<PAGE> 1
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): December 11, 1998
CARRIZO OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 0-22915 76-0415919
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
14811 ST. MARY'S LANE
SUITE 148
HOUSTON, TEXAS 77079
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (281) 496-1352
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 11, 1998, Carrizo Oil & Gas, Inc., a Texas
corporation (the "Company") completed the acquisition (the "Acquisition") of
certain oil and gas producing properties in Wharton County, Texas, along with
certain rights to participate in certain exploration prospects (primarily in the
Wilcox formation) in Wharton County, Texas and associated rights of access to
certain 2-D and 3-D seismic data and related information and certain other
related assets (collectively, the "Assets") from Hall-Houston Oil Company, a
Texas corporation, Hall-Houston 1996 Exploration and Development Facility
Overriding Royalty Trust, a Texas trust, and Hall-Houston Oil Company Employee
Royalty Trust, a Texas trust (collectively, "Hall-Houston"). The Acquisition was
effected pursuant to an Agreement dated November 20, 1998 by and between the
Company and Hall-Houston (the "Agreement") which is incorporated herein by
reference.
The consideration for the Acquisition was $3 million cash,
subject to certain post-closing adjustments as provided in the Agreement
relating to, among other things, oil and gas production from the Assets from an
effective date of October 1, 1998. The $3 million consideration was determined
by negotiations between the Company and Hall-Houston. There was no material
relationship between the Company and Hall-Houston prior to the consummation of
the Acquisition. The source of funds for the Acquisition was the term loan
arrangement entered into between the Company and Compass Bank in September of
1998 (described in the Company's Form 10-Q for the quarterly period ending
September 30, 1998).
The Acquisition is not required to be reported under Item
2 of Form 8-K because it does not involve an acquisition of a business that is
"significant" as determined under Regulation S-X 11-01(b) by reference to the
most recently completed annual fiscal year for the Company and the Assets. The
Acquisition is being reported because of its possible significance in relation
to the Company's and the Assets' current fiscal year.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
In accordance with Item 7(a)(4) of Form 8-K, registrant will
file the required financial statements by amendment to this
Form 8-K as soon as practicable, but no later than February
24, 1999.
(b) Pro Forma Financial Information.
In accordance with Item 7(b)(2) of Form 8-K, registrant will
file the required financial information by amendment to this
Form 8-K as soon as practicable, but no later than February
24, 1999.
(c) Exhibits.
Page 2
<PAGE> 3
2.1 Agreement dated November 20, 1998 by and between the Company
and Hall-Houston.
*99.1 Limited Guaranty by Douglas A.P. Hamilton for the benefit of
Compass Bank.
*99.2 Notice of Final Agreement with respect to a term loan from
Compass Bank.
*99.3 Limited Guaranty by Paul B. Loyd, Jr. for the benefit of
Compass Bank.
*99.4 Limited Guaranty by Steven A. Webster for the benefit of
Compass Bank.
*99.5 Fourth Agreement to First Amended, Restated, and Combined Loan
Agreement by and between the Company and Compass Bank.
- ------------------------------
* Incorporated by reference to the Company's Form 10-Q for the quarterly
period ending September 30, 1998.
Page 3
<PAGE> 4
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 hereunto duly authorized.
CARRIZO OIL & GAS, INC.
By: /s/ S.P. JOHNSON IV
------------------------------------
Name: S.P. Johnson IV
----------------------------------
Title: President
---------------------------------
Date: December 28, 1998
Page 4
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement dated November 20, 1998 by and between the Company
and Hall-Houston.
*99.1 Limited Guaranty by Douglas A.P. Hamilton for the benefit of
Compass Bank.
*99.2 Notice of Final Agreement with respect to a term loan from
Compass Bank.
*99.3 Limited Guaranty by Paul B. Loyd, Jr. for the benefit of
Compass Bank.
*99.4 Limited Guaranty by Steven A. Webster for the benefit of
Compass Bank.
*99.5 Fourth Agreement to First Amended, Restated, and Combined Loan
Agreement by and between the Company and Compass Bank.
</TABLE>
- --------------
* Incorporated by reference to the Company's Form 10-Q for the quarterly
period ending September 30, 1998.
<PAGE> 1
EXHIBIT 2.1
CARRIZO OIL & GAS, INC.
14811 ST. MARY'S LANE PHONE: (281) 496-1352
SUITE 148 FAX: (281) 496-0884
HOUSTON, TX 77079
November 20, 1998
Hall-Houston Oil Company,
Hall-Houston 1996 Exploration and
Development Facility Overriding
Royalty Trust and
Hall-Houston Oil Company Employee
Royalty Trust
Attn: Gary L. Hall
700 Louisiana, Suite 2100
Houston, Texas 77002
FAX: (713) 225-7600
Re: Purchase and Sale Agreement - Jones Branch 3D
Seismic Area, Wharton County, Texas
Gentlemen:
This letter (this "Agreement") sets forth the agreement between
HALL-HOUSTON OIL COMPANY, a corporation organized under the laws of the State of
Texas ("HHOC"), HALL-HOUSTON 1996 EXPLORATION AND DEVELOPMENT FACILITY
OVERRIDING ROYALTY TRUST, a trust created under the laws of the State of Texas
("HH96EDFT"), and HALL-HOUSTON OIL COMPANY EMPLOYEE ROYALTY TRUST, a trust
created under the laws of the State of Texas ("HHOCERT"; HH96EDFT and HHOCERT
being, collectively, the "Trusts"; and the Trusts and HHOC being, collectively,
"Sellers"), as Sellers, the address for each of which for purposes hereof being
as set forth above, and CARRIZO OIL & GAS, INC., a corporation organized under
the laws of the State of Texas ("Purchaser"), as Purchaser, the address for
which for purposes hereof being as set forth above, regarding (a) the purchase
by Purchaser of (i) all of Sellers' right, title and interest (the interest of
each Seller, as to production of oil, gas, and other liquid or gaseous
hydrocarbons ("Hydrocarbons") from each relevant well, being set forth on
Exhibit "A-1" attached hereto and made a part hereof for all purposes) in and to
certain oil and gas leases covering lands located in Wharton County, Texas, as
limited in depth and/or acreage, all as more particularly described in Exhibit
"A" attached hereto and made part hereof for all purposes (collectively, the
"Subject Leases"), together with all of Sellers' right, title, and interest in
and to all Hydrocarbons produced or to be produced under the terms of any of the
Subject Leases on or after the Effective Date, as such term is defined
hereinafter, and (ii) all right, title, and interest of HHOC in and to: (A) all
wells, lease and wellhead equipment, materials, fixtures, facilities, other
personal property, and other movable or immovable property (including,
<PAGE> 2
Hall-Houston Oil Company et al.
November 20, 1998
Page 2
but not limited to, pumping and injection equipment, storage facilities,
pipelines, and treating equipment) located on the lands covered by the Subject
Leases or used directly in connection with the production, treatment or
transportation of Hydrocarbons produced from or allocable to the lands covered
by the Subject Leases, but expressly excluding any automobiles, trucks,
trailers, drilling or workover rigs or other personal property or equipment
temporarily located on such lands (collectively, the "Subject Lease Equipment"),
(B) pipeline rights-of-way and easements and other surface use rights over,
across, and on lands other than the lands covered by the Subject Leases used in
the transportation and marketing of gas produced from or allocable to the
Subject Leases, as more particularly described in Exhibit "B" attached hereto
and made part hereof for all purposes (collectively, the "Subject Easements"),
(C) the pipelines and all meters and other equipment located on the lands
covered by the Subject Easements or used in the operation of such pipelines
(collectively, the "Subject Pipeline Equipment"), and (D) contracts and
agreements (including, but not limited to, production sale agreements, operating
agreements, permits, licenses, rights-of-way, easements, and equipment leases)
relating to the operation of the Subject Leases or the pipelines located on the
Subject Easements, including, but not limited to, those specifically listed in
Exhibit "A" or Exhibit "B" hereto, as the case may be, but only to the extent in
force and effect and relating to the operation of the Subject Leases or the
pipelines located on the Subject Easements and only to the extent assignable by
HHOC (collectively, the "Subject Contracts"and the Subject Leases, the Subject
Lease Equipment, the Subject Easements, the Subject Pipeline Equipment, and the
Subject Contracts being, collectively, the "Subject Interests"), subject, as to
all of the foregoing, to all of the terms and provisions of the leases,
right-of-way deeds, grants of easements, surface use agreements, other
agreements, and encumbrances listed in Exhibit "A" or Exhibit "B" hereto, as the
case may be, and (b) the agreement by HHOC to provide to Purchaser access to all
geological and geophysical information and data, including, but not limited to,
all proprietary 2-D and 3-D seismic data and licenses thereto, together with all
logs, production tests, reports, analyses and information applicable to the
Subject Leases, but only to the extent such access can be provided by HHOC
without violation of any applicable license or other agreement (the "Subject
Data"). The conveyance of the Subject Interests by Sellers to Purchaser is to be
made by way of a conveyance substantially in the form of the Assignment of Oil
and Gas Leases and Overriding Royalty Interests, Right-of-Way Deed, and Bill of
Sale attached hereto as Exhibit "C" and made part hereof for all purposes (the
"Assignment"), in which each of Sellers, individually as to the Subject
Interests conveyed by it and not jointly, shall warrant title against claims
arising by, through or under the relevant Seller, but not otherwise, but with
full right of substitution and subrogation in and too all warranties inuring to
the relevant Seller. The granting to Purchaser of access to the Subject Data by
HHOC is to be made pursuant to the provisions of Section 13 below.
<PAGE> 3
Hall-Houston Oil Company et al.
November 20, 1998
Page 3
For and in consideration of the mutual promises made in this Agreement
and the benefits to be derived by each of the parties therefrom, Sellers and
Purchaser agree as follows:
1. AGREEMENT TO SELL AND TO PURCHASE. Sellers agree to sell, and
Purchaser agrees to purchase, the Subject Interests for the consideration and on
the terms and conditions set forth in this Agreement and subject to the
reservation by HHOC of (a) the right of ingress and egress, at its sole risk and
expense, with respect to the lands covered by the Subject Leases for purposes of
operations as to acreage or depths not to be sold to Purchaser hereunder,
provided that such access shall not interfere unduly with Purchaser's operations
on the lands covered by the Subject Leases and HHOC shall bear any additional
cost or expense resulting from operations on such lands by HHOC, and (b) the
right, subject to available capacity therein and at the sole risk and expense of
HHOC, to use the pipelines located on the Subject Easements, free of charge to
HHOC by Purchaser, for the transportation of gas produced from or allocable to
interests of HHOC in such acreage or depths not to be sold to Purchaser and in
oil and gas leases in the "Seismic Area" established pursuant to that certain
Exploration and Lease Acquisition Agreement dated effective November 12, 1996
among HHOC, Horizon Exploration Company (a division of Horizon Resources, Inc.),
and American Energy Partners, Inc. (the "Exploration Agreement"), provided that
the volume of Hydrocarbon production from or allocable to the interest in the
Subject Leases to be acquired by Purchaser to be transported through such
pipelines shall not be reduced or restricted in any manner as a result of such
reservation of available pipeline capacity by HHOC and Purchaser shall have
priority to capacity in such pipelines as needed by Purchaser. WITH RESPECT TO
THE FOREGOING RESERVATIONS BY HHOC, EACH OF HHOC AND PURCHASER SHALL PROTECT,
INDEMNIFY, DEFEND AND HOLD HARMLESS THE OTHER AND THEIR RESPECTIVE SHAREHOLDERS,
DIRECTORS, OFFICERS, TRUSTEES, BENEFICIARIES, EMPLOYEES, AND AGENTS, AND THE
HEIRS, DEVISEES, SUCCESSORS AND ASSIGNS OF ANY OF THE FOREGOING, FROM AND
AGAINST ANY AND ALL CLAIMS, LIABILITIES, DEMANDS, LOSSES, DAMAGES, COSTS,
EXPENSES, COURT COSTS, REASONABLE ATTORNEYS FEES, CAUSES OF ACTION, DEATHS,
PERSONAL INJURIES, ILLNESSES, DISEASES, LITIGATION, JUDGMENTS OR SETTLEMENTS
("CLAIMS") ARISING FROM THE EXERCISE BY HHOC OF ITS RESERVED RIGHTS OR OPERATION
BY PURCHASER OF THE SUBJECT LEASES AND THE PIPELINES LOCATED ON THE LANDS
COVERED BY THE SUBJECT EASEMENTS; PROVIDED, HOWEVER, THAT IN EACH INSTANCE SUCH
INDEMNIFICATION RELATING TO THE OPERATION OR USE OF SUCH PIPELINES SHALL BE
LIMITED TO A PROPORTIONATE SHARE OF THE CLAIMS TO WHICH IT RELATES, SUCH
PROPORTION TO EQUAL THE PROPORTIONATE INTEREST OF THE INDEMNIFYING PARTY IN THE
ENTIRE HYDROCARBON PRODUCTION STREAM BEING TRANSPORTED THROUGH SUCH PIPELINES AT
THE TIME OF THE OCCURRENCE GIVING RISE TO SUCH CLAIM. This Agreement supersedes
any other agreement, whether oral or written, that may exist between the parties
to this Agreement, including, but not limited to, that certain Purchase Letter
dated November 17, 1998 (accepted by HHOC on November 20, 1998) between
Purchaser and HHOC; provided, however, that certain Confidentiality Agreement
dated July 10, 1998 between HHOC and Purchaser shall remain
<PAGE> 4
Hall-Houston Oil Company et al.
November 20, 1998
Page 4
in place and be fully effective through the closing of the purchase by Purchaser
from Sellers of the Subject Interests (the "Closing"). Upon the Closing, this
Agreement and the Assignment shall constitute the only agreements among the
parties hereto relating to the subject matter hereof and the above-mentioned
Confidentiality Agreement shall be superseded.
2. CONSIDERATION. The aggregate consideration for the purchase of the
Subject Interests (the "Purchase Price") shall be the sum of Three Million and
No/100 Dollars ($3,000,000.00) subject to post-closing adjustments as provided
in Sections 4 and 5 below. The Purchase Price shall be allocated among Sellers
as follows:
<TABLE>
<S> <C>
HHOC $2,738,950
HH96EDFT $174,033
HHOCERT $87,017
</TABLE>
The amount of the Purchase Price allocable to each Seller shall be
delivered by Purchaser to such Seller in good funds by cashiers check or by wire
transfer to an account at such Seller's bank (instructions to be given to
Purchaser by each Seller) upon the tender or delivery to Purchaser by Sellers of
the Assignment as part of the Closing.
The portion of the Purchase Price allocable to HHOC shall be allocated
among tangibles and reserves comprising the Subject Interests as follows: (a)
ninety-seven percent (97%) of such portion of the Purchase Price shall be
attributed to the interest of HHOC in the Subject Leases, the Subject Easements,
and the Subject Contracts and (b) three percent (3%) of such portion of the
Purchase Price shall be attributed to the Subject Lease Equipment, the Subject
Pipeline Equipment, and other personal property. Purchaser and HHOC agree to be
bound by the allocation of the portion of the Purchase Price allocable to HHOC
among tangibles and reserves set forth herein for all purposes; to report such
allocations consistently for all federal, state and local income tax purposes;
and to file timely all reports required by the Internal Revenue Code of 1986, as
amended, or applicable state or local law concerning the foregoing allocation of
that portion of the Purchase Price allocable to HHOC.
3. EFFECTIVE DATE. The effective date of the purchase of the Subject
Interests by Purchaser shall be 12:01 a.m., Houston, Texas time on October 1,
1998 (the "Effective Date").
4. CERTAIN ADJUSTMENTS TO PURCHASE PRICE.
<PAGE> 5
Hall-Houston Oil Company et al.
November 20, 1998
Page 5
(a) INCREASES TO PURCHASE PRICE. The portion of the Purchase
Price allocable to each Seller shall be increased, in the post-Closing
settlement pursuant to Section 4(c) below, by the following:
(i) an amount equal to the quantity of merchantable oil
produced from or allocable to the interest of such
Seller in the Leases and in storage at the Effective
Date, and not sold or disposed of prior to the
Closing, multiplied by the market price for such oil
at the Effective Date, net of all taxes and gravity
adjustments and transportation expenses necessary to
market such production; and
(ii) an amount equal to production, severance, and similar
taxes and assessments (other than income taxes) paid
by such Seller in respect of production of
Hydrocarbons from or allocable to the Subject Leases
occurring on or after the Effective Date (Sellers
shall be entitled to, and shall retain to the extent
received prior to preparation of the Settlement
Statement, as such terms is defined hereinafter, any
refunds of production, severance or other similar
taxes and assessments (other than income taxes) to
the extent pertaining to production of Hydrocarbons
from or allocable to the Subject Leases occurring
prior to the Effective Date).
In addition, the portion of the Purchase Price allocable to
HHOC shall be increased, in the post-Closing settlement pursuant to
Section 4(c) below, by the sum of the amount of the direct capital
expenses with respect to the Subject Leases or the pipelines located on
the lands covered by the Subject Easements approved by Purchaser in
accordance with Section 8 or otherwise made in accordance with this
Agreement, plus direct lease and pipeline operating expenses under
applicable operating agreements and general and administrative charges,
if any, payable to any third-party operator under applicable operating
agreements, in each instance that are (x) attributable to the Subject
Interests during the period between the Effective Date and Closing, (y)
incurred and paid by HHOC (whether before or after the Closing), and
(z) in excess of reimbursements or advances from joint owners under
applicable operating agreements under which HHOC serves as operator.
<PAGE> 6
Hall-Houston Oil Company et al.
November 20, 1998
Page 6
(b) DECREASES TO PURCHASE PRICE. The portion of the Purchase
Price allocable to each Seller shall be decreased, in the post-Closing
settlement pursuant to Section 4(c) below, by the following:
(i) the amount of net proceeds or other value received by
such Seller for the sale or disposition of production of
Hydrocarbons from or allocable to the Subject Leases
occurring on and after the Effective Date;
(ii) the amount of net proceeds or other value received by
or payable to such Seller for the sale or disposition, on
and after the Effective Date, of any portion of the
Subject Interests; and
(iii) an amount equal to the agreed value of all uncured
Title Defects with respect to the interest of such Seller,
as determined in accordance with applicable provisions of
Section 5.
(c) POST-CLOSING SETTLEMENT. As soon as practicable, but not
more than ninety (90) days following the date of the Closing (the
"Closing Date"), HHOC shall provide to Purchaser a settlement statement
(the "Settlement Statement"), subject to audit and verification by
Purchaser which sets forth an accounting, prepared separately by well
for each of the wells described in Exhibit "A" or Exhibit "A-1" hereto
and for each related pipeline and for each Seller, of the portion of
the Purchase Price allocable to such Seller and increases and decreases
thereto pursuant to the provisions of Section 4(a) and Section 4(b),
respectively. If the aggregate decreases as to any Seller reflected in
the Settlement Statement exceed the aggregate increases as to such
Seller reflected in the Settlement Statement, such statement shall be
accompanied by a check of such Seller payable to Purchaser in the
amount of such excess. If the aggregate increases as to any Seller
reflected in the Settlement Statement exceed the aggregate decreases as
to such Seller reflected in the Settlement Statement, such statement
shall be accompanied by an invoice from such Seller, to be paid
promptly by Purchaser, for a sum equal to the amount of such excess.
The Settlement Statement shall be prepared in accordance with customary
accounting principles used in the oil and gas industry. If, after the
Closing, Sellers receive any payments with respect to the sale of
production of oil and/or gas from or allocable to the Subject Leases
occurring on or after the Effective Date and the Purchase Price has
already been adjusted pursuant to this Section 4, then each relevant
Seller shall deliver such proceeds to Purchaser promptly.
<PAGE> 7
Hall-Houston Oil Company et al.
November 20, 1998
Page 7
(d) AD VALOREM TAXES. Ad valorem and property taxes
attributable to the Subject Interests for the current year shall be
allocated between Sellers and Purchaser based upon the ratio of the
period of ownership during the current year by Sellers prior to the
Effective Date and by Purchaser on and after the Effective Date. Ad
valorem and property taxes assessed with respect to the Subject
Interests for the current year shall be the responsibility of, and
shall be paid by, Purchaser; provided, however, the amount thereof
allocable to each Seller, as provided above in this Section 4(d), shall
serve to increase any post-closing refund by such Seller to Purchaser,
as provided above in Section 4(c) above, or to reduce any additional
amount payable by Purchaser to such Seller, as provided above in
Section 4(c) above.
5. DUE DILIGENCE REVIEW AND OBJECTIONS.
(a) ACCESS AND INSPECTION. To the extent they have the
legal right to do so and subject to the limitations set forth below in
this Section 5, Sellers shall afford to Purchaser and its authorized
representatives (during the period from the date hereof until the
Closing and during normal business hours), reasonable access to the
Subject Leases, the Subject Lease Equipment, the Subject Easements, and
the Subject Pipeline Equipment and to the following types of data
related to the Subject Interests in the possession of any of Sellers:
accounting, title, contract, corporate and legal materials and
operating data and information available as of the date hereof and that
becomes available to any of Sellers at any time prior to the Closing.
In addition, Sellers shall furnish to Purchaser such other information
as Purchaser may reasonably request. Purchaser shall be authorized, at
its expense (and using its own copying equipment), to make such copies
of such data as it reasonably deems relevant; provided, however, to the
extent that geophysical data pertaining to the Subject Leases held by
any of Sellers is subject to restrictions imposed by licenses or other
agreements, such restrictions shall govern and control the extent to
which Purchaser shall have access thereto. All visits to any of
Sellers' facilities by Purchaser or on Purchaser's behalf shall be
scheduled by mutual consent of the parties hereto subject to
Purchaser's providing Sellers with reasonable advance notice of the
locations that Purchaser wishes to visit and the proposed times. Any of
Sellers may accompany Purchaser and its representatives during their
site visits. Entry onto the Subject Leases shall be (i) subject to
valid third-party restrictions, if any, existing under the terms of any
of the Subject Leases, the Subject Easements or the Subject Contracts,
and to any Seller's industrial safety, hygiene, and drug and alcohol
requirements and (ii) at Purchaser's sole risk and expense. Sellers
shall use reasonable efforts to identify for Purchaser, upon request,
any third-party restrictions to which Purchaser may be subject in
exercising its rights to enter upon the lands covered by any of the
Subject Leases. Purchaser may conduct, prior to the Closing and at its
cost, such
<PAGE> 8
Hall-Houston Oil Company et al.
November 20, 1998
Page 8
further review of data and information pertaining to the Subject
Interests, and title examination and other examinations and
investigations in respect of the Subject Interests, as Purchaser
desires.
(b) ENVIRONMENTAL ASSESSMENT. Without limitation of the right
of Purchaser to conduct any investigations of the Subject Interests,
Purchaser may conduct an environmental assessment of the lands covered
by the Subject Leases and the lands covered by the Subject Easements.
If Purchaser undertakes an environmental assessment, both the
consultant (if consultants are employed) and the scope of the proposed
assessment, including, but not limited to, testing protocols, must be
acceptable to Sellers before the work may begin, such acceptance not to
be unreasonably withheld by Sellers. Purchaser shall deliver to
Sellers, at Purchaser's cost, copies of all final reports, results,
data, and analyses of site visits, inspections, and assessments within
seven (7) days of Purchaser's receipt thereof. If required by
applicable law, Sellers may disclose such reports, results, data, and
analyses of site visits, inspections, and assessments delivered to
Sellers by Purchaser.
PURCHASER ACKNOWLEDGES THAT PORTIONS OF THE SUBJECT INTERESTS
MAY BE CONTAMINATED WITH NATURALLY OCCURRING RADIOACTIVE MATERIALS
("NORM"), AND, UPON CLOSING, PURCHASER HEREBY ACCEPTS, WITH RESPECT TO
THE SUBJECT INTERESTS, FULL RESPONSIBILITY FOR COMPLYING WITH ALL LEGAL
REQUIREMENTS APPLICABLE TO NORM, SUBJECT TO THE PROVISIONS OF SECTION
12.
(c) TITLE DEFECTS AND RELATED PURCHASE PRICE ADJUSTMENTS. For
purposes of this Section 5(c) and other relevant provisions of this
Agreement, the following terms shall have the meaning assigned to such
terms, respectively, below:
"TITLE DEFECT" means any encumbrance, irregularity or defect
in the title of any Seller to any Subject Interest which,
alone or in combination with other defects, causes such title
to be less than Marketable Title.
"MARKETABLE TITLE" means such title and ownership of a Seller
(pursuant to instruments filed of record in Wharton County,
Texas) that (i) will entitle Purchaser, as such Seller's
successor, to receive not less than the relevant Net Revenue
Interest set forth in Exhibit "A-1" of all Hydrocarbons
produced under the terms of the Subject Leases (or other
property denominated in Exhibit "A-1") and own not less than
the relevant Working Interest set forth
<PAGE> 9
Hall-Houston Oil Company et al.
November 20, 1998
Page 9
in Exhibit "A-1" in and to the Subject Easements and the
pipelines and other Subject Pipeline Equipment located on the
lands covered by the Subject Easements; (ii) will obligate
Purchaser, as such Seller's successor, to bear a percentage of
costs and expenses related to the maintenance, operation, and
development of the Subject Leases and the pipelines located on
the lands covered by the Subject Easements (or other property
denominated in Exhibit "A-1") not greater than the relevant
Working Interest set forth in Exhibit "A- 1," unless the
circumstances causing the Working Interest to be greater will
cause the corresponding Net Revenue Interest to increase in at
least the same proportion; and (iii) is free of all claims,
liens, security interests, encumbrances, and defects
(including, without limitation, legal actions), except for
Permitted Encumbrances.
"Permitted Encumbrances" means:
(i) lessor's royalties, overriding royalties, production
payments, net profits, interests, reversionary interests
and similar burdens on production that do not, and will
not, reduce the relevant Net Revenue Interest of
Purchaser, as a Seller's successor in title, below that
shown in Exhibit "A-1" or increase the relevant Working
Interest of Purchaser, as such Seller's successor in
title, above that shown in Exhibit "A-1" (unless the
circumstances causing the Working Interest to increase
will cause the corresponding Net Revenue Interest to
increase at least in the same proportion);
(ii) preferential rights to purchase and third-party
consents with respect to which, prior to the Closing, (A)
waivers or consents are obtained from the appropriate
persons or (B) the time for asserting such rights has
expired without exercise;
(iii) mechanics', materialmen's, operator's and
non-operators', tax and similar liens or charges arising
in the ordinary course of business related to a Subject
Interest, if such liens or charges secure payments not yet
due;
(iv) all consents from, notices to, approvals by or other
actions by governmental authorities in connection with
sale or transfer of properties
<PAGE> 10
Hall-Houston Oil Company et al.
November 20, 1998
Page 10
such as the Subject Interests, if such matters are
customarily and appropriately obtained after the sale or
transfer;
(v) liens, security interests or other encumbrances that
are released at or prior to the Closing pursuant to the
terms of releases and other instruments in form and
substance reasonably satisfactory to Purchaser and
executed, delivered, and acknowledged by the owner and
holder thereof;
(vi) rights of any governmental authority to control or
regulate the Subject Interests, together with all
applicable laws, rules and regulations;
(vii) easements, rights-of-way, surface leases and other
surface use restrictions, if such restrictions will not
materially adversely affect the use, value or operation of
any of the Subject Interests; and
(viii) title and other matters waived or deemed to be
waived by Purchaser pursuant to any provision of this
Section 5.
Should, as a result of examinations and investigations or
otherwise, one or more matters come to Purchaser's attention which
constitute a Title Defect and that Purchaser desires to assert as a
basis to seek an adjustment of the Purchase Price and/or as a basis not
to proceed with the Closing, Purchaser shall notify Sellers in writing
of such Title Defects no later than five (5) Business Days (for
purposes of this Agreement the term "Business Day" means any day except
a Saturday, Sunday or other day on which commercial banks in Houston,
Texas are required or authorized by law to be closed) prior to the
Closing Date. Such notification (a "Title Defect Notice") shall
include, for each asserted Title Defect, (i) a description of the Title
Defect and the Subject Interest to which it applies; (ii) an
explanation of the basis for the claim of a Title Defect and (iii) the
amount by which Purchaser would propose to adjust the portion of the
Purchase Price allocable to any Seller in view of such Title Defect.
Any matter, whether or not asserted in a Title Defect Notice, that may
constitute a Title Defect shall be deemed to have been waived by
Purchaser in the event that Purchaser proceeds with the Closing without
the Title Defect having been cured.
(d) DISPOSITION OF TITLE DEFECTS. In the event that Purchaser
gives Sellers any Title Defect Notice:
<PAGE> 11
Hall-Houston Oil Company et al.
November 20, 1998
Page 11
(i) Sellers may attempt to cure the relevant Title Defect
prior to the Closing;
(ii) whether or not Sellers have then begun to, or ever
begin to, cure any asserted Title Defect (there being no
obligation on the part of Seller to cure any Title
Defect), Sellers may postpone the Closing by designating a
new Closing Date to be a date not later than ten (10) days
after the deadline for the Closing provided in Section
10(a); and
(iii) notwithstanding any other election made under this
Section 5(d) (it being expressly recognized that attempts
to cure asserted Title Defects may continue while the
parties hereto are acting under this election), the
parties hereto may elect to proceed with respect to one or
more asserted Title Defects under the provisions of
Section 5(e).
(e) Purchase Price Adjustments for Title Defects.
(i) Not later than five (5) Business Days after actual
receipt of any Title Defect Notice, the parties shall
enter into good faith negotiations and attempt to agree on
whether such claimed matters constitute a Title Defect for
the purposes of this Agreement and/or the appropriate
downward adjustment to the Purchase Price in connection
therewith; provided, however, there shall be no downward
adjustment to the Purchase Price as the result of Title
Defects unless the agreed value of all Title Defects
asserted by Purchaser in a timely manner prior to the
Closing exceeds $30,000 and, unless such threshhold is
exceeded, Purchaser shall have no right, notwithstanding
any provision of this Agreement to the contrary, to
terminate this Agreement. If the parties have not reached
a written agreement on any such matters within three (3)
Business Days after the commencement of such negotiations,
then, subject to the proviso in the immediately preceding
sentence, either Sellers or Purchaser may terminate this
Agreement by notice in writing to Purchaser or Sellers, as
the case may be.
(ii) If all issues to be determined pursuant to this
Section 5(e) have not been determined at least two (2)
Business Days prior to the Closing Date, then at the
election of either Sellers or Purchaser, subject in all
respects
<PAGE> 12
Hall-Houston Oil Company et al.
November 20, 1998
Page 12
to the termination rights under Section 10(a), the Closing
Date shall be deferred until all such issues have been
determined in accordance with this Section 5(e), but in no
event longer than ten (10) days, and all subsequent dates
and required activities having reference to the Closing
Date shall be correspondingly deferred.
(iii) Subject to the provisions of subsection (i) of this
Section 5(e), with respect to any Title Defect that any
Seller elects not to cure or that any Seller fails to cure
prior to the Closing, the portion of the Purchase Price
allocable to such Seller shall be reduced by the amount
determined with respect to such Title Defect pursuant to
subsection (i) of this Section 5(e), unless Purchaser or
Sellers elect(s) to terminate this Agreement pursuant to
subsection (iv) of this Section 5(e).
(iv) Notwithstanding anything contained herein to the
contrary, other than the proviso appearing in the first
sentence of subsection (i) of this Section 5(e), in the
event that any Title Defect that is asserted in a Title
Defect Notice is not cured prior to Closing, resolved
pursuant to subsection (i) of this Section 5(e), or waived
in writing by Purchaser, Purchaser or Sellers may
terminate this Agreement by notice in writing to Purchaser
or Sellers, as the case may be.
(f) NO WARRANTY OF MERCHANTABILITY OR FITNESS. EXCEPT AS
OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, HHOC MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE
WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, REGARDING THE SUBJECT LEASE EQUIPMENT, THE SUBJECT
PIPELINE EQUIPMENT, AND OTHER PERSONAL PROPERTY INCLUDED IN THE SUBJECT
INTERESTS, AND THE SAME ARE TO BE SOLD BY HHOC AND ACCEPTED BY
PURCHASER ON AN "AS IS" AND "WHERE IS" BASIS AND CONDITION.
(g) WAIVER OF CONSUMER RIGHTS. PURCHASER WAIVES ITS RIGHTS
UNDER THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT,
SECTION 17.41 ET SEQ., TEXAS BUSINESS & COMMERCE CODE, A LAW THAT GIVES
CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN
ATTORNEY OF PURCHASER'S OWN SELECTION,
<PAGE> 13
Hall-Houston Oil Company et al.
November 20, 1998
Page 13
PURCHASER VOLUNTARILY CONSENTS TO THIS WAIVER. IN ORDER TO EVIDENCE ITS
ABILITY TO GRANT SUCH WAIVER, PURCHASER HEREBY REPRESENTS AND WARRANTS
TO SELLERS THAT PURCHASER (I) IS IN THE BUSINESS OF SEEKING OR
ACQUIRING BY PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR
BUSINESS USE, (II) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND
BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF THE
TRANSACTION CONTEMPLATED HEREBY AND (III) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION.
6. WARRANTIES AND REPRESENTATIONS OF SELLERS. Each Seller shall convey
the Subject Interests to Purchaser with the warranties and representations set
forth in the Assignment, which warranties and representations are made
severally, and not jointly, as to the portion of the Subject Interests owned by
each Seller. In addition, each Seller, solely as to such Seller, warrants and
represents to Purchaser (with such warranties and representations surviving the
Closing for a period of one year) that as of the date hereof and as of the
Closing:
(a) ORGANIZATION AND QUALIFICATION. HHOC is a corporation,
duly organized, validly existing and in good standing under the laws of
the State of Texas. Each of the Trusts is a trust created and existing
under the laws of the State of Texas.
(b) AUTHORITY. Each Seller has all requisite power and
authority to own and sell the Subject Interests which it owns, to carry
on its business as presently conducted, to enter into this Agreement
and to perform its obligations hereunder, and delivery and performance
of this Agreement do not (i) conflict with or violate any Seller's
articles of incorporation or bylaws or other governing documents, or
any agreement or instrument to which any Seller is a party or by which
any Seller is bound, or any law, administrative regulation or rule,
judgment, decree, order or statute applicable to any Seller, or (ii)
constitute a material breach of, or any event of default under, any
contract to which any Seller is a party or by which any Seller or its
assets are bound, or constitute the happening of an event or condition
upon which any other party to such contract or agreement may exercise
any right or option which will materially and adversely affect any of
the Subject Interests.
(c) EXECUTION OF AGREEMENT AND CLOSING DOCUMENTS. This
Agreement has been duly authorized (as necessary), executed, and
delivered on behalf of each Seller, and at the Closing all documents
and instruments required hereunder to be executed and delivered by each
Seller shall have been duly authorized, executed, and delivered by such
Seller. This
<PAGE> 14
Hall-Houston Oil Company et al.
November 20, 1998
Page 14
Agreement constitutes the valid and binding agreement of each Seller
enforceable against such Seller in accordance with its terms.
(d) LITIGATION AND UNDISCLOSED LIABILITIES. No claim, suit,
action, insolvency case or other proceeding is pending or, to the best
of any Seller's knowledge, threatened before any court or governmental
authority which might (i) result in impairment or loss to any Seller of
title to any part of the Subject Interests or the value thereof, (ii)
hinder or impede the operation of the Subject Interests or (iii)
hinder, impede, or prevent any Seller from being able to consummate the
transaction contemplated by this Agreement. Each Seller shall promptly
notify Purchaser of any such matter arising prior to the Closing with
respect to which such Seller receives actual notice. There are no
bankruptcy, reorganization or arrangement proceedings pending, being
contemplated by or threatened against any Seller.
(e) TITLE TO SUBJECT INTERESTS. The following statements
regarding Sellers' title to the Subject Interests are substantially
correct and not materially misleading in any respect:
(i) to the best of such Seller's knowledge, such Seller is
not in default under some material provision of a lease,
agreement or other contract affecting the Subject
Interests;
(ii) to the best of such Seller's knowledge, the Subject
Leases are in full force and effect and all royalties and
other amounts due and owing under the Subject Leases
(including, but not limited to, shut-in royalties, delay
rentals, and payments in respect of damages to the surface
of the lands covered by the Subject Leases) have been paid
timely and in full, and no notices have been received by
any Seller of any claim to the contrary;
(iii) to the best of such Seller's knowledge, the Subject
Interests include all rights of ingress and egress and
other rights necessary for operations currently conducted
on the Subject Interests and for the production, treating,
storing, marketing or transportation of oil and/or gas
produced from or allocable to the Subject Leases;
(iv) the Subject Interests are not subject to any liens,
mortgages, deeds of trust, preferential rights to
purchase, requirements for consents to assignment,
reversionary rights in favor of third parties or other
<PAGE> 15
Hall-Houston Oil Company et al.
November 20, 1998
Page 15
encumbrances other than Permitted Encumbrances and those
identified on Exhibit "A" hereto;
(v) each Seller is entitled to receive not less than the
Net Revenue Interests (N.R.I.) set forth in Exhibit "A-1 "
as to such Seller and is not obligated to pay costs and
expenses relating to the Subject Interests in an amount
greater than the Working Interests (W.I.) set forth in
Exhibit "A-1" as to such Seller for each of the Subject
Leases; and
(vi) since the Effective Date, there has been no material
change in the condition of the Subject Interests other
than normal production of Hydrocarbons and depreciation of
Subject Lease Equipment and the Subject Pipeline Equipment
through ordinary wear and tear.
(f) SUBJECT CONTRACTS. The Subject Contracts listed under the
heading "Permitted Encumbrances" in Exhibit "A" hereto, including, but
not limited to, the operating agreements applicable to the operation of
the Subject Leases and the pipelines located on the lands covered by
the Subject Easements and the pipelines located on the lands covered by
the Subject Easements, are in force and effect, no Seller has been
advised of a default under any such agreement, and there are no joint
interest audits being conducted, nor any disputes concerning any such
agreement. The execution and delivery of this Agreement and the
consummation of the transaction contemplated hereby will not be
considered a default under any of such Subject Contracts, except to the
extent of any default thereunder waived by the necessary parties prior
to the Closing.
(g) PREPAYMENT ARRANGEMENTS AND IMBALANCES. No Seller is
obligated, by virtue of a take-or-pay or other prepayment arrangement,
a gas balancing arrangement, or any similar provision in any contract
for the sale of oil and/or gas, to deliver oil and/or gas produced from
or allocable to the Subject Interests at some future time without
receiving full payment therefor. No natural gas included in the Subject
Interests and physically produced (but not sold) before the Effective
Date is in storage. No Seller has produced a share of gas from or
attributable to the Subject Leases greater than its ownership
percentage of such gas and no Seller is under an obligation to reduce
its share of production of such gas from or attributable to the Subject
Leases under any gas balancing agreement or similar contract to allow
any under produced parties to come back into balance.
<PAGE> 16
Hall-Houston Oil Company et al.
November 20, 1998
Page 16
(h) COMPLIANCE WITH PRICING LAWS. To the best of its
knowledge, no Seller has received any proceeds from the sale of
production of Hydrocarbons from or allocable to the Subject Leases in
excess of the amounts permitted under applicable laws, rules and
regulations of the United States government or any state government. To
the best of its knowledge, no Seller has actual or asserted liability,
nor any potential liability, for the refund of any such proceeds or any
interest or penalties thereon.
(i) TAXES. Any and all ad valorem, production, severance,
windfall profit and similar taxes and assessments based on or measured
by each Seller's ownership of the Subject Interests, Hydrocarbon
reserves attributable to the Subject Interests, the production of such
Hydrocarbons, or the receipt of proceeds therefrom for all years prior
to the year in which this Agreement is executed have been properly
paid, and all such taxes and assessments which become due and payable
prior to the Closing shall be properly paid by each Seller. There are
no assessed tax deficiencies against any Seller with respect to the
Subject Interests owned by such Seller or the production of
Hydrocarbons therefrom and no audits presently being conducted by any
federal, state or local authority regarding taxes allegedly due and
owing by such Seller and affecting the Subject Interests or the
production of Hydrocarbons from or allocable to the Subject Leases.
Purchaser acknowledges that, to the extent that there exists any
production tax refund entitlement with respect to production of
Hydrocarbons from or attributable to the Subject Interests occurring
prior to the Effective Date, the same shall be deemed to be the
property of HHOC or one or both of the Trusts, as the case may be, and
shall not be deemed to be conveyed, or subject to conveyance, pursuant
to the terms of this Agreement or the Assignment.
(j) BROKERS' FEES. No Seller has incurred any liability,
contingent or otherwise, for broker's or finder's fees in respect of
the transaction which is the subject of this Agreement for which
Purchaser shall have any responsibility whatsoever.
(k) COMPLIANCE WITH LAWS. All laws, regulations and orders of
all governmental authorities having jurisdiction over the Subject
Interests have been, to the best knowledge of each Seller, complied
with and shall continue to be complied with until the Closing,
including, but not limited to, all state, federal, and local
environmental laws, all applicable permitting procedures for the
drilling or operation of oil and gas wells, and all applicable laws
regarding the spacing, completion, and bottoming of wells, the disposal
of water therefrom, the prorating of production therefrom, and all
other conservation matters. Without limiting the generality of the
foregoing, no well constituting a part of the Subject Interests is
shut-in, curtailed or otherwise subject to penalties on allowables
because of any
<PAGE> 17
Hall-Houston Oil Company et al.
November 20, 1998
Page 17
over production which would prevent the full legal and regular
allowable (including, but not limited to, maximum permissible
tolerance), as prescribed by any court or federal, state or local
governmental authority, to be assigned to any such well.
(l) CONDITION OF PERSONAL PROPERTY. Without in any manner
impairing the disclaimer of certain warranties by Sellers provided in
Section 5(f), to the best of each Seller's knowledge, all personal
property and equipment included within, located on or used in
connection with the Subject Interests has been operated in accordance
with industry standards, has been maintained in a good and workmanlike
manner, is in a state of good repair (ordinary wear and tear excepted),
and is free from material defects.
7. WARRANTIES AND REPRESENTATIONS OF PURCHASER. Purchaser warrants and
represents to Sellers that, as of the date hereof and as of the Closing:
(a) CORPORATE ORGANIZATION AND QUALIFICATION. Purchaser is a
corporation duly organized and validly existing and in good standing
under the laws of the State of Texas.
(b) AUTHORITY. Purchaser has all requisite corporate power and
authority to carry on its business as presently conducted, to enter
into this Agreement and to perform its obligations hereunder, and
delivery and performance of this Agreement do not (i) conflict with or
violate Purchaser's articles or certificates of incorporation or
bylaws, or any agreement or instrument to which Purchaser is a party or
by which Purchaser is bound, or any law, administrative regulation or
rule, judgment, decree, order or statute applicable to Purchaser, or
(ii) constitute a material breach of, or any event of default under,
any contract to which Purchaser is a party or by which Purchaser or its
assets are bound, or constitute the happening of an event or condition
upon which any other party to such contract or agreement may exercise
any right or option which will materially adversely affect any of the
Subject Interests.
(c) EXECUTION OF AGREEMENT AND CLOSING DOCUMENTS. This
Agreement has been duly authorized, executed, and delivered on behalf
of Purchaser, and at the Closing all documents and instruments required
hereunder to be executed and delivered by Purchaser shall have been
duly authorized, executed, and delivered.
(d) BROKER'S FEES. Purchaser has incurred no liability,
contingent or otherwise, for broker's or finder's fees in respect of
the transaction which is the subject of this Agreement for which
Sellers shall have any responsibility whatsoever.
<PAGE> 18
Hall-Houston Oil Company et al.
November 20, 1998
Page 18
8. OPERATIONS. HHOC covenants that, from the date hereof through the
Closing Date, except as provided herein or as otherwise consented to in writing
by Purchaser, HHOC will:
(a) not (i) in any manner deal with, incur obligations with
respect to, or undertake any transactions relating to, the Subject
Interests other than transactions (A) in the normal, usual and
customary manner, (B) of a nature and in an amount consistent with
prior practice, and (C) in the ordinary and regular course of business
of owning and operating the Subject Interests; (ii) acquire, dispose
of, encumber or relinquish any of the Subject Interests; or (iii)
waive, compromise or settle any right or claim that would adversely
affect the ownership, operation or value of any of the Subject
Interests after the Effective Date, provided, however, that if HHOC
undertakes to make any capital expenditures or work-over expenditures
with respect to the Subject Interests (except when required by an
emergency when there shall have been insufficient time to notify
Purchaser) in excess of $5,000, it shall notify Purchaser and obtain
Purchaser's written consent thereto, which consent shall not withheld
or delayed unreasonably;
(b) use all reasonable efforts to preserve relationships with
all third parties having business dealings with respect to the Subject
Interests; and
(c) maintain in effect insurance providing the same type
coverage, in the same amounts, and with the same deductibles as the
insurance maintained in effect by HHOC on the Effective Date.
9. CONDITIONS TO CLOSING.
(a) SELLER'S CONDITIONS. Sellers' obligation to proceed with
the Closing is subject to the satisfaction, as of the Closing Date, of
the following conditions, which shall be deemed satisfied upon the
occurrence of the Closing:
(i) the representations and warranties of Purchaser set
forth in this Agreement shall be true and correct, in all
material respects (except to the extent such
representations and warranties speak as of an earlier
date), as though made at and as of the Closing;
<PAGE> 19
Hall-Houston Oil Company et al.
November 20, 1998
Page 19
(ii) Purchaser shall have performed, in all material
respects, the covenants and agreements which Purchaser was
required to perform or satisfy at or prior to the Closing;
(iii) except for matters not customarily and appropriately
obtained prior to the Closing, Sellers have received
evidence, in form reasonably satisfactory to their
counsel, that all permits, consents, approvals, licenses,
qualifications, and orders required by governmental
authority, or the terms of any of the Subject Interests,
to be obtained prior to the Closing have been obtained or
waived;
(iv) there shall be no action or proceeding pending or
threatened before a court arbitrator or governmental
authority seeking to restrain or prohibit the consummation
of the transaction contemplated by this Agreement or to
obtain substantial damages from any of Sellers related to
this Agreement; and
(v) all Title Defects asserted in any Title Defect Notice
shall have been (A) cured, (B) resolved pursuant to
Section 5(e) or (C) waived in writing by Purchaser.
(b) PURCHASER'S CONDITIONS. Purchaser's obligation to proceed
with the Closing is subject to the satisfaction, as of the Closing
Date, of the following conditions which shall be deemed satisfied upon
the occurrence of Closing:
(i) the representations and warranties of Sellers set
forth in this Agreement shall be true and correct, in all
material respects, (except to the extent such
representations and warranties speak as of an earlier
date) as though made at and as of the Closing;
(ii) Sellers shall have performed, in all material
respects, the covenants and agreements which Sellers were
required to perform or satisfy at or prior to the Closing;
(iii) except for matters not customarily and appropriately
obtained prior to the Closing, Purchaser shall have
received evidence, in form reasonably satisfactory to its
counsel, that all permits, consents,
<PAGE> 20
Hall-Houston Oil Company et al.
November 20, 1998
Page 20
approvals, licenses, qualifications, and orders required
by any governmental authority, or the terms of any of the
Subject Interests, to be obtained have been obtained or
waived;
(iv) there shall be no action or proceeding pending or
threatened before a court, arbitrator or governmental
authority seeking to restrain or prohibit the consummation
of the transaction contemplated by this Agreement or to
obtain substantial damages from Purchaser related to this
Agreement;
(v) all Title Defects asserted in any Title Defect Notice
shall have been (A) cured, (B) resolved pursuant to
Section 5(e) or (C) waived in writing by Purchaser; and
(vi) since the Effective Date, there shall have been no
material adverse change in the condition of the Subject
Leases, the Subject Lease Equipment or the Subject
Pipeline Equipment, except depletion through normal
production within authorized allowables, changes in rates
of production that occur in the ordinary course of
operation of the Subject Leases, and depreciation of the
Subject Lease Equipment and the Subject Pipeline Equipment
through ordinary wear and tear.
<PAGE> 21
Hall-Houston Oil Company et al.
November 20, 1998
Page 21
10. TERMINATION AND LIABILITIES UPON TERMINATION.
(a) Right to Terminate. This Agreement and the transaction
contemplated by this Agreement may be terminated in the
following situations:
(i) by Sellers or Purchaser, if the Closing does not occur
on or before December 11, 1998; provided, however, that
neither Sellers nor Purchaser may terminate this Agreement
if, as the case may be, it is or they are in breach of
this Agreement;
(ii) by Sellers, if the conditions contained in Section
9(a) are not satisfied or waived as of the Closing Date;
(iii) by Purchaser, if the conditions contained in Section
9(b) are not satisfied or waived as of the Closing Date;
and
(iv) by Sellers and Purchaser pursuant to written
agreement;
(b) LIABILITIES UPON TERMINATION. Subject to the further
provisions of this Section 10(b), termination of this Agreement by any
non-defaulting party, pursuant to Section 10(a), shall be in addition
to any other rights or remedies available at law or in equity to such
party, subject, however, to the provisions of Section 15 below, arising
out of any failure by the other party or parties of any of its or their
obligations under this Agreement or the failure of any representation
or warranty made by the other party or parties in this Agreement to be
true and correct, provided, however, (i) termination of this Agreement,
with no party having any liability to any other, shall be the sole
remedy of Purchaser should Sellers' warranty of title prove to be
untrue or incorrect as a result of a Title Defect not resolved by
mutual agreement of the parties and (ii) if Sellers terminate this
Agreement should Sellers' warranty of title prove to be untrue or
incorrect as a result of a Title Defect not resolved by mutual
agreement of the parties, Sellers shall have no liability to Purchaser.
In no event shall a party hereto be entitled to recover incidental,
consequential, statutory, or punitive damages as a result of any
termination of this Agreement or any breach of any representation,
warranty, condition or covenant hereunder or a failure to perform an
obligation hereunder.
11. CLOSING. The Closing shall be held at 10:00 a.m. Houston, Texas
time at HHOC's offices in Houston, Texas on or before December 11, 1998, or at
such other time and place as may be mutually acceptable to Sellers and
Purchaser. At the Closing, each Seller shall execute and
<PAGE> 22
Hall-Houston Oil Company et al.
November 20, 1998
Page 22
deliver to Purchaser the Assignment, a statement to the effect that such Seller
is not a "foreign person" within the context of Treasury Regulations
ss.1.1445-2(b)(2), and such other documents as may be required hereunder to be
delivered by such Seller to Purchaser as a condition to the Closing. At the
Closing, Purchaser shall deliver or cause to be delivered to each Seller the
portion of the Purchase Price allocable to such Seller; Purchaser shall join in
execution of the Assignment; if Purchaser is to succeed HHOC as operator of the
Subject Leases and the pipelines located on the Subject Easements, Purchaser
shall execute all documents required by any governmental authority with
jurisdiction to evidence such succession by Purchaser and Purchaser shall
provide to HHOC evidence that Purchaser has in place with such governmental
authorities all bonds required as a result of such succession; and Purchaser
shall execute and deliver to Sellers such other documents as may be required to
be delivered by Purchaser to Sellers as a condition to the Closing.
12. INDEMNITIES. ON AND AFTER THE CLOSING DATE, PURCHASER SHALL
PROTECT, INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLERS, AND THE SHAREHOLDERS,
DIRECTORS, OFFICERS, TRUSTEES, BENEFICIARIES, EMPLOYEES, AND AGENTS OF ANY
SELLER, AND THE HEIRS, DEVISEES, SUCCESSORS AND ASSIGNS OF ANY OF THE FOREGOING
(COLLECTIVELY, THE "SELLER INDEMNITEES"), FROM AND AGAINST ANY AND ALL CLAIMS,
LIABILITIES, DEMANDS, LOSSES, DAMAGES, COSTS, EXPENSES, COURT COSTS, REASONABLE
ATTORNEY FEES, CAUSES OF ACTION, DEATHS, PERSONAL INJURIES, ILLNESSES, DISEASES,
LITIGATION, JUDGMENTS OR SETTLEMENTS PERTAINING TO THE SUBJECT INTERESTS ARISING
OUT OF ANY ACTIONS OR FAILURES TO ACT OCCURRING ON AND AFTER THE CLOSING DATE.
LIKEWISE, ON AND AFTER THE CLOSING DATE, SELLERS, SEVERALLY AND NOT JOINTLY,
SHALL PROTECT, INDEMNIFY, DEFEND AND HOLD HARMLESS PURCHASER AND THE
SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS OF PURCHASER, AND THE
HEIRS, DEVISEES, SUCCESSORS, AND ASSIGNS OF ANY OF THE FOREGOING, FROM AND
AGAINST ANY AND ALL CLAIMS, LIABILITIES, DEMANDS, LOSSES, DAMAGES, COSTS,
EXPENSES, COURT COSTS, REASONABLE ATTORNEY FEES, CAUSES OF ACTION, DEATHS,
PERSONAL INJURIES, ILLNESSES, DISEASES, LITIGATION, JUDGMENTS OR SETTLEMENTS
PERTAINING TO THE SUBJECT INTERESTS ARISING OUT OF ANY ACTION OR FAILURES TO ACT
OCCURRING PRIOR TO THE CLOSING DATE. FURTHER TO THE FOREGOING, ON AND AFTER THE
CLOSING DATE, PURCHASER SHALL ASSUME ALL RESPONSIBILITY FOR, AND SHALL INDEMNIFY
ALL SELLER INDEMNITEES AGAINST ANY LIABILITY OR COST IN CONNECTION WITH, THE
PLUGGING OF THE WELLS AND THE RESTORATION OF THE SURFACE THAT RELATE TO THE
SUBJECT INTERESTS, WHETHER ARISING UNDER LAW, RULE OR REGULATION, BY AGREEMENT
OR OTHERWISE.
13. ACCESS TO SUBJECT DATA. Upon the Closing, HHOC, for the same
consideration provided in Section 2 above, agrees to make the Subject Data
available to Purchaser at the offices of HHOC for review by Purchaser or its
designated representatives from time to time. The Subject Data shall be made
available during normal business hours and following reasonable advance notice
by Purchaser to HHOC. Subject to the need of HHOC to use such equipment (which
need shall have
<PAGE> 23
Hall-Houston Oil Company et al.
November 20, 1998
Page 23
priority over the rights of Purchaser), HHOC shall allow Purchaser or its
designated representatives to utilize 3D seismic workstations in HHOC's offices
in processing and interpreting portions of the Subject Data. In utilizing the
Subject Data and such equipment of HHOC, Purchaser and its designated
representatives shall not make any copies of the Subject Data or remove any of
the Subject Data from the offices of HHOC and Purchaser and its designated
representatives shall be subject to all confidentiality obligations and use
limitations applicable to HHOC, including, but not limited to, those contained
in the Exploration Agreement, and reasonable confidentiality policies and
procedures imposed by HHOC on Purchaser and its designated representatives to
protect the confidentiality of information and data in the offices of HHOC other
than the Subject Data. Purchaser agrees that it shall be responsible for
compliance by its designated representatives with confidentiality obligations
and use limitations applicable to the Subject Data and, if requested by HHOC,
shall cause each such designated representative to enter into a confidentiality
agreement with HHOC in form and substance acceptable to HHOC.
14. OPTION TO PARTICIPATE IN EXPLORATORY WELLS. Upon the Closing, HHOC,
for the same consideration provided in Section 2 above, grants to Purchaser the
right (exercisable as provided below in this Section 14) to participate, in an
amount up to twenty-five percent (25%) of the (31.25%) working interest of HHOC
as to depths including and below the top of the Wilcox formation underlying the
"Seismic Area" established pursuant to the Exploration Agreement (the "Option
Area"), in the risk, liability, and expense of the drilling of each initial well
proposed by HHOC or any of the other parties to the Exploration Agreement (an
"Option Area Initial Well") to establish production of Hydrocarbons from the
portion of the Option Area covered by the operating agreement entered into among
HHOC and the other parties to the Exploration Agreement, pursuant to applicable
provisions of the Exploration Agreement, to govern operations on such portion of
the Option Area (an "Option Area Operating Agreement") and earn an equivalent
interest in the portion of the Option Area covered by the relevant Option Area
Operating Agreement (the "Designated Option Area Acreage") by bearing a
proportionate share of the risk, liability, and expense to HHOC to drill the
relevant Option Area Initial Well and test such well prior to making an election
to attempt to complete such well as a well capable of producing Hydrocarbons in
commercial quantities, subject, however, to the right of HHOC, as to each Option
Area Initial Well, to elect, pursuant to applicable provisions of the relevant
Option Area Operating Agreement, not to participate in the drilling of the
relevant Option Area Initial Well, in which case, as to any Option Area Initial
Well, Purchaser shall have no right to participate in such Option Area Initial
Well or the relevant Designated Option Area Acreage.
Should HHOC propose, or receive notice from another party to the
Exploration Agreement or the relevant Option Area Operating Agreement proposing,
the drilling of an Option Area Initial
<PAGE> 24
Hall-Houston Oil Company et al.
November 20, 1998
Page 24
Well, HHOC shall provide to Purchaser promptly a copy of the proposal for such
Option Area Initial Well. Purchaser shall have the right, exercisable by written
notice to HHOC within fifteen (15) days of receipt from HHOC of a copy of the
proposal for the relevant Option Area Initial Well, to exercise the option
granted to Purchaser in the immediately preceding paragraph of this Section 14,
which notice to HHOC shall state the extent of the portion (stated as a
percentage and not exceeding 25%) of the working interest of HHOC in the
relevant Designated Option Area Acreage which Purchaser elects to bear in
connection with the drilling of the relevant Option Area Initial Well (the
"Participation Percentage"). Failure of Purchaser to respond to HHOC within the
time period provided in the immediately preceding sentence of this Section 14
shall constitute an election by Purchaser not to participate in the drilling of
the relevant Option Area Initial Well.
Should Purchaser elect, or be deemed to have elected (pursuant to the
final sentence of the immediately preceding paragraph of this Section 14), not
to participate in the drilling of any Option Area Initial Well, then,
notwithstanding any provision of the relevant Option Area Operating Agreement to
the contrary, Purchaser shall have no further right with respect to the relevant
Designated Option Area Acreage or any operations thereon.
Should Purchaser exercise, in connection with the drilling of any
Option Area Initial Well, the option granted to Purchaser in the first paragraph
of this Section 14, then should any party to the relevant Option Area Operating
Agreement elect not to participate in the drilling of such Option Area Initial
Well, Purchaser shall also be entitled to acquire from HHOC up to twice the
relevant Participation Percentage of the interest of any such non-participating
party available to HHOC on the basis of HHOC's working interest in the relevant
Designated Option Area Acreage prior to giving effect to the election by
Purchaser to exercise the option granted to Purchaser in the first paragraph of
this Section 14. HHOC shall provide to Purchaser promptly notice of the
aggregate interest available to HHOC as the result of the election of other
parties to the relevant Option Area Operating Agreement not to participate in
the drilling of the relevant Option Area Initial Well. Purchaser shall,
thereafter, provide to HHOC, within fifteen (15) days of receipt by Purchaser of
such notice from HHOC, notice of the portion (stated as a percentage and not
exceeding twice the relevant Participation Percentage) of the aggregate interest
available to HHOC as the result of the election of other parties to the relevant
Option Area Operating Agreement not to participate in the drilling of the
relevant Option Area Initial Well which Purchaser elects to acquire. Failure of
Purchaser to respond to HHOC within the time period provided in the immediately
preceding sentence of this Section 14 shall constitute an election by Purchaser
not to acquire from HHOC any portion of the aggregate interest available to HHOC
as the result of the election of other parties to the relevant Option Area
Operating Agreement not to participate in the drilling of the relevant Option
Area Initial Well.
<PAGE> 25
Hall-Houston Oil Company et al.
November 20, 1998
Page 25
Upon an election by Purchaser to exercise, as to any Option Area
Initial Well, the option granted to Purchaser in the first paragraph of this
Section 14, HHOC shall execute and deliver to Purchaser an assignment, in form
and substance mutually acceptable to HHOC and Purchaser, of the relevant
Participation Percentage of the working interest of HHOC in the relevant
Designated Option Area Acreage. Each such assignment by HHOC to Purchaser shall
be made subject to the Exploration Agreement and the relevant Option Area
Operating Agreement and to a proportionate share of lessor's royalty and all
other burdens on the interest of HHOC in the relevant Designated Option Area
Acreage. All operations on the relevant Designated Option Area Acreage shall be
conducted in accordance with the relevant Option Area Operating Agreement, but
giving effect to such assignment by HHOC to Purchaser and any election by
Purchaser to acquire a portion of the aggregate interest available to HHOC as
the result of the election of other parties to the relevant Option Area
Operating Agreement not to participate in the drilling of the relevant Option
Area Initial Well.
15. DISPUTE RESOLUTION. Any dispute relating to performance hereunder
shall be finally settled by arbitration in Houston, Texas, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
16. MISCELLANEOUS.
(a) NOTICES. Any notice required to be given pursuant to this
Agreement shall be in writing and shall be delivered in person, or by
private courier service, with written receipt of acceptance returned to
the sender, or via registered or certified mail, return receipt
requested, postage prepaid, or by telecopier (with confirmation of
receipt by telecopier sent by the recipient to the sender within two
hours of completion of transmission with the result that, if there is
no such confirmation of receipt by telecopy, the original notice sent
by telecopier shall not be deemed effective notice) to each of the
relevant parties at the address, or at the telecopier number, set forth
in the letterhead or inside address of this Agreement, as the case may
be.
(b) GOVERNING LAW. This Agreement and all issues of
interpretation or performance shall be governed by and construed under
the laws of the State of Texas.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns;
provided, however, prior to the Closing, Purchaser shall have no right
to assign any rights or delegate any obligations of Purchaser
<PAGE> 26
Hall-Houston Oil Company et al.
November 20, 1998
Page 26
hereunder without the prior written consent of Sellers, which consent
may be withheld for any reason or for no reason. After the Closing,
Purchaser shall have no right to assign any rights or delegate any
obligations of Purchaser under Section 13 or Section 14 above without
the prior written consent of HHOC, which consent may be withheld for
any reason or for no reason and Purchaser shall have no right to assign
any rights or delegate any obligations with respect to the Subject
Interests or any interest earned by Purchaser in the Option Area
pursuant to Section 14 above except in compliance with applicable
provisions of the Exploration Agreement (including, but not limited to,
Article VIII thereof) and any applicable operating agreement.
(d) CONTROLLING AGREEMENT. In the event of any conflict
between the provisions of this Agreement and those of the Assignment,
the provisions of this Agreement shall be controlling. Notwithstanding
the foregoing, provisions contained in the Assignment not addressed in
this Agreement shall not be deemed in conflict with this Agreement and
shall be given full force and effect.
(e) SEVERABILITY. All provisions herein are severable and in
the event any one of them shall be held invalid by any court of
competent jurisdiction, this Agreement shall be interpreted as if such
invalid provision was not contained herein.
(f) HEADINGS. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute
a part of this Agreement.
(g) ATTORNEY'S FEES. Subject to the provisions of Section 15
above, if any action at law or in equity, including, without
limitation, any arbitration pursuant to the provisions of Section 15
above, is instituted by any party hereto to enforce or interpret the
terms of this Agreement, then the prevailing party in such action shall
be reimbursed all reasonable attorney's fees and other costs,
including, but not limited to, expenses incurred by such prevailing
party in such action.
(h) WAIVERS. No waiver of any condition of this Agreement
shall be valid unless it is in writing.
(i) RECORDS AND DATA. Within 30 days after the Closing Date,
Sellers shall deliver to Purchaser at Purchaser's offices (and at
Purchaser's expense) such original documents and copies of documents as
Sellers have in their possession (other than the Subject Data) that
pertain to the Subject Interests and are not subject to confidentiality
or other prohibitions on
<PAGE> 27
Hall-Houston Oil Company et al.
November 20, 1998
Page 27
their delivery to Purchaser; provided, however, Sellers shall be
entitled to make (at Sellers' expense) and retain copies of such
documents delivered to Purchaser and Sellers shall not be required to
deliver original documents relating to books of account and income tax
matters, but may provide Purchaser with copies thereof. Purchaser shall
retain the documents delivered to it pursuant to this Section 16(i) for
a reasonable amount of time, and shall make such documents available to
Sellers upon reasonable notice at Purchaser's offices at reasonable
times and during normal business hours. In the event that Purchaser
transfers the Subject Interests to any third party and includes in such
transfer the documents delivered to it by Sellers, such transfer shall
be made subject to the rights to access to such documents reserved in
Sellers in this Agreement and any such transferee shall be obligated to
continue to observe the rights of Sellers as set forth in this Section
16(i) for the period prescribed herein.
(j) AMENDMENTS. No amendment or modification of this Agreement
shall be deemed effective unless and until executed in writing by all
of the parties hereto.
(k) TIME OF ESSENCE. The parties hereto agree and understand
that time is of the essence in the performance of this Agreement and
the obligations of the parties hereto created hereunder.
(l) COUNTERPART EXECUTION. This Agreement may be executed in
any number of counterparts, each of which shall be considered an
original for all purposes.
(m) NO NEGOTIATIONS. During the period beginning on the date
hereof and ending on the earlier of (i) the Closing or (ii) the
termination of this Agreement, in connection with any effort on the
part of Seller to find a buyer of the Subject Interests, Sellers will
not approve or undertake any transaction involving directly or
indirectly all or any portion of the Subject Interests (a "Restricted
Transaction"), unless in connection with such transaction Purchaser is
promptly notified and Purchaser determines that its rights under this
Agreement will not be impaired. Upon the termination of this Agreement,
Seller shall have the right to resume its efforts to find a buyer for
all or any portion of the Subject Interests without any further
obligation to Purchaser hereunder.
(n) FURTHER ASSURANCES. Following the Closing, Sellers and
Purchaser agree to take such other and further actions and to execute
and deliver such other and further documents as may be required or
advisable to carry out the purposes and intent of this Agreement.
<PAGE> 28
Hall-Houston Oil Company et al.
November 20, 1998
Page 28
(o) SURVIVAL OF AGREEMENT. The provisions of this Agreement
shall survive the Closing and shall not be deemed merged into the
Assignment and the other documents executed and delivered at the
Closing.
(p) EXPLORATION AGREEMENT AND OTHER SUBJECT CONTRACTS. Upon
the Closing, Purchaser expressly agrees to assume and perform (and to
indemnify all Seller Indemnitees with respect to) all obligations of
HHOC under any of the Subject Contracts arising from operation of the
Subject Leases or the pipelines located on the Subject Easements on and
after the Closing Date. In addition, upon the Closing, Purchaser
accepts the Subject Interests subject to the Exploration Agreement
(provided that Purchaser shall have no rights thereunder) and, in
particular, agrees to be bound by and to comply with the provisions of
Section 5.2 (to the extent of the entire "Seismic Area" established
pursuant to the Exploration Agreement, notwithstanding that the Subject
Leases cover a lesser area and only limited depths underlying such
lesser area, and with the understanding that Purchaser shall be
obligated to offer to HHOC and the other parties to the Exploration
Agreement the right to acquire one hundred percent (100%) of the
interest acquired by Purchaser in any oil and gas lease or oil, gas,
and mineral lease covering lands within such "Seismic Area" and that,
if HHOC and the other parties to the Exploration Agreement exercise
their option pursuant to such Section 5.2, Purchaser shall have no
remaining interest in the relevant oil and gas lease or oil, gas, and
mineral lease), Article VII, and Article VIII of the Exploration
Agreement; provided, however, no party to the Exploration Agreement
shall have any right under Section 5.2 of the Exploration Agreement as
the result of the closing of the transactions contemplated herein,
including, without limitation, execution and delivery by Sellers to
Purchaser of the Assignment.
(q) NO AGENCY, JOINT VENTURE OR PARTNERSHIP. The parties to
this Agreement agree that this Agreement establishes no agency, joint
venture or partnership, and that no party hereto shall incur
obligations in the name of any other party hereto, or be obligated in
respect of any obligation of any other party hereto without the prior
written consent of such other party.
(r) PUBLICITY. Sellers and Purchaser shall consult with each
other with regard to all publicity and other releases issued at or
prior to the Closing concerning this Agreement and the transactions
contemplated hereby and, except as required by applicable law or the
applicable rules or regulations of any governmental body or stock
exchange, no party shall issue any public statement or other release
without the prior written consent of the other party or parties hereto,
which consent shall not be unreasonably withheld.
<PAGE> 29
Hall-Houston Oil Company et al.
November 20, 1998
Page 29
If the foregoing accurately sets forth our agreement, please execute a
copy of this Agreement in the space provided below.
Yours very truly,
CARRIZO OIL & GAS, INC.
By:
-----------------------------------
Printed Name:
-------------------------
Title:
--------------------------------
AGREED TO AND ACCEPTED as of
the 20th day of November, 1998
HALL-HOUSTON OIL COMPANY
By:
-----------------------------------
Gary L. Hall
Chairman and Chief Executive
Officer
HALL-HOUSTON 1996 EXPLORATION AND
DEVELOPMENT FACILITY OVERRIDING
ROYALTY TRUST
By:
-----------------------------------
Gary L. Hall
Trustee
By:
-----------------------------------
Wayne P. Hall
<PAGE> 30
Hall-Houston Oil Company et al.
November 20, 1998
Page 30
Trustee
HALL-HOUSTON OIL COMPANY EMPLOYEE
ROYALTY TRUST
By:
-----------------------------------
Gary L. Hall
Trustee
By:
-----------------------------------
Wayne P. Hall
Trustee
<PAGE> 31
As permitted by Item 601(b)(2) of Regulation S-K, the Company has not
filed any exhibits with this Exhibit No. 2.1. Listed below is a brief
description of the omitted exhibits. The Company agrees to furnish
supplementally a copy of any of such omitted exhibits to the Commission upon
request.
Exhibits
- --------
A-1 Oil and Gas Wells
A Oil and Gas Leases
B Easements
C Assignment
