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EXHIBIT 99.4
PARTICIPATION AGREEMENT
This Participation Agreement ("AGREEMENT"), dated this 8th day of June,
2000, is between the Southern Ute Indian Tribe doing business as Red Willow
Production Company ("SUIT"), the address of which is P.O. Box 737, Ignacio,
Colorado 81137, and Contango Oil & Gas Company, a Nevada corporation
("CONTANGO"), the address of which is 3700 Buffalo Speedway, Suite 960, Houston,
Texas 77098.
RECITALS:
A. Contango currently holds the right to participate in oil and gas
exploration and development prospects ("PROSPECTS") and acquisitions of proved
oil and gas reserves ("PROVED PROPERTIES") through its Agreement (the "JEX
AGREEMENT") dated effective as of September 1, 1999 with Juneau Exploration
Company, L.L.C ("JEX").
B. Contango expects to obtain additional opportunities to participate in
Prospects and acquire Proved Properties during the term of this Agreement. These
opportunities may be obtained through (i) a transaction wherein the Offeror
extends Contango a one-time opportunity to participate in a particular Prospect
or group of Prospects or to acquire a particular group of Proved Properties
(such one-time opportunities are referred to hereinafter as "SINGLE
ACQUISITIONS") or (ii) an agreement whereby the Offeror extends Contango the
continuing opportunity to participate in various Single Acquisitions as they are
presented over the term of such agreement (such agreements offering multiple
opportunities for Single Acquisitions are referred to herein as "ACQUISITION
AGREEMENTS").
C. SUIT wants the right, but not the obligation, to acquire an undivided
interest in the Prospects and Proved Properties that Contango acquires, on a
case by case basis as they are offered to Contango, and Contango is willing to
grant such right to SUIT, pursuant to the terms hereof.
D. Concurrently with the execution of this Agreement, pursuant to a
separate agreement, SUIT is acquiring common stock of Contango and options to
acquire common stock of Contango.
NOW THEREFORE, for and in consideration of the terms of this Agreement, the
adequacy of which is hereby acknowledged, the parties agree as follows:
I. DEFINITIONS
"ACQUIRING PARTY" has the meaning ascribed in Section 12.1(b) of this
Agreement.
"ACQUISITION AGREEMENTS" has the meaning ascribed in the Recitals of this
Agreement.
"ACQUISITION COSTS" means the costs which must be paid by Contango in order
to be entitled to participate in, and to participate in, any Single Acquisition,
including but not limited to leasehold
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acquisition costs, geological and geophysical costs, land and legal costs, title
examination costs, drilling costs, completion costs, and reworking costs.
"AFFILIATE" means, with respect to any party, any of its officers and any
entity that, at such time, is, directly or indirectly through one or more
intermediaries, Controlled by such party or any of its officers.
"AREA OF INTEREST" has the meaning ascribed in Section 12.1(b) of this
Agreement.
"CLAIMS" has the meaning ascribed in Section 8.1.2 of this Agreement.
"CONDITIONAL ELECTION" has the meaning ascribed in Section 4.1 of this
Agreement.
"CONTROL" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of an entity,
whether through the ownership of voting securities or other equity interests, by
contract or otherwise.
"DAMAGES" has the meaning ascribed in Section 8.1.2 of this Agreement.
"ENCUMBRANCE" means a mortgage, deed of trust, security interest, pledge,
lien, net profits interest, royalty or overriding royalty interest, other
payments out of production, or other burdens of any nature, whether similar or
dissimilar to the foregoing.
"INITIAL ACQUISITION COSTS" means Acquisition Costs which must be paid by
Contango at the initial closing of the applicable Single Acquisition between
Contango and the Offeror.
"JEX" has the meaning ascribed in the Recitals of this Agreement.
"JEX AGREEMENT" has the meaning ascribed in the Recitals of this Agreement.
"LAW" has the meaning ascribed in Section 8.1.6 of this Agreement.
"NOTICES" has the meaning ascribed in Section 14.1 of this Agreement.
"NOTIFIED ENTITY" has the meaning ascribed in Section 13.2 of this
Agreement.
"NOTIFIED PARTY" has the meaning ascribed in Section 12.2 of this
Agreement.
"OFFEROR" means an individual or entity that offers Contango the
opportunity to participate in the acquisition of Single Acquisitions, either one
at the time or through Acquisition Agreements.
"OFFERED INTEREST" has the meaning ascribed in Section 13.2 of this
Agreement.
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"OPERATING AGREEMENTS" has the meaning ascribed in Section 5.2 of this
Agreement.
"PAYMENT DEADLINE" has the meaning ascribed in Section 4.2 of this
Agreement.
"POST-ACQUISITION ELECTION PROSPECTS" has the meaning ascribed in Section
4.3 of this Agreement.
"PROVED PROPERTIES" has the meaning ascribed in the Recitals of this
Agreement.
"SINGLE ACQUISITIONS" has the meaning ascribed in the Recitals of this
Agreement.
"SUBJECT PROPERTIES" has the meaning ascribed in Section 12.1(b) of this
Agreement.
"SUBSEQUENT ACQUISITION COSTS" means all Acquisition Costs other than
Initial Acquisition Costs.
"SURPLUS INTEREST" has the meaning ascribed in Section 2.3 of this
Agreement.
"TRANSFER" means, when used as a verb, to sell, grant, assign, or otherwise
convey, or dispose of or commit to do any of the foregoing; and when used as a
noun, means such a sale, grant, assignment, or other conveyance or disposition,
or such an arrangement. For purposes of this Agreement, however, a Transfer
shall not include any Encumbrance for the purpose of obtaining corporate or
project financing (including without limitation, project financing through
volumetric production payments).
"TRANSFERRING ENTITY" has the meaning ascribed in Section 13.2 of this
Agreement.
"TRIBAL COUNCIL" has the meaning ascribed in Section 8.4.1 of this
Agreement.
"VARIABLE INTEREST ACQUISITION" has the meaning ascribed in Section 2.3 of
this Agreement.
II. GRANT OF RIGHT TO PARTICIPATE
2.1 SUIT'S PARTICIPATION IN PROSPECTS AND PROVED PROPERTIES. Subject to the
further terms and conditions hereof, Contango hereby grants SUIT the right, but
not the obligation, by paying a proportionate part of the applicable Acquisition
Costs thereof, to acquire an undivided eighteen and 75/100ths percent (18.75%)
of the interest acquired by Contango in and to any and all Single Acquisitions
in which Contango acquires an interest and which are located within the United
States, including its Outer Continental Shelf, during the term of this
Agreement.
2.2 SUIT'S PARTICIPATION THROUGH ACQUISITION AGREEMENTS. Single
Acquisitions may be presented to Contango as one-time opportunities from Offeror
or may be presented to Contango as recurring opportunities to participate in
Prospects or Proved Properties as they are presented by
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the Offeror. In those cases where Contango receives an opportunity to
participate in a Single Acquisition through its rights under an Acquisition
Agreement, if SUIT desires to participate in such Single Acquisition, SUIT will
be required to participate, as to its undivided interest in such Single
Acquisition on the same basis and subject to the same terms and conditions as
does Contango under the terms of the applicable Acquisition Agreement.
2.3 VARIABLE INTEREST ACQUISITIONS. If, under the terms of any Acquisition
Agreement, Contango has the right to vary its percentage of participation in any
Single Acquisition (a "VARIABLE INTEREST ACQUISITION"), Contango shall not be
obligated to acquire the maximum percentage of interest which it is entitled to
acquire under such Acquisition Agreement. However, if Contango elects to acquire
less than the maximum percentage of interest of any Single Acquisition to which
it is entitled, then in addition to the 18.75% of such percentage interest that
SUIT acquires under Section 2.1 above, Contango hereby grants SUIT the right,
but not the obligation, to acquire any or all of the balance of the maximum
percentage of interest that Contango has elected not to acquire in such Single
Acquisition (the "SURPLUS INTEREST").
2.4 ACQUISITIONS FOR NON-CASH CONSIDERATION. If the terms of any Single
Acquisition provide that all or any part of the consideration to be paid by
Contango is to be paid with any class of Contango stock, SUIT will be permitted
to participate in such Single Acquisition, so long as SUIT reimburses Contango
for the value of the Contango stock that Contango will provide the Offeror in
the Single Acquisition on SUIT's behalf. For purposes of such reimbursement, the
Contango stock will be valued at an amount equal to eighteen and 75/100ths
percent (18.75%) of the risk-adjusted net present value of the applicable Single
Acquisition as such risk-adjusted net present value has been presented to and
approved by Contango's Board of Directors. This Agreement shall not entitle SUIT
to participate in any Prospects or Proved Properties obtained by Contango by
means of (i) any acquisition of equity interests in entities owning Prospects,
Proved Properties or Acquisition Agreements or rights to acquire Prospects,
Proved Prospects or Acquisition Agreements, (ii) any merger or (iii) any
business combination.
2.5 DECLINED ACQUISITIONS. SUIT shall not have the right to participate in
any Single Acquisition unless Contango participates in such Single Acquisition.
Contango shall be entitled to decline participation in any Single Acquisition
without obligation of any kind to SUIT.
2.6 NO ADDITIONAL ENCUMBRANCES. Each acquisition by SUIT of an undivided
interest in Prospects and Proved Properties will be subject to the same
Encumbrances which burden such Prospects and Proved Properties when they are
acquired by Contango, but Contango shall not add, or allow to be added, any
further Encumbrances to such Prospects and Properties to SUIT's undivided
interest therein.
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III. NOTICES OF ACQUISITION OPPORTUNITIES
3.1 NOTICE OF ACQUISITION OPPORTUNITIES. Contango shall follow the
following procedures in notifying SUIT in advance of potential acquisitions and
participation opportunities:
3.1.1 NOTICE OF POTENTIAL ACQUISITION AGREEMENTS. Contango shall keep
SUIT informed on a current basis as to any potential or pending Acquisition
Agreements, such that SUIT will have as much advance notice as possible so
as to enable it to begin considering whether it may be interested in
acquiring Single Acquisitions that may become available thereunder.
3.1.2 NOTICE FOLLOWING EXECUTION OF NEW ACQUISITION AGREEMENT.
Immediately after Contango enters into an Acquisition Agreement it shall
provide SUIT with a copy of such Acquisition Agreement so that SUIT may
have the opportunity to plan its participation in Single Acquisitions which
might be offered to Contango thereunder.
3.2 NOTICE OF SINGLE ACQUISITION OPPORTUNITIES. If Contango receives an
offer of a Single Acquisition which Contango considers to be of potential
interest, Contango shall:
3.2.1 Immediately after determining that the proposed Single
Acquisition is of interest, contact SUIT by telephone and provide SUIT with
an oral summary of the information regarding such Single Acquisition that
Contango has received as of that time and, if the applicable Single
Acquisition is a Variable Interest Acquisition, whether SUIT may have the
opportunity to acquire any Surplus Interest.
3.2.2 Immediately following receipt thereof by Contango, send to SUIT,
by facsimile, a complete copy of any proposed acquisition agreement or
written notice, including all attachments, which Contango may have received
in connection with such potential Single Acquisition.
3.2.3 Immediately following receipt thereof by Contango, send to SUIT,
by facsimile or overnight courier, any written materials furnished to
Contango by the Offeror (i) describing the oil and gas properties that are
the subject of the potential Single Acquisition, (ii) setting out the
financial terms of the potential Single Acquisition, and/or (iii)
estimating the future net revenues that may be produced from the
properties.
3.2.4 As soon as such arrangements have been made with the Offeror,
arrange for SUIT to participate with Contango in any review which Contango
does of the Offeror's land, legal, title, production history, and
subsurface and geophysical data and interpretations that are made available
to Contango, subject, of course, to any confidentiality limitations imposed
by the Offeror or its licensors.
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3.2.5 If Contango prepares, or has its consultants prepare, any
forecasts of the potential net revenues of wells then existing or expected
to be drilled on the applicable Single Acquisition, immediately following
their preparation, furnish a copy of such forecasts to SUIT.
3.2.6 If Contango prepares, or has its consultants prepare, any title
opinion or landman's runsheet or title report or conduct any title curative
on any of the oil and gas leases comprising the Single Acquisition,
immediately following their preparation, furnish a copy of such materials
to SUIT.
3.2.7 As soon as possible, but in any case prior to the applicable
election deadline, furnish SUIT with a General Information and Election
Form in the form of that attached as EXHIBIT A hereto, which shall (i)
identify the lands and leases comprising the Single Acquisition, (ii)
generally describe the nature of the Single Acquisition, (iii) explain who
holds record title to the applicable oil and gas interests and, if title
will not be conveyed to Contango and SUIT at the closing of such
acquisition, who will hold title meanwhile and describe the contractual
arrangements established to convey title to Contango and SUIT, (iv) set out
the percentages of participation interest available to Contango and SUIT
and provide a ballot for SUIT to elect whether to participate for its
18.75% interest and, if applicable, its Surplus Interest.
IV. ELECTIONS AND PAYMENTS
4.1 SUIT'S ELECTION TO PARTICIPATE IN A SINGLE ACQUISITION. At least six
(6) hours prior to the time by which Contango must elect whether it will
participate in any given Single Acquisition, SUIT shall advise Contango whether
it will participate for its 18.75% interest in such Single Acquisition (and, if
applicable, whether it will acquire any Surplus Interest) by completing and
signing the General Information and Election Form and returning it to Contango
by facsimile. A failure of SUIT to respond by said time will constitute an
election not to participate in such Single Acquisition. If SUIT desires to
participate in a given Single Acquisition, but has remaining unresolved concerns
regarding such Acquisition at the time of the required election, SUIT shall sign
and return the applicable General Information and Election Form and append a
rider thereto (i) stating that its election to participate in such Single
Acquisition is subject to its satisfaction with the resolution of certain
specific concerns and (ii) describing such specific concerns with particularity
(a "CONDITIONAL ELECTION").
4.2 SUIT'S PAYMENT OF ITS SHARE OF INITIAL ACQUISITION COSTS. Unless SUIT
has given a Conditional Election for any given Single Acquisition, then
following an election by SUIT to participate, SUIT shall pay Contango for SUIT's
proportionate share of the Initial Acquisition Costs of such Single Acquisition
at or before the closing of such Single Acquisition between Contango and the
Offeror. If SUIT, has given a Conditional Election for any given Single
Acquisition, SUIT may defer its absolute election to participate in, and its
payment of Initial Acquisition Costs with respect to, such Single Acquisition,
until the first to occur of: (i) three (3) business days prior to the spudding
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of the first well to be drilled, or the re-entry of the first well to be
re-entered, on the applicable Single Acquisition, or (ii) twenty (20) days
following the closing of the Single Acquisition (the "PAYMENT DEADLINE"). The
failure by SUIT to pay its share of the Initial Acquisition Costs, and any
Subsequent Acquisition Costs paid in the meanwhile by Contango for such Single
Acquisition, by the Payment Deadline shall constitute an election of SUIT not to
participate in such Single Acquisition and SUIT shall have no further right to
participate therein notwithstanding its Conditional Election. If (i) there were
no Initial Acquisition Costs for the applicable Single Acquisition or (ii) SUIT
pays its share of the Initial Acquisition Costs, and any Subsequent Acquisition
Costs paid meanwhile by Contango, for such Single Acquisition by the Payment
Deadline, then, upon the Payment Deadline (or, if earlier, the date SUIT makes
such payment), SUIT's election to participate in such Single Acquisition will
become absolute and the concerns which gave rise to the Conditional Election
will be deemed to have been waived. Notwithstanding anything to the contrary
contained herein, SUIT will not be required to pay its share of any Acquisition
Costs before Contango must pay them under the applicable agreements.
4.3 SUIT'S PARTICIPATION IN MULTIPLE ELECTION PROSPECTS. In Single
Acquisitions where all of the elections regarding participation (other than
those made under Operating Agreements) are not made at the closing of the Single
Acquisition ("POST-ACQUISITION ELECTION PROSPECTS"), it is anticipated that the
Offeror will require that Contango and SUIT make the same election with respect
to their aggregate interest in the applicable Single Acquisition. Therefore the
following procedures will apply to Post-Acquisition Election Prospects:
4.3.1 Immediately after Contango receives any notice or other document
of any nature from the Offeror or anyone else of material consequence to
any Post-Closing Election Prospect, Contango shall send a copy of such
notice or document to SUIT by facsimile or by recognized overnight courier
for delivery on the morning of the next business day.
4.3.2 If the agreements governing any Post-Acquisition Election
Prospect do not allow Contango and SUIT to make separate post-acquisitions
decisions regarding participation and/or payment with respect to their
respective percentages of interest in the applicable Single Acquisition,
then Contango and SUIT will jointly consider each election and payment
decision that is required to be made following the closing of the Single
Acquisition and, if both parties make the same decision regarding such
election, then Contango shall implement the joint decision by making the
appropriate election or payment to the Offeror and SUIT will reimburse
Contango for its proportionate share of the Acquisition Costs associated
with such election before they are due from Contango to the Offeror. If,
however, both parties cannot agree on whether or not to participate in the
applicable operation or make the applicable payment, then the party
choosing to participate in the proposed operation shall be entitled to do
so on its own account. If SUIT is the party making the affirmative election
to participate in the applicable operation or pay the applicable payment,
then Contango shall thereafter act on behalf of SUIT to administer SUIT's
participation in the applicable Single Acquisition from that point forward.
Unless the parties mutually agree to the contrary, the party choosing not
to participate or to make
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such payment shall bear the same economic consequences, as among Contango
and SUIT, that non-consenting parties bear under the applicable
participation agreements and Operating Agreements when they fail to
participate in the same operation or make the same payment. For example, if
the applicable Operating Agreement provides that non-consenting parties to
a reworking operation bear a non-consent penalty of 400% when they fail to
elect to consent to such reworking operation and SUIT desires not to
participate in such reworking operation and Contango desires to participate
in such reworking operation (but Contango and SUIT do not have the right to
make separate elections under such Operating Agreement), then Contango will
be entitled to pay all of the costs attributable to the interests of both
Contango and SUIT and will be entitled to receive all of the revenues
attributable to the interests of both Contango and SUIT until Contango has
recovered, from the revenues which have otherwise been attributable to the
interest of SUIT, the economic equivalent of a 400% non-consent penalty
against SUIT.
4.3.3 If the agreements governing any Post-Acquisition Election
Prospect allow Contango and SUIT to make separate post-acquisition
decisions regarding participation and/or payment with respect to their
respective percentages of interest in the applicable Single Acquisition,
then Contango and SUIT shall be entitled to make such decisions separately
and, if permitted give notice of such separate decisions, directly to the
Offeror.
4.4 LOSS OF RIGHTS UNDER ACQUISITION AGREEMENTS. With respect to any
Prospect that is jointly-owned by Contango and SUIT, if Contango elects to
discontinue development of such Prospect and SUIT desires to continue
development of such Prospect, Contango shall use reasonable commercial efforts
to enable SUIT to proceed with development of such Prospect for its own account.
V. ASSIGNMENTS OF TITLE AND OPERATING AGREEMENTS
5.1 ASSIGNMENTS OF TITLE. If it is permitted under the terms of the
applicable agreements with the Offeror or Offeror is otherwise willing to do so,
Contango will instruct the Offeror to assign SUIT's percentage of interest in
any oil and gas interests acquired or earned within any Single Acquisition
directly to SUIT at the same time the Offeror assigns Contango its percentage of
such interests. If it is not permitted under the terms of the applicable
agreements with the Offeror and the Offeror is not otherwise willing to make
such partial assignment directly to SUIT, Contango will assign SUIT its
percentage interest in the applicable oil and gas interests for such Single
Acquisition, immediately upon receipt of the assignment from the Offeror, by
assignment containing a warranty of title by, through and under Contango, but
not otherwise.
5.2 OPERATING AGREEMENTS. It is expected that all oil and gas interests
which are acquired pursuant to Single Acquisitions will already be subject to,
or in the course of business will be made subject to, joint operating agreements
("OPERATING AGREEMENTS") between the working interest owners. It is expected
that, in many instances, the terms of the Operating Agreement for any given
Single Acquisition will already be set at the time Contango is offered the
opportunity to
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participate in such Single Acquisition. However, in those instances where the
Operating Agreement applicable to a given Single Acquisition being jointly
acquired by Contango and SUIT is to be the subject of negotiation between
Contango and the Offeror, Contango shall consult with SUIT before entering into
such Operating Agreement. Contango will use reasonable commercial efforts to
cause Contango and SUIT to become direct parties to each of the Operating
Agreements governing any oil and gas properties acquired by Contango and SUIT
under this Agreement, such that Contango and SUIT are entitled to separately
exercise their rights and separately perform their obligations with respect to
the applicable oil and gas properties.
VI. POST-CLOSING GOVERNANCE OF ACQUISITIONS
6.1 PARTICIPATION IN OPERATIONS AFTER OPERATING AGREEMENT GOVERNS. From and
after the point in the progress of activity in any Single Acquisition, and to
the extent, that the rights and duties of Contango and the Offeror are governed
by the terms of an Operating Agreement, the rights and duties of Contango and
SUIT shall also be governed by such Operating Agreement. To the extent that the
terms of any such Operating Agreement conflict with the terms of this Agreement,
then as among Contango and SUIT, this Agreement shall control.
VII. JEX AGREEMENT
7.1 JEX AGREEMENT. A complete copy of the JEX Agreement is attached hereto
as EXHIBIT B. The JEX Agreement is, as of the date of this Agreement, the only
Acquisition Agreement in effect. Except as provided to the contrary in this
Article VII, all of the terms of this Agreement shall apply to the JEX Agreement
as if the JEX Agreement had been executed after the execution of this Agreement
and thus become an Acquisition Agreement in the ordinary course of affairs.
7.2 SINGLE ACQUISITIONS PREVIOUSLY PRESENTED BY JEX. JEX has, prior to the
date of this Agreement, presented Contango with the opportunity to participate
in the following Single Acquisitions: (i) Eugene Island Block 28, (ii) Brazos
Block 436, (iii) Sotexas Ranch Phase I and (iv) Goliad. Contango has elected to
participate for 95% of JEX's interest in each of such Single Acquisitions.
Pursuant to a General Information and Election Form attached hereto as EXHIBIT
C, which is being executed contemporaneously with this Agreement, SUIT is
electing to participate in 18.75% of Contango's 95% of JEX's interest in the
Sotexas Ranch Phase I Single Acquisition. Simultaneously with the execution of
this Agreement, SUIT shall reimburse Contango for its proportionate share of all
Initial Acquisition Costs for the Sotexas Ranch Phase I Single Acquisition and
all other Acquisition Costs incurred by Contango since the closing of such
Single Acquisition, all in accordance with the settlement statement attached
hereto as EXHIBIT D. SUIT shall have fifteen (15) days from the date of this
Agreement to elect whether it will participate in the Eugene Island Block 28
Single Acquisition. SUIT is presently considering whether it will participate in
the Brazos 436 and Goliad Single Acquisitions. SUIT will be required to give
Contango its absolute election to participate and its payment of its share of
all applicable Initial Acquisition Costs, and any Subsequent Acquisition Costs
paid by Contango meanwhile, for each of the Brazos 436 and Goliad Single
Acquisitions at least three (3) days prior to the spud dates of the first well
on each such Single
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Acquisition. Contango will provide SUIT with a General Information and Election
Form for the Brazos 436 and the Goliad Single Acquisitions within a reasonable
time after the execution of this Agreement. Except as indicated otherwise in
this Section 7.2, each of the Single Acquisitions mentioned in this Section 7.2
will hereafter be handled as nearly as possible in the manner any other Single
Acquisition would be handled under this Agreement.
7.3 SUBSEQUENTLY PRESENTED SINGLE ACQUISITIONS. After the execution of this
Agreement, Contango shall offer SUIT the opportunity to acquire further Single
Acquisitions as such opportunities are presented by JEX. SUIT may elect to
participate or not participate for its 18.75% interest and Surplus Interest in
each such Single Acquisition as they are presented by JEX.
7.4 REDUCTIONS IN COSTS. If at any time the amount Contango is obligated to
pay to acquire an interest in a Single Acquisition is subsequently rebated under
the terms of the JEX Agreement, Contango shall promptly: (A) inform SUIT, and
(B) rebate to SUIT a proportionate share of such reduction upon receipt thereof.
7.5 NO RIGHTS OR OBLIGATIONS UNDER CERTAIN SECTIONS OF THE JEX AGREEMENT.
SUIT shall have no rights or obligations under Section 1.8 of the JEX Agreement.
SUIT shall have no rights to participate in, nor obligations in respect of, any
arrangement which has already arisen in favor of Contango under Section 1.9 of
the JEX Agreement.
7.6 REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS. All of the
representations, warranties and additional covenants made, or to be made by
either Contango or SUIT to the other of them under Article VIII hereof are
hereby made by each of Contango and SUIT to the other in respect of the JEX
Agreement and the Sotexas Ranch Phase I Single Acquisition. Except as disclosed
on SCHEDULE 7.6, Contango warrants and represents that neither it nor any of its
Affiliates are parties to any agreement with JEX or with any of JEX's Affiliates
(other than the JEX Agreement) which relates to the acquisition of oil and gas
properties and no such agreements are pending. If, during the term of this
Agreement, Contango or any of its Affiliates become parties to any agreement
with JEX or any of JEX's Affiliates which relates to the acquisition of oil and
gas properties, it shall promptly notify SUIT and give SUIT the opportunity to
acquire 18.75% of the interest that Contango or any of Contango's Affiliates has
under said agreement.
7.7 DISCOVERY WELLS. Sections 2.5 and 2.6 of the JEX Agreement shall not
apply to SUIT and, in lieu thereof, if and when a "successful well" (as defined
in Section 2.5 of the JEX Agreement) is drilled and completed, such that
Contango is required to grant JEX the options required by said Section 2.5, then
as to each such successful well in which SUIT participated through completion,
then SUIT shall pay Contango Twelve Thousand Five Hundred Dollars ($12,500)
within thirty (30) days after Contango grants JEX such options; provided,
however, that, if subsequent to the grant of such options, Contango and JEX
agree that said well should not have been designated a successful well, then the
$12,500 shall be refunded to SUIT within thirty (30) days thereafter.
7.8 ALLOCATION OF DEAD-END G&G COSTS.
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(a) Regarding Section 1.5 of the JEX Agreement, as between Contango
and SUIT, their relative share of Dead-End G&G Costs attributable to any
given year shall equal $200,000 multiplied by a fraction, with the
denominator being the total amount of Dead-End G&G Costs attributable to
such year, with the numerator being the portion of the total amount of such
Dead-End G&G Costs paid by such party.
(b) With respect to any and all Dead-End G&G Costs paid by SUIT,
Contango shall, within ten days after its receives from JEX a refund of
excess Dead-End G&G Costs paid under the JEX Agreement, refund to SUIT its
pro rata share of any such refund of Dead-End G&G Costs from JEX.
VIII. WARRANTIES, REPRESENTATIONS AND COVENANTS
8.1 WARRANTIES, REPRESENTATIONS, AND COVENANTS. Each party, as to itself
only, warrants, represents, and covenants to the other party that:
8.1.1 There are no pending Claims to which it is a party that affect
the execution and delivery of this Agreement or the transactions
contemplated hereby, and it shall promptly notify the other party of any
such Claims as to which it receives either notice or a written threat of
assertion.
8.1.2 It shall protect, defend, indemnify, and hold harmless the other
party and its employees, agents, successors and assigns, from and with
respect to any and all rights, claims, demands, causes of action, and
legal, administrative, or arbitration proceedings, of any and every nature
(collectively, "CLAIMS"), and injuries, deaths, damages, and obligations of
any and every nature resulting from or that gave rise to any Claim,
including liabilities, losses, costs, penalties, expenses, judgments,
fines, settlements, interest, reasonable attorney's fees, and other related
expenses of any nature (collectively, "Damages"), to the extent such Claims
and Damages result from a breach of its warranties, representations, or
covenants; provided however, that Damages shall not include consequential,
special, incidental, or punitive damages.
8.1.3 It has full power to enter into and perform its obligations
under this Agreement; the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all requisite action that remains in full force and
effect and binding upon it, and has not been revoked or modified; and this
Agreement has been duly executed and delivered.
8.1.4 This Agreement will, when executed, delivered, and accepted,
constitute its legal, valid and binding obligation, enforceable in
accordance with their terms, except as limited by bankruptcy or other laws
applicable generally to creditor's rights and as limited by general
equitable principles.
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8.1.5 Neither its execution and delivery of this Agreement, nor its
consummation of the transactions contemplated hereby, nor its compliance
with the terms hereof, will violate or result in any default under its
organizational documents, or under any agreement or other instrument to
which it is a party or by which it is bound, or violate any federal, state,
or local law (including statutory and case law), rule, regulation,
ordinance, permit, license, order, judgment, injunction, writ, or decree of
any nature (collectively "LAW") applicable to it.
8.2 CONTANGO'S WARRANTIES, REPRESENTATIONS, AND COVENANTS. Contango
warrants, represents, and covenants that:
8.2.1 It is a corporation duly organized, legally existing and in good
standing under the laws of the state of its incorporation, as first set out
above.
8.2.2 It is (or will be at the relevant time) qualified to do business
and is (or will be at the relevant time) in good standing in each state in
which the any properties subject hereto are located where the laws of such
state require a corporation owning such properties located in such state to
qualify to do business.
8.2.3 Contango shall timely and fully perform all its material
obligations under all Acquisition Agreements and all other agreements to
which it is a party and through which it has acquired or has the right to
acquire any jointly-owned Prospect or Proved Property, and shall use
reasonable commercial efforts to enforce all its rights and all of the
other party's obligations under such agreements. Without SUIT's consent,
Contango shall not agree to any amendment of any such agreement or waive
any of its rights or any of the Offeror's obligations under any such
agreement; provided, however, that the foregoing -------- -------
restrictions shall not apply to an amendment or waiver that: (A) only
affects Single Acquisitions as to which SUIT had declined the right to
acquire an interest hereunder, or (B) will not diminish SUIT's rights or
increase SUIT's obligations relative to the rights and obligations of
Contango. Except as provided to the contrary in Sections 4.3.2 and 4.4,
nothing in this Agreement is intended to mean that Contango must pursue
development of Prospects or Proved Properties which it believes are no
longer economically viable.
8.2.4 Except as may have been disclosed in writing to SUIT by Contango
to the contrary, at the time Contango presents SUIT with any Acquisition
Agreement (other than the JEX Agreement), it will be deemed to have
warranted and represented to SUIT that neither it nor any of its Affiliates
(hereinafter defined) are parties to any agreement with the Offeror or with
any of the Offeror's Affiliates which relates to the acquisition of oil and
gas properties and no such agreements are pending. If, during the term of
this Agreement, Contango or any of its Affiliates become parties to any
agreement with the Offeror or any of the Offeror's Affiliates which relates
to the acquisition of oil and gas properties, it shall promptly notify SUIT
and give SUIT the opportunity to acquire 18.75% of the interest
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Contango's Affiliate has under said agreement. At such time as the
President or any Vice President of Contango knows that any director or five
percent (5%) or greater shareholder of Contango is competing with Contango
within any Area of Interest, Contango shall notify SUIT of such
competition.
8.2.5 It is Contango's expectation that Acquisition Properties will be
operated by third parties that are not Affiliates of Contango. If any such
operator should resign or be removed, Contango shall consult with SUIT and
in good faith consider SUIT's recommendations as to a successor operator,
including any desire by SUIT to become successor operator, but SUIT and
Contango anticipate that a successor operator will be a third party.
8.2.6 At the time Contango presents SUIT with any Acquisition
Agreement, it shall be deemed to have warranted and represented to SUIT
that, to the best of its knowledge, information, and belief: (i) the
Acquisition Agreement has not been amended except to the extent such
amendments have been provided to SUIT, (ii) except as disclosed to SUIT in
writing, no material rights or obligations under it have been waived, and
(iii) it constitutes Contango's and the Offeror's entire agreement and
understanding relating to its subject matter.
8.3 DISCLAIMER OF CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS.
CONTANGO HEREBY EXPRESSLY DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND
COVENANTS AS TO THE ACCURACY AND COMPLETENESS OF (i) ANY ANALYSIS, REPORT,
RESERVE PROJECTION, FINANCIAL PROJECTION, OPINION OR OTHER SIMILAR INFORMATION
OBTAINED BY CONTANGO FROM ANY THIRD PERSON AND DELIVERED TO SUIT AND (ii) ANY
TITLE ANALYSIS, RESERVE PROJECTION OR FINANCIAL PROJECTION PREPARED BY CONTANGO
OR ITS AGENTS AND MADE AVAILABLE TO SUIT.
8.4 SUIT'S WARRANTIES, REPRESENTATIONS, AND ADDITIONAL COVENANTS. SUIT
warrants, represents, and covenants that:
8.4.1 It is a federally recognized Indian tribe organized under the
Indian Reorganization Act of 1934; authority is vested in its Tribal
Council ("TRIBAL COUNCIL") by the Constitution adopted and approved on
November 4, 1936, and amended October 1, 1975, to act for it; and pursuant
to 25 USC Section 476 and Tribal constitutional authority, Article VII, and
subject to the approval of this Agreement by the Tribal Council which has
already been obtained, possesses the authority to execute, deliver and
perform this Agreement.
8.4.2 It understands its investments under this Agreement will not be
registered under the Securities Act of 1933, as amended, or any Blue Sky
Laws in reliance upon the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended, Regulation D and certain
exemptions afforded by Blue Sky Laws. SUIT represents
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and warrants that it is an "ACCREDITED INVESTOR" (as defined in Rule 501 of
Regulation D of the Securities Act of 1933, as amended) and is
sophisticated and experienced in the exploration, production, and sale of
oil and gas properties and related assets and is acquiring its rights under
this Agreement for its own account and with no present intention of
transfer or resale.
IX. NO PARTNERSHIP
9.1 NO PARTNERSHIP. Nothing herein shall be deemed to: (a) constitute
either party the partner, venturer, agent, or legal representative of the other,
or (b) create any fiduciary relationship between the parties. The parties do not
intend to create, and this Agreement shall not be construed to create, any
mining, commercial or other partnership or joint venture. Neither party, nor any
of its directors, officers, employees, agents, attorneys, or Affiliates, shall
act for or assume any obligation or responsibility on behalf of the other party,
unless and as otherwise expressly provided herein. Each party's rights, duties,
obligations and liabilities shall be several and not joint or collective. Each
party shall be responsible only for its obligations hereunder and shall be
liable only for its share of the costs and expenses as provided herein.
X. TENANTS IN COMMON; WAIVER OF RIGHT TO PARTITION
10.1 TENANTS IN COMMON; WAIVER OF RIGHTS TO PARTITION. The parties'
ownership of any Prospects and Proved Properties shall be as tenants in common,
subject to the applicable agreements including the application Operating
Agreement. The parties hereby waive and release all rights of partition, or of
sale in lieu thereof, or other division of such Prospects and Proved Properties,
including any such rights provided by Law.
XI. OTHER BUSINESS OPPORTUNITIES
11.1 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided herein: (a)
each party shall have the right to independently engage in and receive full
benefits from business activities, whether or not competitive with transactions
that are the subject hereof, without consulting the other, and (b) the doctrines
of corporate opportunity or business opportunity shall not be applied to any
other activity or operation of either party.
XII. AREA OF INTEREST
12.1 AREA OF INTEREST.
(a) If this Article conflicts geographically with any Acquisition
Agreement, Operating Agreement or other such agreement to which Contango is
bound, then the provisions of such other agreement shall control as among
the parties to the extent of the geographic area of such conflict.
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(b) There shall be an area of interest ("AREA OF INTEREST") covering
all lands covered by any Prospect or any Proved Property in which SUIT has
acquired, or still has the right to acquire, an interest hereunder, and any
lands within one (1) mile of the exterior boundaries thereof, but only to
the extent of oil and gas exploration, production and gathering properties
or properties whose acquisition could be of benefit to oil or gas
operations on such Prospects or Proved Properties (collectively, the
"SUBJECT PROPERTIES"). Any interest or right to acquire any interest in
Subject Properties within the Area of Interest either acquired or proposed
to be acquired during the term of this Agreement by or on behalf of either
party ("ACQUIRING PARTY") or of any of its Affiliates shall be subject to
this Agreement.
12.2 NOTICE OF ACQUISITION. (a) Within five (5) days after the acquisition
or proposed acquisition, as applicable, of any interest or right to acquire any
interest in Subject Properties wholly or partially within the Area of Interest,
the Acquiring Party shall notify the other party ("NOTIFIED PARTY") of such
acquisition by it or by its Affiliate; provided further, if the acquisition of
any interest or right to acquire any interest pertains to Subject Property
partially within the Area of Interest, then all such Subject Property (i.e.,
regardless of whether in or outside of the Area of Interest) shall be subject to
this Section. The Acquiring Party's notice shall: (i) describe the acquisition
(or proposed acquisition) in detail, (ii) identify the acquiring party, if such
party is an Affiliate, (iii) describe the interest in the lands and minerals
covered thereby, (iv) describe the cost of such acquisition (or proposed
acquisition), and (v) describe why the Acquiring Party believes the acquisition
(or proposed acquisition) would be worthwhile. The Acquiring Party shall also
promptly make any and all information concerning the relevant interest available
for inspection by the Notified Party.
(b)(i) Within fourteen (14) days after receiving the Acquiring Party's
notice, the Notified Party may notify the Acquiring Party of its election to
accept a proportionate interest in the acquired interest, such that SUIT would
have 18.75% of the acquired interest and Contango would have 81.25% of the
acquired interest. Promptly upon such notice, the Acquiring Party shall convey
(or cause its Affiliate to convey) to the Notified Party, by special warranty
deed or assignment, the applicable proportionate percentage (18.75% as to SUIT,
and 81.25% as to Contango) of the Acquiring Party's (or its Affiliate's)
interest in such acquired property. The acquired interests shall be operated
pursuant to an operating agreement on an AAPL 1989 Form prepared by Contango and
approved by SUIT for such purpose. Concurrently with the delivery of the special
warranty conveyance, the Notified Party shall promptly pay to the Acquiring
Party its proportionate share of the Acquiring Party's actual out-of-pocket
acquisition costs.
(ii) If the Notified Party does not give such notice of
election to participate in the acquisition within the 14 day period set forth in
subsection (i), it shall have no interest in the acquired property, and the
acquired property shall not be subject to this Agreement.
XIII. PREEMPTIVE RIGHT
13.1 OTHER PREEMPTIVE RIGHTS. If this Article conflicts with the preemptive
right provision contained in any Acquisition Agreement, Operating Agreement or
other applicable
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agreement governing jointly-owned properties, the provisions of any such
agreement shall control as among the parties and the following preemptive right
shall not apply.
13.2 PREEMPTIVE RIGHT. If either party ("TRANSFERRING ENTITY") intends to
Transfer all or any part of its interest in any property in which the other
party owns an interest hereunder, it shall promptly notify the other party
("NOTIFIED ENTITY") of such intentions. The notice shall state the price and all
other pertinent terms and conditions of the intended Transfer, and shall be
accompanied by a copy of the contract for sale or the proposed offer pursuant to
which it would be willing to sell the interest that is the subject of such
notice ("OFFERED INTEREST"). The consideration for the intended transfer may
only be monetary. The Notified Entity shall have fourteen (14) days from its
receipt of such notice is delivered to notify the Transferring Entity whether it
elects to acquire the Offered Interest at the same price and on the same terms
and conditions as set forth in the notice. If it does so elect, the acquisition
by the Notified Entity shall be consummated promptly after notice of such
election is delivered. If the Notified Entity fails to so elect within said
fourteen (14) day period, the Transferring Entity shall have sixty (60) days
following the expiration of such period to consummate the Transfer to a third
party at a price and on terms no less favorable to the Transferring Entity than
those offered by the Transferring Entity to the Notified Entity in the
aforementioned notice. If the Transferring Entity fails to consummate the
Transfer to a third party within said 60 day period, the Notified Entity's
preemptive right in such offered interest shall be revived. Any subsequent
proposal to Transfer such interest shall be conducted in accordance with this
Section.
13.3 TRANSFER TO WHICH PREEMPTIVE RIGHT DOES NOT APPLY. The preemptive
right provisions of this Section shall not apply to any Transfer by a party of
any part of its interest to an Affiliate; provided however, the Affiliate and
any of its direct or remote transferees, shall be bound by this Article the same
as if an original party to this Agreement; or any corporate consolidation or
reorganization of Contango, by which the surviving entity shall possess
substantially all of the stock or all of the property rights and interests, and
be subject to substantially all of the liabilities and obligations of Contango,
in which event this Section shall apply to the surviving entity in the same
manner as it applied to Contango.
XIV. NOTICES
14.1 NOTICES. Except as expressly provided otherwise in this Agreement, all
notices or other communications ("NOTICES") under this Agreement shall be in
writing and shall be addressed to the party as set forth below. All Notices
shall be given by: (i) personal delivery, (ii) facsimile, provided the
transmitting device used by the party provides documentary confirmation of
receipt, (iii) first class mail, postage prepaid, or (iv) a nationally
recognized overnight courier service. All Notices shall be effective and shall
be deemed delivered (i) if by personal delivery or by overnight courier, on the
date of delivery if delivered on or before 4:30 p.m. on such day; otherwise, it
shall be deemed to have been delivered on the next business day following
delivery, (ii) if by electronic communication, on the day of receipt unless
received after 4:30 p.m., in which event it shall be deemed to have been
received on the next business day following receipt of the electronic
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communication, and (iii) if solely by mail, on the first to occur or actual
receipt. A party may change its address by Notice to the other party.
If to SUIT:
Southern Ute Indian Tribe
Attention: John Jurrius
P.O. Box 737
116 Capote Drive
Ignacio, Colorado 81137
Telephone No.: (970) 563-0140
Facsimile No.: (970) 563-0398
If to Contango:
Contango Oil & Gas Company
Attention: Kenneth R. Peak
3700 Buffalo Speedway
Suite 960
Houston, Texas 77098
Telephone No.: (713) 960-1901
Facsimile No.: (713) 960-1065
XV. MISCELLANEOUS
15.1 TERM. This Agreement shall terminate on the first to occur of: (i)
thirty (30) days notice from SUIT, or (ii) two (2) years from the date hereof,
but such termination shall not affect any Operating Agreements or other
agreements to which SUIT and Contango are parties or diminish any unfulfilled
obligations of the parties which are outstanding at the time of such
termination.
15.2 SURVIVAL OF PROVISIONS. The parties' respective warranties,
representations, and covenants under Article I, Section 2.6 (to the extent
conveyances are made after this Agreement terminates), Article IV (with respect
to (i) any payment obligations thereunder which have not been fulfilled as of
the time this Agreement terminates and (ii) any election and payment rights and
obligations on Prospects and Proved Properties wherein the parties are not
direct parties to an Operating Agreement at the time this Agreement terminates),
Article V, Article VI, Sections 7.4, 7.6, 7.7 and 7.8, and Articles VIII, IX, X,
XII (for a period of two (2) years following the termination of this Agreement),
XIII (for a period of two (2) years following the termination of this
Agreement), XIV, and XV shall survive the termination of this Agreement.
15.3 CHOICE OF LAW, AND VENUE. The laws of the United States shall apply in
all matters concerning this Agreement. In such instances in which the laws of
the United States do not provide a statutory or federal common law rule for
decision, and application of other law would not conflict
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with federal policy, the laws of the State of Texas shall apply. Venue for all
disputes shall be limited to the federal courts.
15.4 ENTIRE AGREEMENT. This Agreement contains the entire understanding and
agreement between the parties, and supersedes all prior agreements and
understandings, written or oral, between the parties relating to the subject
matter hereof.
15.5 AMENDMENTS. This Agreement may not be amended except by the written
agreement of the parties.
15.6 WAIVERS. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Agreement shall not constitute a waiver of any provision of this Agreement or
limit the party's right to seek redress for any subsequent act which constitutes
a violation or breach.
15.7 FURTHER ASSURANCES. Without further consideration, each party agrees
to take such further actions and execute such further documents as may be
necessary or appropriate to effectuate and purpose and intent of this Agreement.
15.8 COSTS. Except as may be expressly provided otherwise herein, each
party shall bear its own costs and expenses in connection with the negotiation
and performance of this Agreement.
15.9 SECTION AND OTHER HEADINGS; AND CONSTRUCTION. The section and other
headings contained in this Agreement are for reference only and have no legal
significance. The use of pronouns is generic and they shall mean any gender as
appropriate. The terms "include," "including," or similar terminology shall be
construed as meaning without limitation as to the nature or scope of the
referenced matters, whether similar or dissimilar to the referenced matters. The
terms "herein" or "hereof," or similar terminology, shall be construed as
referring to this Agreement rather than only the section in which such term
appears. References to subsections shall refer to the section or subsection in
which they appear, unless otherwise noted. This Agreement shall be deemed to
have been drafted by both parties, and therefore the rule against construing
ambiguities against the party drafting a contract shall be inapplicable to this
Agreement.
15.10 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in whole or in part in any relevant jurisdiction, such
provision, only to the extent invalid or unenforceable, shall be severable from
this Agreement, and the other provisions of this Agreement (along with the
provision at issue, to the extent that it would be valid and enforceable, and
such provision shall be deemed to be so reformed) shall remain in full force and
effect in such jurisdiction and the remaining provisions hereof shall be
liberally construed to carry out the purpose and intent of this Agreement. The
invalidity or unenforceability, in whole or in part, of any provision of
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this Agreement in any relevant jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, nor shall the
invalidity or unenforceability of any provision of this Agreement with respect
to any person affect the validity or enforceability of such provision with
respect to any other person.
15.11 ATTORNEY'S FEES. If litigation is commenced between the parties, the
prevailing party shall be entitled to recover from the other party all
reasonable attorney fees and costs.
15.12 NO THIRD PARTY BENEFICIARIES. This Agreement shall be construed to
benefit the parties and their respective successors and assigns only, and shall
not be construed to create third party beneficiary rights in any other party.
15.13 PARTIES IN INTEREST; SUCCESSORS AND ASSIGNS. Except as expressly
provided below, without the consent of the other party, neither party may
Transfer any of its interest hereunder, except to an Affiliate; provided,
however, the Affiliate and any of its direct or remote transferees shall remain
bound by this restriction the same as if an original party hereto; that is,
without the other party's consent, it may not assign an interest in this
Agreement except to an Affiliate of the original party to this Agreement from
which its interest derives (that is, SUIT or Contango). Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties and their respective successors and assigns.
Nothing herein is intended to confer upon any other person or entity any rights
or remedies under or by reason of this Agreement. SUIT intends to assign an
interest in this Agreement to John Jurrius, and shall have the right to do so
without Contango's consent.
15.14 TIME OF ESSENCE. Time is of the essence with respect to making
elections and responding to notices hereunder.
15.15 FACSIMILE EXECUTION AND COUNTERPARTS. This Agreement may be executed
by facsimile and in any number of counterparts. Notwithstanding that this
Agreement is executed in counterparts, it shall constitute a single agreement.
If this Agreement is executed in counterparts, the signature pages of such
counterparts may be appended to this Agreement to form a single document with
all signatures.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SOUTHERN UTE INDIAN TRIBE, doing CONTANGO OIL & GAS COMPANY
business as Red Willow Production Company
By: /s/ John E. Baker, Jr. By: /s/ Kenneth R. Peak
-------------------------------- ------------------------------
John E. Baker, Jr. Kenneth R. Peak
Chairman, Southern Ute President
Tribal Council
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