "Allocated Value" and, collectively, the
"Allocated Values"), shall be binding on Buyer and Seller for purposes
of adjusting the Purchase Price pursuant to Section 7.6 hereof
(relating to Title Failures).
2.4 IRC Section 1060. The Purchase Price, as adjusted, shall be allocated
----------------
among the Properties as provided in Section 1060 of the Internal
Revenue Code of 1986, as amended, (the "Code"); provided, however,
Buyer and Seller hereby agree that all Properties are Class III assets
as defined in 26 CFR Section 1.1060-1T(d)(2)(iii). To the extent
required by the Code or the regulations thereunder, Buyer and Seller
shall each file a Form 8594 (Asset Acquisition Statement Under Section
1060) on a timely basis, reporting the allocation of the Adjusted
Purchase Price among the Assets consistent with this Section. To the
extent required by the Code or the regulations thereunder, Buyer and
Seller shall file, on a timely basis, any amendments required to such
Form 8594. Buyer and Seller shall not take any position on their
respective income tax returns that is inconsistent with the allocation
of the Purchase Price, as adjusted, among the Properties.
3. EFFECTIVE TIME AND CLOSING DATE.
-------------------------------
3.1 Closing. Subject to Conditions Precedent set forth at Articles 12
-------
and 13 and any termination pursuant to Article 14 or Section 15.1, the
sale and purchase of the Assets ("Closing") shall be held on, or if
reasonably possible before May 18, 1999 ("Closing Date"). The Closing
will take place at the offices of Seller in Houston or at such other
place as mutually agreed upon by Seller and Buyer.
3
<PAGE>
3.2 Effective Time. The sale shall be effective as of 7:00 A.M., local
--------------
time of the location of the Assets on March 1, 1999 ("Effective
Time").
3.3 Ownership Prior to Effective Time. Seller shall be entitled to all
---------------------------------
of the rights and incidents of ownership generated from or
attributable to the Assets prior to the Effective Time, including the
right to all Oil and Gas produced from or attributable to the Assets
prior to the Effective Time. Seller shall bear and be responsible for
the duties, liabilities, costs, expenses and obligations of ownership
attributable to ordinary operation of the Assets prior to the
Effective Time, except as may be otherwise provided herein, including,
but not limited to, the indemnification provided for in Article 4.
3.4 Ownership After Effective Time. Buyer shall be entitled to all of
------------------------------
the rights and incidents of ownership generated from or attributable
to the Assets after the Effective Time, including the right to all Oil
and Gas thereafter produced from or attributable to the Assets after
the Effective Time. Buyer shall bear and be responsible for the
duties, liabilities, costs, expenses and obligations of ownership
attributable to ordinary operation of the Assets from and after the
Effective Time, except as may be otherwise provided herein, including,
but not limited to, the indemnification provided for in Article 4.
4. INDEMNIFICATION.
---------------
4.1 Seller's Indemnification. SELLER AGREES TO DEFEND, INDEMNIFY AND
------------------------
HOLD BUYER HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS,
LOSSES, DAMAGES, LIABILITIES, JUDGMENTS, CAUSES OF ACTION, REASONABLE
COSTS OR EXPENSES (INCLUDING, WITHOUT LIMITATION, ANY AND ALL
REASONABLE COSTS, EXPENSES, ATTORNEYS' FEES, CONSEQUENTIAL DAMAGES
AND OTHER COSTS INCURRED IN DEFENSE OF ANY CLAIM OR LAWSUIT ARISING
THEREFROM), OF WHATSOEVER NATURE ARISING OUT OF OR RELATING TO THIRD
PARTY CLAIMS OR SUITS AND SELLER'S OWNERSHIP, OPERATION OR
ADMINISTRATION OF THE ASSETS ON OR PRIOR TO THE CLOSING DATE, IN
REGARD TO THE FOLLOWING MATTERS ONLY, (I) DAMAGES TO PERSONS OR
PROPERTY, (II) FINES, PENALTIES, MONETARY SANCTIONS OR OTHER AMOUNTS
PAYABLE FOR FAILURE TO COMPLY WITH THE REQUIREMENTS OF APPLICABLE
ENVIRONMENTAL LAWS, SAFETY OR HEALTH LAW (WHETHER FEDERAL, STATE OR
LOCAL), (III) THE VIOLATION BY SELLER OF ANY LAW OR REGULATION OR THE
TERMS OF ANY AGREEMENT BINDING UPON THE SELLER, (IV) CLAIMS OF
SELLER'S CO-OWNERS, PARTNERS, JOINT VENTURERS AND OTHER PARTICIPANTS,
(V) CLAIMS ARISING OUT OF ANY TAX
4
<PAGE>
AUDITS, (VI) THE INCORRECT PAYMENT OF RENTALS OR OTHER PAYMENTS
UNDER THE LEASES, (VII) FINES, PENALTIES, MONITARY SANCTIONS OR
OTHER AMOUNTS PAYABLE FOR FAILURE TO COMPLY WITH ANY SECURITIES LAW
(WHETHER FEDERAL, STATE OR LOCAL) AND (VIII) THE INCORRECT PAYMENT
OF ROYALTY PAYMENTS UNDER THE LEASES EXCEPT IN EACH CASE FOR THOSE
ARISING OUT OF BUYER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
4.2 Buyer's Indemnification. BUYER AGREES TO DEFEND, INDEMNIFY AND HOLD
-----------------------
SELLER HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS,
LOSSES, DAMAGES, LIABILITIES, JUDGMENTS, CAUSES OF ACTION,
REASONABLE COSTS OR EXPENSES (INCLUDING, WITHOUT LIMITATION, ANY AND
ALL REASONABLE COSTS, EXPENSES, ATTORNEYS' FEES, CONSEQUENTIAL
DAMAGES AND OTHER COSTS INCURRED IN DEFENSE OF ANY CLAIM OR LAWSUIT
ARISING THEREFROM), OF WHATSOEVER NATURE ARISING OUT OF OR RELATING
TO BUYER'S OWNERSHIP, OPERATION OR ADMINISTRATION OF THE ASSETS
AFTER THE CLOSING DATE, INCLUDING, WITHOUT LIMITATION, (I) DAMAGES
TO PERSONS OR PROPERTY, (II) FINES, PENALTIES, MONETARY SANCTIONS OR
OTHER AMOUNTS PAYABLE FOR FAILURE TO COMPLY WITH THE REQUIREMENTS OF
APPLICABLE ENVIRONMENTAL LAWS, SECURITIES, SAFETY OR HEALTH LAW
(WHETHER FEDERAL, STATE OR LOCAL), (III) THE VIOLATION BY BUYER OF
ANY LAW OR REGULATION OR THE TERMS OF ANY AGREEMENT BINDING UPON THE
BUYER, (IV) CLAIMS OF BUYER'S CO-OWNERS, JOINT VENTURERS AND OTHER
PARTICIPANTS, (V) CLAIMS ARISING OUT OF ANY TAX AUDITS, EXCEPT IN
EACH CASE FOR THOSE ARISING OUT OF SELLER'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
4.3 Notification. As soon as reasonably practical after obtaining
------------
knowledge thereof, the indemnified Party shall notify the
indemnifying Party of any claim or demand which the indemnified
Party has determined has given or could give rise to a claim for
indemnification under this Article 4. Such notice shall specify the
agreement, representation or warranty with respect to which the
claim is made, the facts giving rise to the claim and the alleged
basis for the claim, and the amount (to the extent then
determinable) of liability for which indemnity is asserted. In the
event any action, suit or proceeding is brought with respect to
which a Party may be liable under this Article 4, the defense of the
action, suit or proceeding (including all settlement negotiations
and arbitration, trial, appeal, or other proceeding) shall be at the
discretion of and conducted by the indemnifying Party. If an
indemnified
5
<PAGE>
Party shall settle any such action, suit or proceeding without the
written consent of the indemnifying Party (which consent shall not be
unreasonably withheld), the right of the indemnified Party to make any
claim against the indemnifying Party on account of such settlement
shall be deemed conclusively denied. An indemnified Party shall have
the right to be represented by its own counsel at its own expense in
any such action, suit or proceeding, and if an indemnified Party is
named as the defendant in any action, suit or proceeding, it shall be
entitled to have its own counsel and defend such action, suit or
proceeding with respect to itself at its own expense. Subject to the
foregoing provisions of this Article 4, neither Party shall, without
the other Party's written consent, settle, compromise, confess
judgment or permit judgment by default in any action, suit or
proceeding if such action would create or attach liability or
obligation to the other Party. The Parties agree to make available to
each other, and to their respective counsel and accountants, all
information and documents reasonably available to them which relate to
any action, suit or proceeding, and the Parties agree to render to
each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such
action, suit or proceeding.
4.4 Environmental Laws. "Environmental Laws" means all applicable local,
------------------
state, and federal laws, rules, regulations, and orders regulating or
otherwise pertaining to (a) the use, generation, migration, storage,
removal, treatment, remedy, discharge, release, transportation,
disposal, or cleanup of pollutants, contamination, hazardous wastes,
hazardous substances, hazardous materials, toxic substances or toxic
pollutants, (b) surface waters, ground waters, ambient air and any
other environmental medium on or off any Lease or (c) the environment
or health and safety-related matters; including the following as from
time to time amended and all others whether similar or dissimilar: the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by the Superfund Amendments and Preauthorization
Act of 1986, the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984, the Hazardous Materials Transportation Act, as
amended, the Toxic Substance Control Act, as amended, the Clean Air
Act, as amended, the Clean Water Act, as amended, and all regulations
promulgated pursuant thereto.
4.5 Indemnity Limit. Seller and Titan Exploration, Inc.'s liability under
---------------
the indemnities set forth herein, and for the breach of any
representation or warranty contained herein, shall not exceed, and
shall be limited to Twenty Million Dollars ($20,000,000.00), in the
aggregate. In determining if the limit has been achieved, the
liabilities of both Seller and Titan Exploration, Inc. shall be
combined.
6
<PAGE>
5. CLOSING.
-------
5.1 Delivery by Seller. At Closing, Seller shall deliver to Buyer, in
------------------
the form attached hereto as Exhibit 5.1, an Assignment and Bill of
Sale effecting the sale, transfer, conveyance and assignment of the
Assets.
5.2 Delivery by Buyer. At Closing, Buyer shall deliver to Seller the
-----------------
Purchase Price, as adjusted.
5.3 Further Cooperation. At the Closing and thereafter as may be
-------------------
necessary, Seller and Buyer shall execute and deliver such other
instruments and documents and take such other actions as may be
reasonably necessary to evidence and effectuate the transactions
contemplated by this Agreement.
6. ACCOUNTING ADJUSTMENTS.
----------------------
6.1 Closing Adjustments. With respect to matters that can be determined
-------------------
as of the Closing, Seller shall prepare, in accordance with the
provisions of this Article 6, a statement (the "Closing Adjustment
Statement") with relevant supporting information setting forth each
adjustment to the Purchase Price submitted by Seller. Seller shall
submit the Closing Adjustment Statement to Buyer, together with all
records or data supporting the calculation of amounts presented on the
Closing Adjustment Statement, no later than five (5) business days
prior to the scheduled Closing Date. Prior to the Closing, Buyer and
Seller will review the adjustments proposed by Seller in the Closing
Adjustment Statement. Agreed upon adjustments shall be taken into
account in computing any adjustments to be made to the Purchase Price
at the Closing.
6.2 Strapping and Gauging. Seller shall have caused the Oil and Gas in
---------------------
the storage facilities located on, or utilized in connection with, the
Leases to be measured, gauged or strapped as of the Effective Time.
Seller shall have caused the production meter charts (or if such do
not exist, the sales meter charts) on the pipelines transporting Oil
and Gas from the Leases to be read as of such time. The Oil and Gas in
such storage facilities above the pipeline connection or through the
meters on the pipelines as of the Effective Time shall belong to
Seller, and the Oil and Gas placed in such storage facilities after
the Effective Time and production upstream of the aforesaid meters
shall belong to Buyer and become part of the Assets.
6.3 Taxes. Ad valorem, property or similar taxes shall be prorated
-----
between Buyer and Seller, using the Effective Time as the applicable
proration date, and the Purchase Price shall be adjusted accordingly.
The proration shall be based upon ad valorem, property or similar
taxes assessed against the Assets for the most recent year.
7
<PAGE>
6.4 Adjustments to Purchase Price. At Closing, appropriate adjustments
-----------------------------
to the Purchase Price will be made as follows:
(A) The Purchase Price shall be adjusted upward by:
(i) any amounts determined to be due Seller pursuant to
Sections 6.2 and 6.3 hereof;
(ii) an amount equal to the direct costs and expenses necessary
to operate and maintain the Assets paid by Seller in
accordance with this Agreement that are attributable to the
Assets for the period from the Effective Time to the Closing
Date;
(iii) all amounts due or the market value of Oil and Gas owed to
Seller by third parties as of the Effective Time under the
Contracts with respect to any imbalances existing at the
Effective Time, such value to be determined by Seller and
Buyer, including any severance taxes and royalties paid
thereon, as of the Effective Time;
(iv) $250,000.00 per month for administration and operation of
the Assets, not including, however, direct costs which are
provided for in (ii) above, prorated on a basis of 30 days
to a month for each day between the Effective Time and May
18, 1999; and
(v) any other amount agreed upon in writing by Seller and Buyer.
(B) The Purchase Price shall be adjusted downward by:
(i) any amounts determined to be due Buyer pursuant to Sections
6.2 and 6.3 hereof; and
(ii) an amount equal to the amount of proceeds derived from the
sale of Oil and Gas, net of royalties and severance taxes
paid by Seller, received by Seller and attributable to the
Wells which are, in accordance with generally accepted
accounting procedures, attributable to the period of time
after the Effective Time; and
(iii) all amounts due or the market value of Oil and Gas owed by
Seller to third parties as of the Effective Time under the
Contracts with respect to any imbalances existing at the
Effective Time, such value to be determined by Seller and
Buyer, including any severance taxes and royalties paid
thereon, as of the Effective Time; and
8
<PAGE>
(iv) an amount equal to all expenditures, liabilities and costs
relating to the Assets (including, without limitation, all
ad valorem, property, production, severance and similar
taxes) that are unpaid as of the Closing Date and assessed
for or attributable to periods of time prior to the
Effective Time regardless of how such taxes, expenditures,
liabilities and costs are calculated provided that to the
extent the actual amounts cannot be determined prior to the
agreement of Buyer and Seller with respect to the Closing
Adjustment Statement, a reasonable estimate of such taxes,
expenditures, liabilities and costs shall be used;
(v) an amount equal to $1.65 per MMbtu times the amount of
overbalanced MMbtu's in satisfaction and settlement of the
gas imbalances reflected on Exhibit 8.1(S); and
(vi) any other amount agreed upon in writing by Seller and
Buyer.
6.5 Actual Figures. When available, actual figures will be used for the
--------------
adjustments at Closing. To the extent actual figures are not
available, estimates will be used subject to final adjustments as
described in Section 6.6 below.
6.6 Post-Closing Adjustments. A post-closing adjustment statement (the
------------------------
"Post-Closing Adjustment Statement") based on the actual income and
expenses shall be prepared and delivered by Seller to Buyer within
one hundred twenty (120) days after the Closing, proposing further
adjustments to the Purchase Price based on the information then
available. Seller or Buyer, as the case may be, shall be given
access to and shall be entitled to review and audit the other
Party's records pertaining to the computation of amounts claimed in
such Post-Closing Adjustment Statement. Within sixty (60) days after
receipt of the Post-Closing Adjustment Statement, the Parties hereto
will use their best efforts to agree upon the proposed adjustments
and the Seller or Buyer, as the case may be, shall pay to the other
such sums as may be agreed to be due. Additional adjustments shall
be made from time to time as required to settle accounts between the
Parties.
7. DUE DILIGENCE; TITLE MATTERS.
----------------------------
7.1 General Access. Prior to Closing, Seller will:
--------------
(A) Give Buyer and its representatives, employees, consultants,
independent contractors, attorneys and other advisors full access
to the Assets at any reasonable time for any and all inspections
and investigations, including, but not limited to, platform
inspections and investigations for environmental and other
matters;
9
<PAGE>
(B) Use its best efforts to obtain and make available to Buyer or its
representatives as promptly as practicable, copies of such
documents as Buyer may reasonably request; and
(C) Make available to Buyer all other information with respect to the
Assets as Buyer may from time to time reasonably request, unless
Seller is prohibited therefrom by any agreement or contract by
which it is bound or by the necessity of any third party
approval; provided that, if requested by Buyer, Seller shall use
its commercially reasonable efforts to promptly obtain the waiver
of any such prohibition;
7.2 Covenants Relating to Title. From and after the Effective Time,
---------------------------
Seller covenants and agrees to:
(A) Obtain, with Buyer's cooperation, all consents, approvals,
waivers (including preferential rights) and agreements of all
other parties and governmental authorities (other than approvals
of the assignment of the Leases which must be obtained after the
Closing) which are necessary to effect the transactions provided
for herein, including the assignment and transfer to Buyer of the
ownership of the Assets; and
(B) Make all filings which must be made and record all instruments
that may be recorded to accurately reflect Seller's current
interests in the Assets.
7.3 Seller's Title.
--------------
(A) For the exclusive purpose of computing adjustments to the
Purchase Price for Title Failures under Section 7.6, Seller
hereby warrants and represents to Buyer that Seller's title to
the Assets as of the Effective Time will be good and marketable,
as defined in Section 7.4; and
(B) In the documents to be executed and delivered by Seller to Buyer
transferring title to the Assets, Seller shall warrant and defend
the Assets unto Buyer against every person lawfully claiming the
Assets or any part thereof, by, through or under Seller, but not
otherwise. However, all of Seller's interest in equipment and
personal property are to be sold AS IS AND WHERE IS AND WITHOUT
WARRANTY OF MERCHANTABILITY, CONDITION OR FITNESS FOR A
PARTICULAR PURPOSE, EITHER EXPRESS OR IMPLIED.
7.4 Good and Marketable Title. As used herein the term "good and
-------------------------
marketable title" shall mean:
10
<PAGE>
(A) As to each of the Leases and Wells, that record title of Seller
which:
(i) entitles Seller to receive from each Lease or Well not less
than the interests shown in Exhibit 1.1(A) as the "Net
Revenue Interest" of all Oil and Gas produced, saved and
marketed from each Lease and Well and of all Oil and Gas
produced, saved and marketed from any unit of which each
Lease or Well is a part and allocated to such Lease or Well,
all without reduction, suspension or termination of the
interests in each Lease or Well throughout the duration of
such Lease or the Lease upon which such Well is located,
except as stated in such Exhibit; and
(ii) obligates Seller to bear a percentage of the costs and
expenses relating to the maintenance and development of, and
operations relating to, the Leases and Wells not greater
than the "Working Interest" shown in Exhibit 1.1(A), all
without increase of the interests in each Lease and Well
throughout the duration of such Lease and Well, except as
stated in such Exhibit.
(B) That title of Seller to the Assets which:
(i) at or prior to Closing, is free and clear (except for
Permitted Encumbrances as defined in subsection (ii) below)
of liens and encumbrances and (a) with respect to real
property interests to be transferred to Buyer, real property
interests are of record in the relevant counties and
governmental offices; and (b) with respect to any Asset
subject to preferential rights, such rights have been waived
and consents obtained from all third parties, and
(ii) as used herein the term "Permitted Encumbrances" means those
encumbrances and obligations which Buyer finds would be
acceptable to a reasonable, prudent owner and operator of
the Assets and shall not include defects that materially
interfere with or significantly restrict Buyer's right to
use, operate, own or benefit from the Assets as owner,
holder, lessee, licensee or permittee.
7.5 Defect Letters.
--------------
(A) Buyer may from time to time on or before two (2) business days
prior to Closing, notify Seller in writing (a "Notice") of any
liens, charges, contracts, agreements obligations, encumbrances,
defects and irregularities of title which would cause title to
all or part of the Assets not to be good and marketable as
defined in Section 7.4 hereof, or which would cause a
11
<PAGE>
breach of a representation or warranty of Seller ("Title
Defect"). Such Notice shall contain information, descriptions and
supporting documents necessary to identify any Title Defect and
the steps Buyer deems necessary to cure any such Title Defect.
(B) A Title Defect, as set forth in a Notice which is given to Seller
on or before two (2) business days prior to Closing, and is not
cured to Buyer's reasonable satisfaction on or before the Closing
unless the time for cure is extended in writing by Seller, shall
be a "Title Failure," unless waived by Buyer. Any Title Defect
waived by Buyer under this Section or which is not identified by
a Notice on or before two (2) business days prior to Closing,
shall become a Permitted Encumbrance as defined in Section
7.4(B)(ii). Seller agrees that it will take commercially
reasonable steps to cure all Title Defects.
(C) With respect to any condition set forth in Section 7.2 which is
not met (and which is asserted by Buyer as a failure of one of
its conditions of Closing), and for which the reasons why such
condition is not met relate to some, but less than all, of the
Assets, Seller may require that such failure of such condition to
be met be treated as a Title Defect and handled in accordance
with the process set forth in this Section, and, if Seller so
requires such handling, such condition will be considered met if
cured as permitted hereby.
(D) Seller may extend Closing for up to thirty (30) days in order to
attempt to cure a Title Defect under this Section.
7.6 Effect of Title Failure. In the event of a Title Failure pursuant
-----------------------
to Section 7.5, the Buyer shall have the right to not accept the
Asset(s) to which such Title Failure relates and to an adjustment of
the Purchase Price in the amount of the Allocated Value(s) of the
same. Buyer's acceptance of any Asset at Closing shall constitute a
waiver of all claims which could constitute a Title Defect to such
Asset or render Seller's title other than good and marketable to such
Asset, except as same may be covered by the Special Warranty contained
in the Assignment and Bill of Sale attached as Exhibit 5.1. After
Closing, Buyer's sole and exclusive remedy for any failure of Seller's
title to be good and marketable or the existence of a Title Defect
shall be a claim as provided by the provisions of the Assignment and
Bill of Sale. Buyer shall not be liable for any portion of the cost of
any title curative performed by Seller.
12
<PAGE>
8. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
8.1 Seller's Representations and Warranties. Seller represents and
---------------------------------------
warrants that as of the date hereof, and as of the Closing:
(A) Seller is a limited partnership, duly organized and validly
existing under the laws of the State of Texas and is duly
qualified to do business and is in good standing with the
governmental agencies having jurisdiction over the Assets;
(B) Seller has the requisite power and authority to enter into this
Agreement, to carry out the transactions contemplated hereby, to
transfer the Assets in the manner contemplated by this Agreement,
and to undertake all of the obligations of Seller set forth in
this Agreement;
(C) This Agreement and any documents or instruments delivered by
Seller at the Closing shall constitute legal, valid and binding
obligations of Seller, enforceable in accordance with their
terms;
(D) Seller has good and marketable title to the Related Assets and to
the best of Seller's knowledge, the copies of the Leases provided
to Buyer are true, correct and complete and Seller is not in
material default under any of the Lease(s) to cause them not to
be in full force and effect;
(E) To the best of Seller's knowledge, the production data and
computer printouts or other data or documentation furnished by
Seller to Buyer, and any supplement thereto, is complete and the
information reported therein is correct, in all material
respects, as of the date of such delivery, except that no
representation or warranty is made as to interpretive data
included therein or derived therefrom. From the date of this
Agreement until the Closing Date, should Seller become aware of
any material change in the matters reflected in such data and
documentation theretofore furnished by Seller to Buyer, Seller
shall promptly notify Buyer of such change;
(F) Except for the firm of Petrie Parkman & Co., Seller has incurred
no obligation or liability, contingent or otherwise, for brokers'
or finders' fees in respect of the matters provided for in this
Agreement, and, any such obligation or liability that exists
shall remain an obligation of Seller, and Buyer shall have no
responsibility therefor;
(G) To the best of Seller's knowledge, with respect to the Oil and
Gas and Leases and Contracts: (i) Seller has fulfilled all
material requirements for filings, certificates, disclosures of
parties in interest, and other similar
13
<PAGE>
matters contained in (or otherwise applicable thereto by law,
rule or regulation) the Leases and Contracts in all material
respects and is fully qualified to own and hold the Assets; (ii)
there are no express obligations to engage in continuous
development operations in order to maintain any Lease; (iii)
there are no provisions applicable to such Leases or other
documents which increase the royalty share of the lessor
thereunder except as such increases are reflected in the Leases;
and (iv) each of the foregoing are valid and subsisting and all
rental payments, royalty payments, shut-in payments, or other
payments or commitments required thereunder have been made and
are current to date, and no material default exists with regard
thereto;
(H) With respect to the joint, unit or other operating agreements
relating to the Assets, to the best of Seller's knowledge: (i)
there are no outstanding calls or payments under authorities for
expenditures for payments which are due or which Seller has
committed to make which have not been made; (ii) Seller has
informed Buyer of the status of all operations by less than all
parties; and (iii) there are no operations under the operating
agreements with respect to which Seller has become a non-
consenting party;
(I) Seller has not entered into any contracts for or received
prepayments, take-or-pay arrangements, buydowns, buyouts for Oil
and Gas, storage of the same, or other balancing arrangements
which Buyer will be obligated to honor and make deliveries of Oil
and Gas or refunds of amounts previously made under such
contracts or arrangements;
(J) To the best of Seller's knowledge, (i) all of the Wells have been
drilled and completed at legal locations within the boundaries of
the appropriate Lease and (ii) all drilling and completion of the
Wells and all development and operations of the Assets have been
conducted in all material respects in compliance with all
applicable laws, ordinances, rules, regulations, permits, and
judgments, orders and decrees of any court or governmental body
or agency, including but not limited to Environmental Laws. To
the best of Seller's knowledge, no Well is subject to penalties
on allowables after the date hereof because of any overproduction
or violation of applicable laws, rules, regulations, permits or
judgments, orders or decrees of any court or governmental body or
agency which would prevent such Well from being entitled to its
full legal and regular allowance from and after the date hereof
as prescribed by any court or governmental body or agency;
(K) To the best of Seller's knowledge, all personal property and
fixtures to be conveyed pursuant to this Agreement, including,
but not limited to, the
14
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Related Assets, have been maintained in all respects in a state of
repair so as to be adequate for normal operations and are in all
respects in good working order, ordinary wear and tear excepted;
(L) Except for the litigation styled South Dauphin II, Limited Partnership
v. M-I Drilling Fluids, LLC, 98-12265, 189th Judicial District Court,
Harris County, Texas, the benefits and obligations of which will be
retained by Seller, there is no suit, or, to the best of Seller's
knowledge, action, claim, investigation or inquiry pending or
threatened arising out of or with respect to the ownership, operation
or environmental condition of the Assets.
(M) Seller is not aware of any facts relating to the condition of the
Assets which may result in a suit, action, claim, investigation or
inquiry with respect to Environmental Laws or regulations or other
legal requirements thereunder. To the best of Seller's knowledge, the
Assets have not been used by Seller to generate, treat, transport or
dispose of any hazardous wastes, hazardous substances or any
contaminant in violation of any Environmental Law;
(N) To the best of Seller's knowledge (i) Seller has acquired all permits,
licenses, approvals and consents from appropriate governmental bodies,
authorities and agencies necessary to conduct operations on the Assets
in material compliance with all applicable laws, rules, regulations,
ordinances and orders; (ii) Seller is in compliance with all such
permits, licenses, approvals and consents and with all applicable
Environmental Laws, in all material respects; and (iii) all plans,
applications, reports, certificates and other instruments filed with
or furnished to any governmental body, authority or agency do not (1)
contain any materially untrue statement of fact or (2) omit any
statement of fact necessary to make the statements therein not
materially misleading. There are no proceedings pending, and to
Seller's knowledge, threatened, challenging, or seeking revocation or
limitation of any such permits, licenses, approvals and consents;
(O) Except as set forth on Exhibit 8.1(O), to Seller's knowledge, no
person shall have any call upon, option to purchase, or similar rights
with respect to any portion of the production from the Leases;
(P) To Seller's knowledge, none of the statements, representations or
warranties made by Seller in this Agreement or in any Exhibit
delivered pursuant to this Agreement contains any untrue statements of
any fact or fails to disclose any fact necessary to be disclosed in
order to make the statements, representations or warranties contained
herein or therein not misleading. Seller has no knowledge of any
matter which materially and adversely affects the operations,
prospects or condition of any of the Assets
15
<PAGE>
which is not already public knowledge or which has not been disclosed
to Buyer;
(Q) Except for immaterial obligations incurred by Seller in normal day-to-
day operations of the Assets, there are no borrowings, loan
agreements, promissory notes, pledges, mortgages, guaranties, liens
and similar liabilities (direct and indirect) which are secured by or
constitute an encumbrance on the Assets;
(R) Except as set forth on Exhibit 8.1(R), there are no preferential
rights providing a third party the option to purchase any of the
Assets;
(S) To the best of Seller's knowledge, the gas imbalances reflected on
Exhibit 8.1(S) are true and correct; and
(T) Titan Exploration, Inc. is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware, and has
requisite power and authority to provide the guaranty undertakings as
provided at the end of this Agreement.
8.2 Disclaimers. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
-----------
CONTAINED IN SECTION 8.1 ABOVE AND IN THE ASSIGNMENT AND BILL OF SALE
ATTACHED HERETO AS EXHIBIT 5.1 ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
AND SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND
WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING AND SUBJECT TO THE
WARRANTIES SET FORTH IN SECTION 8.1 OR IN THE ASSIGNMENT AND BILL OF SALE
ATTACHED HERETO AS EXHIBIT 5.1, THE PROPERTIES SHALL BE CONVEYED PURSUANT
HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, RELATING TO TITLE TO THE PROPERTIES OR RELATING TO
THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE,
CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY
EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE
IN THE FIRST SENTENCE OF THIS PARAGRAPH AND IN THE ASSIGNMENT AND BILL OF
SALE ATTACHED HERETO AS EXHIBIT 5.1, WITHOUT ANY OTHER EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE
INSPECTED, OR WAIVED (AND UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS
RIGHT TO INSPECT, THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS
TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE,
INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE
PRESENCE,
16
<PAGE>
RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS
AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE
MATERIALS ("NORM"). BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF
THE PROPERTIES, AND BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR "AS
IS", "WHERE IS" CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING,
EXCEPT AS PROVIDED OTHERWISE HEREIN, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE
ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR
MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING,
WITHOUT LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR
QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE
PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE
HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY
OTHER MATTERS CONTAINED IN ANY MATERIALS FURNISHED OR MADE AVAILABLE
TO BUYER BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES. ANY AND
ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE
AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED BUYER AS A CONVENIENCE
AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST
SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE
RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
8.3 Definition of "Seller's Knowledge. Whenever the words "to the best
---------------------------------
of Seller's knowledge," "aware" or words of similar import are used,
such words shall mean to the common knowledge of any of the
individuals who are, or were, as of the Effective time and as of the
Closing Date, Directors, Officers, or hold the title of "Manager" of
Seller or Titan Exploration, Inc.
9. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
9.1 Buyer's Representations and Warranties. Buyer represents and
--------------------------------------
warrants that at the date hereof and at Closing:
(A) Buyer is a limited partnership, duly organized and validly
existing under the laws of the State of Delaware;
(B) Buyer has the requisite power and authority to enter into this
Agreement, to carry out the transactions contemplated hereby and
to undertake all of the obligations of Buyer set out in this
Agreement;
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(C) The consummation of the transactions contemplated by this
Agreement will not in any respect violate, nor be in conflict
with, any provision of Buyer's charter, by-laws or other
governing documents, or any agreement or instrument to which
Buyer is a party or is bound, or any judgment, decree, order,
statute, rule or regulation applicable to Buyer (subject to
governmental consents and approvals customarily obtained after
the Closing);
(D) This Agreement constitutes legal, valid and binding obligations
of Buyer, enforceable in accordance with its terms;
(E) Buyer has incurred no obligation or liability, contingent or
otherwise, for brokers' or finders' fees in respect of the
matters provided for in this Agreement, and, if any such
obligation or liability exists, it shall remain an obligation of
Buyer, and Seller shall have no responsibility therefor; and
(F) There is no suit, action, claim, investigation, administrative
proceeding or inquiry by any person, entity, administrative
agency or governmental body pending or, to Buyer's best
knowledge, threatened against Buyer or any affiliate of Buyer
which has or will affect Buyer's ability to consummate the
transactions contemplated herein.
10. CERTAIN AGREEMENTS OF SELLER. Seller agrees and covenants that, unless
----------------------------
Buyer shall have otherwise agreed in writing, the following provisions
shall apply:
10.1 Maintenance of Assets. From the Effective Time until Closing,
---------------------
Seller agrees that it will:
(A) Administer and operate the Assets in good and workmanlike manner,
and conduct its business and operations in a prudent manner, and
in substantially the same manner as prior to the date of this
Agreement but shall have no obligation to make any unusual
expense in regard to the Assets for which Seller would not
receive reimbursement from Buyer pursuant to (E) below;
(B) Not introduce any new methods of management, operation or
accounting with respect to any or all of the Assets;
(C) Subject to 15.1 hereof, maintain and keep the Assets in good
condition and working order; preserve the Assets in full force
and effect; and fulfill all material contractual or other
material covenants, obligations and conditions imposed upon
Seller with respect to the Assets, including, but not limited,
18
<PAGE>
to payment of royalties, delay rentals, shut-in gas royalties and
any and all other required payments;
(D) Operate or cause to be operated the Wells in accordance with
generally accepted oil field practices and standards but shall
have no obligation to rework a Well or otherwise restore
production of any Well which has ceased to produce;
(E) Not enter into agreements to drill new wells or to rework, plug
back, deepen, plug or abandon any Well, nor commence any
drilling, reworking or completing or other operations on the
Leases which requires an authority for expenditure (AFE) to be
issued under the terms of the operating agreement covering such
operations or make or authorize any expenditures for such
operations (except for emergency operations and operations
required under presently existing contractual obligations)
without obtaining the prior written consent of Buyer; provided
that the terms of this paragraph (E) shall not apply to any
expenditures of Seller which will not be charged to Buyer;
(F) Not voluntarily relinquish its position as operator to anyone
other than Buyer with respect to any of the Assets or abandon any
of the Assets;
(G) Not, without the prior written consent of Buyer, (i) enter into
any agreement or arrangement transferring, selling or encumbering
any of the Assets; (ii) grant any preferential or other right to
purchase or agree to require the consent of any party to the
transfer and assignment of the Assets to Buyer; (iii) enter into
any new sales contracts or supply contracts for deliveries of
production in excess of 30 days; or (iv) incur or agree to incur
any contractual obligation or liability (absolute or contingent)
with respect to the Assets except as otherwise provided herein;
and
(H) Promptly provide Buyer with written notice of (i) any claims,
demands, suits or actions made against Seller which affect the
Assets; or (ii) any proposal from a third party to engage in any
transaction (e.g., a farmout) with respect to the Assets.
10.2 Consents. By Closing, Seller shall use reasonable efforts, with
--------
cooperation of Buyer, to obtain all such permissions, approvals and
consents by governmental authorities and others which are obtainable
by Closing and are required to vest good and marketable title to the
Assets in Buyer as provided in Article 7 hereof, or as may be
otherwise reasonably requested by Buyer. Seller will execute all
necessary or appropriate transfer orders (or letters in lieu thereof)
designating Buyer as the appropriate party for payment effective as of
the Closing Date.
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10.3 Cooperation. Seller will cooperate with Buyer to assist Buyer in
-----------
carrying out the agreements of Buyer.
10.4 Assets Prior to Closing. Notwithstanding anything to the contrary
-----------------------
contained herein, Seller's obligations to Buyer with respect to the
matters contained in 10.1 shall be no greater than those which it
would have to a non-operator under the AAPL 610 (1989 Revision) form
Operating Agreement, it being recognized that under such Agreements
and such form, the Operator is not responsible for its own negligence
and has no responsibility other than for gross negligence or wilful
misconduct.
11. CERTAIN AGREEMENTS OF BUYER. Buyer agrees and covenants that unless Seller
---------------------------
shall have consented otherwise in writing, the following provisions shall
apply:
11.1 Cooperation. Buyer will cooperate with Seller to assist Seller
-----------
in carrying out the agreements of Seller.
11.2 Disclosure. Until the Closing Date and to the extent not already
----------
public, Buyer shall exercise all due diligence in safeguarding and
maintaining secure all engineering, geological and geophysical data,
reports and maps, and other data relating to the Assets in the
possession of Buyer.
11.3 Notification. As soon as reasonably possible, but in any event prior
------------
to Closing, Buyer shall make known in writing to Seller any matter it
discovers which constitutes, or, in Buyer's opinion, in the course of
time could reasonably be expected to constitute (i) a Title Defect;
(ii) a breach of any of Seller's representations and warranties under
the Agreement; or (iii) a breach of any of Seller's covenants
contained herein or which could render Seller's title to the Assets
other than good and marketable. This covenant shall survive Closing
so long as any of Seller's representations, warranties or indemnities
provided for herein survive Closing.
12. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. All obligations of Buyer
--------------------------------------------
under this Agreement are, at its election, subject to the fulfillment,
prior to or at the Closing, of each of the following conditions:
12.1 No Litigation. At the Closing, no suit, action or other proceeding
-------------
shall be pending by a third party nor shall there be a substantial
threat of such proceeding before any court or governmental agency
which attempts to prevent the occurrence of the transactions
contemplated by this Agreement.
12.2 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Seller contained in this Agreement shall be true as of
the Closing as if such representations and warranties were made as of
the Closing Date in all material respects, and Seller shall have
performed and satisfied all material covenants and
20
<PAGE>
fulfilled all material conditions required by this Agreement to be
performed and satisfied by Seller at or prior to the Closing in all
respects.
12.3 Consents. All necessary permissions, approvals and consents of
--------
federal authorities required pursuant to Section 10.2 hereof which are
obtainable by the Closing shall be in full force and effect.
12.4 No Substantial Changes. Between the date hereof and the Closing,
----------------------
no substantial changes shall have occurred in the production
characteristics of a Lease which are adverse to Buyer other than
changes in accordance with normal expected production decline curves,
usual operating conditions and changes in operations undertaken with
the written consent of Buyer pursuant to the provisions of this
Agreement.
13. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. All obligations of
-------------------------------------------------
Seller under this Agreement are, at Seller's election, subject to the
fulfillment, prior to or at the Closing, of each of the following
conditions:
13.1 No Litigation. At the Closing no suit, action or other proceeding
-------------
shall be pending nor shall there be a substantial threat of such
proceeding before any court or governmental agency which attempts to
prevent the occurrence of the transactions contemplated by this
Agreement.
13.2 Representations and Warranties. All representations and warranties
------------------------------
of Buyer contained in this Agreement shall be true as of the Closing,
as if such representations and warranties were made as of the date of
Closing and Buyer shall have performed and satisfied all covenants and
fulfilled all conditions required by this Agreement to be performed
and satisfied by Buyer at or prior to the Closing in all respects.
14. TERMINATION.
-----------
14.1 Causes of Termination. This Agreement and the transactions
---------------------
contemplated herein may be completely terminated:
(A) By either Party if the Closing shall not have occurred by July
30, 1999;
(B) By either Party in the event of a Casualty Loss pursuant to
Section 15.1(B);
(C) By Buyer if less than ninety-five percent (95%) of the Allocated
Value of the Assets will be transferred to Buyer on the Closing
Date;
(D) By Seller if more than One Million Dollars ($1,000,000.00) of the
Allocated Value of the Assets will not be transferred to Buyer on
the Closing Date because of Title Defects; provided, however,
that Seller, rather than terminating the Agreement, shall have
the option not to convey
21
<PAGE>
the Asset(s) to Buyer, with an appropriate reduction in the
Purchase Price and, provided further, that if Seller desires to
terminate the Agreement under this provision, Buyer shall have
the option to waive any or all of the Title Defects so as to
prohibit Seller from terminating the Agreement pursuant to this
provision. Liens, mortgages and overriding royalty interests
shall be excluded from the One Million Dollar ($1,000,000.00) cap
provided herein;
(E) By Buyer, if, on the Closing Date, any of the conditions set
forth in Article 12 which are material shall not have been
satisfied or waived; and
(F) By Seller, if, on the Closing Date, any of the conditions set
forth in Article 13 shall not have been satisfied or waived.
14.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to the provisions of this Article 14 or elsewhere
in this Agreement, either Party may pursue any remedy that is
available in law or equity, for any breach that occurred prior to such
termination. Upon termination as provided in this Section, each Party
agrees, upon request, to use its reasonable efforts to return to the
other or destroy, all materials, documents and copies thereof
provided, obtained or discovered in the course of any due diligence
investigations.
15. MISCELLANEOUS.
-------------
15.1 Casualty Loss.
-------------
(A) Prior to the Closing, there shall not have been a adverse change
in the Assets taken as a whole caused by an event of casualty (a
"Casualty"), including but not limited to, volcanic eruptions,
acts of God, fire, explosion, earthquake, wind storm, strike,
lockout, labor dispute, flood, drought, war, embargo, riot,
condemnation, the exercise of any right of eminent domain,
confiscation, seizure, activities of armed forces, blowout,
casing collapse or other event of force majeure causing a Well
failure, operation of laws, rules or regulations (regardless of
whether covered by insurance), but excepting depletion due to
normal production, depreciation of equipment through ordinary
wear and tear and transactions permitted under this Agreement);
and
(B) If, prior to the Closing, a Casualty occurs (or Casualties occur)
which results in a reduction in the value of the Assets
("Casualty Loss") in excess of ten percent (10%) of the Purchase
Price, either Party may elect to terminate this Agreement. If
this Agreement is not so terminated, then this Agreement shall
remain in full force and effect notwithstanding any such Casualty
Loss, and, at the sole option of the Buyer, (i) Seller may retain
such Asset and such Asset shall be subject to the adjustment of
Purchase Price in the same manner set forth in Section 7.6
hereof, or (ii) at the
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<PAGE>
Closing Seller shall pay to Buyer all sums paid to Seller by
reason of such Casualty Loss, provided however, that the Purchase
Price shall not be adjusted by reason of such payment, and Seller
shall assign, transfer and set over unto Buyer all of the right,
title and interest of Seller in and to such Asset and any unpaid
awards or other payments arising out of such Casualty Loss.
Seller shall not voluntarily compromise, settle or adjust any
amounts payable by reason of such Casualty Loss without first
obtaining the written consent of Buyer.
(C) For purposes of determining the value of a Casualty Loss, the
Parties shall use the same methodology as applied in determining
the value of a Title Failure as set forth in Section 7.6
15.2 Non-Compete.
-----------
A. The Parties agree that the area covered by the Leases and
Vermilion Block 270 is designated as a "Non-Compete Area." For a
period of three (3) years after Closing, Seller agrees that it
will not compete with Buyer, or any of Buyer's affiliates, either
directly or indirectly, in any of Buyer's businesses within the
Non-Compete Area;
B. Should Seller acquire, either directly or indirectly, any
interest in any property or lease rights, either wholly or
partially within the Non-Compete Area, Buyer shall have the
right, but not the obligation, to acquire from Seller, all of the
interest acquired by Seller. After receipt of written notice from
Seller of its acquisition, Buyer shall have thirty (30) days
after receipt of such notice to exercise its right to acquire
such interest from Seller by paying to Seller's cost of such
acquisition; and
C. This Non-Compete provision shall terminate and have no further
force or effect if Seller is merged with an unrelated company or
entity that already owns oil and gas leases within the Non-
Compete Area.
D. Should Buyer acquire an interest in Vermillion Block 270 within
the three (3) year non-compete period, Seller, or its designee,
shall receive from Buyer a one percent (1%) overriding royalty
interest in all rights acquired by Buyer below the stratigraphic
equivalent of the deepest depth drilled in the Titan #1 well on
Vermillion Block 253, proportionately reduced by the net working
interest actually acquired if less than a 100% working interest..
15.3 Notice. Any notice, request, demand, or consent required or
------
permitted to be given hereunder shall be in writing and delivered in person
or by certified letter, with return receipt requested, by telecopy or pre-
paid telegram addressed to the party for whom intended at the following
addresses:
23
<PAGE>
SELLER:
OEDC Exploration & Production, L.P.,
a Texas Limited Partnership
500 W. Texas, Suite 200
Midland, Texas 79701
Attn: Dan P. Colwell
Tel: (915) 498-8600
Fax: (915) 498-2607
BUYER:
COASTAL OIL & GAS USA, L.P.
Nine Greenway Plaza, Suite 2794
Houston, Texas 77046
Attn: Gregory W. Hutson
Tel: (713) 877-7817
Fax: (713) 297-1353
or at such other address as any of the above shall specify by like notice to the
other.
15.4 Survival of Representations, Warranties, Indemnities, Covenants and
-------------------------------------------------------------------
Agreements. Except for the representations, warranties, indemnities,
----------
covenants and agreements set forth in Sections 4.1, 4.2, 4.5, 8.1(A),
(B), (C), (F), (G)(iv), (H), (I), N(i), (Q), (R), (S), (T), 9.1, 15.2,
15.3, 15.4, 15.5, 15.7, 15.8, 15.9, 15.10, 15.11, 15.12, 15.13, 15.14,
15.15 the representations, warranties, indemnities, covenants and
agreements will not survive the Closing, the execution and delivery of
the Assignment and Bill of Sale and other instruments under this
Agreement, and the transfer of the Assets between the Parties; all
shall be merged into or superseded by the Assignment and Bill of Sale
or other documents delivered at Closing, except for those which
expressly survive the Closing as provided herein:
(A) Sections 4.1(vii), 4.1(viii), 4.2, 4.5, 15.2, 15.3, 15.4, 15.5,
15.7, 15.8, 15.9, 15.10, 15.11,15.12, 15.13, 15.14 and 15.15
shall survive Closing;
(B) Sections 8.1(A), (B), (C), (F), (G)(iv), (H), (I), (N)(i), (Q),
(R), (S), (T) and 9.1 shall survive Closing for one (1) year; and
(C) Sections 4.1(i), 4.1(ii), 4.1(iii), 4.1(iv), 4.1(v) and 4(vi)
shall survive Closing for two (2) years;
24
<PAGE>
15.5 Compliance with Express Negligence Test. THE PARTIES AGREE THAT THE
---------------------------------------
OBLIGATIONS OF THE INDEMNIFYING PARTY TO INDEMNIFY THE INDEMNIFIED
PARTY SHALL BE WITHOUT REGARD TO THE NEGLIGENCE OR STRICT LIABILITY
OF THE INDEMNIFIED PARTY, WHETHER THE NEGLIGENCE OR STRICT LIABILITY
IS ACTIVE, PASSIVE, JOINT, CONCURRENT OR SOLE.
15.6 Public Announcements. Neither Party may make press releases or
--------------------
other public announcements concerning this transaction without
Buyer's and Seller's written approval and agreement to the form of
the announcements, except as may be required by applicable laws or
rules and regulations of any governmental agency or stock exchange
and except that Seller shall be entitled to state the Purchase Price
in any press release which it issues.
15.7 Governing Law. This Agreement is governed by and must be construed
-------------
according to the laws of the State of Texas, excluding any conflicts-
of-law rule or principle that might apply the law of another
jurisdiction. All disputes related to this Agreement shall be
submitted to the jurisdiction of the courts of the State of Texas and
venue shall be in the civil district courts of Harris County, Texas.
15.8 Exhibits. The Exhibits attached to this Agreement are incorporated
--------
into and made a part of this Agreement for all purposes.
15.9 Fees, Expenses and Taxes.
------------------------
(A) Each Party shall be solely responsible for all expenses incurred
by it in connection with this transaction (including, but not
limited to fees and expenses of its counsel and accountants) and
shall not be entitled to any reimbursements therefor from the
other Party, except as otherwise provided in this Agreement.
(B) Buyer shall pay any filing or recording fees required in
connection with the transactions contemplated by this Agreement.
(C) Sales and use tax, or any other transfer tax, if any, due in
connection with the transactions represented by this Agreement
shall be paid by the Party upon which such tax is imposed by law.
15.10 Assignment. This Agreement or any part hereof may not be
----------
assigned by either Party without the prior written consent of the
other Party; provided, however, upon notice to the other Party,
either Party shall have the right to assign all or part of its rights
(but none of its obligations) under this Agreement in order to
qualify transfer of the Assets as a "deferred exchange" for federal
tax purposes. Subject
25
<PAGE>
to the foregoing, this Agreement is binding upon the Parties hereto
and their respective successors and assigns.
15.11 Entire Agreement. This Agreement, all agreements and instruments
----------------
executed in connection herewith, the Letter Agreement dated April 28,
1999, between Titan Exploration, Inc. and Coastal Oil & Gas USA, L.P.
referencing the Purchase and Sale Agreements, the Aggregation
Agreement and the Confidentiality Agreement dated February 9, 1999,
between Buyer and Petrie Parkman & Co. for Titan Exploration, Inc.
("Confidentiality Agreement") constitutes the entire agreement
reached by the Parties with respect to the subject matter hereof,
superseding all prior negotiations, discussions, agreements and
understandings, whether oral or written, relating to such subject
matter. At Closing, the Confidentiality Agreement shall terminate and
have no further force or effect.
15.12 Severability. In the event that any one or more covenants, clauses
------------
or provisions of this Agreement shall be held invalid or illegal,
such invalidity or unenforceability shall not affect any other
provisions of this Agreement.
15.13 Captions. The captions in this Agreement are for convenience only
--------
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
15.14 Remedies. If, as a result of the breach by a Party of its
--------
obligations under this Agreement, the Closing does not occur by June
30, 1999, then the non-breaching Party may pursue any and all of its
remedies available in law and equity and it is expressly agreed that,
in such event, the non-breaching Party shall be entitled to specific
performance of this Agreement. Except as provided herein, the sole
and exclusive remedies of any Party shall be as provided in the
Agreement.
15.15 Postponement of Closing. In the event Buyer elects not to Close
-----------------------
because of matters covered by 12.2 or 12.3, Buyer shall provide
Seller with a written notice containing information, description and
supporting documents necessary to identify any problem and the steps
Buyer reasonably deems necessary to cure any matter. Seller shall
have the right to postpone Closing for thirty (30) days in order to
attempt to cure to the reasonable satisfaction of Seller any such
matter. In the event that a matter asserted under this Section cannot
be cured, Buyer or Seller shall have the right to exclude the Assets
effected and there shall be an adjustment to the Purchase Price in
the amount of the Allocated Values of the Excluded Assets. Prior to
Closing, Buyer's sole and exclusive remedy for any breach of Seller's
representations and warranties shall be to adjust the Purchase Price
or to terminate this Agreement without liability to either party.
26
<PAGE>
15.16 Change of Operatorship. Seller is currently the Operator under the
----------------------
Participation Agreement (with JOA) dated July 22, 1998, between
Seneca Resources Corporation and Seller which deals in part with the
operatorship on Vermilion Block 253, and the Joint Development
Agreement dated July 30, 1998, between Seller, Seneca Resources
Corporation and Chevron which deals in part with the operatorship on
Vermilion Blocks 252 and 253. The Parties agree to use commercially
reasonable efforts to obtain the written consent of the other Parties
to such Agreements to any assignment of such Agreements (if an
assignment is required) and the change of operatorship under those
Agreements from Seller to Buyer. If by Closing the written consents
have not been obtained to the satisfaction of Buyer, subject to
Seller's transfer of all of its assets and properties that are not
the subject of the transactions contemplated herein and in the other
agreements referred to in Section 15.11 to an affiliate of Seller,
Buyer shall have the option, at no additional cost and with no
additional obligations, to acquire the partnership interests of
Seller so as to accomplish a merger of Seller into Buyer or Buyer's
designee.
Executed as of the day and year first above written.
SELLER:
OEDC Exploration & Production, L.P.,
a Texas Limited Partnership
By: OEDC Inc., a Delaware Corporation,
as General Partner
By: /s/ Dan P. Colwell
_________________________________
Dan P. Colwell
Vice President
BUYER:
COASTAL OIL & GAS USA, L.P.,
By Its General Partner
COASTAL OIL & GAS CORPORATION
By: /s/ Rodney D. Erskine
__________________________________
Rodney D. Erskine
President
27
<PAGE>
GUARANTY UNDERTAKINGS
TITAN EXPLORATION, INC. HEREBY GUARANTEES THE OBLIGATIONS AND UNDERTAKINGS OF
OEDC EXPLORATION & PRODUCTION, L.P. UNDER THIS AGREEMENT AND AGREES TO CAUSE
SAME TO BE PERFORMED.
TITAN EXPLORATION, INC.
By /s/ Dan P. Colwell
_____________________________
Dan P. Colwell
Vice President
28
