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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
--------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-9300
HARCOR ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0234380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 POST OAK PARKWAY, SUITE 2220
HOUSTON, TX 77027-3413
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 961-1804
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.10 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 26, 1998, the registrant had 16,268,387 shares of common stock
outstanding. The aggregate market value on March 26, 1998 of the registrant's
common stock held by non-affiliates of the registrant (including beneficial
owners holding less than 10% of the registrant's common stock) was $26,278,000
(based upon the last reported sales price of the registrant's common stock as
quoted on such date by the National Association of Securities Dealers, Inc.
Automated Quotation System).
Document incorporated by reference: None.
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HarCor Energy, Inc. hereby amends its Annual Report on Form 10-K for the
year ending December 31, 1997, to file Exhibits 10:19, 10:20 and 10:21, which
were listed in Item 14 of the original filing but were inadvertently omitted or
mis-numbered in the original filing.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HARCOR ENERGY, INC.
(Registrant)
Date: April 16, 1998 By: /s/ Francis H. Roth
-------------------------------------
Francis H. Roth
President and
Chief Operating
Officer
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INDEX TO EXHIBITS
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10.19 Form of Severance Agreement between the Company and each
employee of the Company.
10.20 Purchase and Sale Agreement between the Company and
Penroc Oil Corporation, dated December 3, 1997.
10.21 Letter Agreement dated January 15, 1998, amending the
Purchase and Sale Agreement between the Company and
Penroc Oil Corporation dated December 3, 1997.
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EXHIBIT 10.19
RESTATED SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is between HarCor Energy, Inc. ("the
Company") and ____________________ (the "Employee").
WHEREAS, pursuant to the authority granted by the Board of Directors in a
resolution dated March 17, 1997, the Company and the said Employee entered into
a Severance Agreement dated April 9, 1997, and it is the intention of the
parties hereto that this Agreement will restate and extend the said Severance
Agreement, and
WHEREAS, the Company is considering business transactions that could result in
the sale, a change of control and/or ownership of the Company; and
WHEREAS, the Company recognizes that the sale, a change of control and/or
ownership could result in the loss of the Employee's job; and
WHEREAS, the Company recognizes that the continued employment of the Employee is
critical to the maximization of shareholders' value in any contemplated sale or
change of control transaction; and
WHEREAS, the Company wishes to continue the employment of the Employee with the
Company until any contemplated sale, change of control or ownership is effected.
Now, therefore, in consideration of the mutual covenants and agreements
hereinafter set forth, these parties agree to the following:
I. EMPLOYEE OBLIGATIONS
The Employee agrees to the following:
A. To remain employed by the Company in the Employee's current position
or any position assigned by the Company from April 9, 1997, until (a) December
31, 1998, or until (b) the Effective Date (as defined herein), whichever date
first occurs.
B. To devote all of the Employee's working time to the Company and to
give the Employee's best effort to the business affairs of the Company, and to
the performance of the duties of the Employee's assigned position, and as may be
further required, from April 9, 1997, until (a) December 31, 1998, or until (b)
the Effective Date, whichever date first occurs.
II. COMPANY OBLIGATIONS
The Company agrees to the following:
A. To pay a special one-time lump sum severance payment to the Employee
at Houston, Texas, within ten (10) days after the Effective Date, equal to 1.5
times Total Cash Compensation (as defined herein) paid to the Employee for the
tax year 1996, provided that:
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1. All Employee Obligations are met; and
2. The employment of the Employee either with the Company or any
successors resulting from a Change of Control shall be terminated for any
reason, including a voluntary termination in writing by the Employee, on
or after the Effective Date.
B. "Change of Control" is defined as the occurrence of one or more of the
following events where:
(1) the Company is not the surviving entity in any merger or other
business combination (or survives only as a subsidiary of an entity other
than a previously wholly-owned subsidiary of the Company),
(2) the Company sells, leases or exchanges or agrees to sell, lease or
exchange all or substantially all of its assets to any other person or
entity (other than a wholly-owned subsidiary of the Company),
(3) the adoption of any plan of liquidation or dissolution of the
Company,
(4) any person or entity, including a "group" as contemplated by Section
13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of capital stock of the Company, or
(5) as a result of or in connection with any cash tender or exchange
offer, merger or other business combination, sales of assets or a
contested election for the board of directors, or any combination of the
foregoing transactions (a "Transaction"), a majority of the members of
the Board of Directors of the Company following such Transaction were not
a member of the Board of Directors before such Transaction.
C. "Total Cash Compensation" is defined as either (1) base salary
actually paid to the Employee for the Company's tax year 1996, and any bonus,
incentive and other cash payments paid the Employee, said amount being equal to
the aggregate compensation reported on the Employee's 1996 IRS Forms W-2 and
1099, or (2) in the event Employee had not been employed by the Company for the
entire duration of 1996, the Employee's final monthly base salary in 1996,
annualized (i.e., 1996 monthly base salary x 12).
D. "Effective Date" shall mean the first date on which a Change of
Control has occurred.
III. EMPLOYEE BENEFITS AFTER EFFECTIVE DATE
The Employee shall be entitled to full coverage and benefits as
currently exist under the Company's existing health and life insurance policies
for a period of six months after the Effective Date, or until such policies
contractually expire due to the dissolution of the Company, whichever occurs
first.
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IV. EMPLOYMENT TERMINATION
A. This Agreement does not constitute an offer, nor a guarantee, of
continued employment of the Employee by the Company.
B. If the Employee voluntarily terminates the Employee's employment
with the Company after April 9, 1997, and prior to the Effective Date, the
Company shall be relieved of any obligation under this Agreement.
C. If the Employee voluntary terminates the Employee's employment on or
after the Effective Date, or if the employment of the Employee either with the
Company or any successors resulting from a Change of Control is terminated by
the employer on or after the Effective Date, such Employee shall not be
disqualified from receiving the severance payment, if otherwise payable
hereunder, by subsequently accepting employment with the Company or any
successors resulting from a Change of Control.
D. The Company shall have the right to terminate the Employee's
employment at any time for cause, and if such an event occurs prior to the
Effective Date, the Company shall be immediately relieved of any obligations
under this Agreement. Cause shall be defined as but not limited to: (1) refusal
or failure to implement reasonable directives of the Company; (2) willful
misconduct or gross negligence in the performance of duties; (3) irresponsible
conduct which has an adverse impact on the Company's reputation and/or standing
in the community; (4) conviction of a crime involving moral turpitude to include
fraud, theft, or embezzlement; (5) conduct which is in violation of the
Employee's common law duty of loyalty to the Company; (6) fraudulent conduct in
connection with the business affairs of the Company; (7) willful or persistent
failure to attend to job duties; or (8) breach of any material terms or
provisions of this Agreement.
V. EMPLOYEE'S RELEASE
Following the Effective Date, Employee agrees, effective upon the
payment to the Employee of all amounts due hereunder, to release the Company,
its affiliates, any successors arising from a Change of Control, and their
directors, officers, employees and agents, individually and collectively, from
any and all claims, causes of action, rights, and demands which Employee has or
may have, of any kind or character, whether now known or unknown, including, but
not limited to, any claim for salary, compensation, bonuses, severance pay,
benefits, and expenses. This release will include but is not limited to all
known and unknown employment or termination related claims, damages, actions,
rights and causes of action claims arising from, attributable to, or related to,
Employee's employment and the termination of employment including, but not
limited to, any claims arising from or attributable to, any state or federal
statute, regulation or the common law (contract, tort or other), including any
alleged discriminatory employment practice. This release also applies to any
claims brought by any person or agency on behalf of the Employee under which
Employee may have any right or benefit. Employee agrees to execute a separate
release document confirming and incorporating the provisions of this paragraph,
if requested by the Company, in exchange for the payment to the Employee of all
amounts due hereunder.
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VI. TERM OF AGREEMENT
The term of this Agreement shall be from April 9, 1997, through
December 31, 1998. If no Change of Control occurs during this time period, this
Agreement is terminated. The Company may elect to extend and/or replace this
Agreement at any time but shall not be obligated to do so.
VII. CONFIDENTIALITY & PROPRIETARY INFORMATION
The Employee agrees that during and after employment by the Company,
they will not disclose to others, use, copy or permit to be copied, any secret
or confidential information or know-how of the Company, without written
permission by the Company.
Confidential information shall include but not be limited to trade
secrets, patents, copyrights, computer programs, plans and strategies, pricing
policy, financial data, technology, oil/gas reserve information, contracts or
agreements, well files, well logs, land files or lease information,
geologic-geophysical data or information, engineering drawings, graphs, charts,
maps, cross sections, correspondence, customer lists, and similar information
whose disclosure could have a detrimental effect on the Company. The Employee is
further prohibited and shall not commingle any aspect of Company business with
other businesses or personal interests of the Employee.
VIII. ASSIGNMENTS
This Agreement is personal in nature and neither party shall agree
without the consent of the other, to assign or transfer this Agreement or any
rights or obligations hereunder, provided that in the event of a Change of
Control, this Agreement shall be binding upon and inure to the benefit of any
successors resulting therefrom and such successors shall discharge and perform
all promises, covenants, duties and obligations of the Company set out herein.
IX. ENTIRE AGREEMENT
This Agreement supersedes any and all prior severance agreements
between the Employee and the Company.
X. GOVERNING LAW
This Agreement and the legal relations thus created between the parties
herein shall be governed by and construed under and in accordance with the laws
of the State of Texas.
XI. PAYMENTS
In the event of any default of payment of any amount due hereunder, the
amount due hereunder will bear interest at the highest legal rate for this type
of debt until paid in full. The prevailing party in any legal proceeding brought
to enforce this agreement shall be entitled to
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recover from the non-prevailing party all collection costs, costs of such
proceeding and reasonable attorneys' fees in addition to the amount due
hereunder and interest thereon.
XII. SEVERABILITY
In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement that violate such statute or public policy
shall be stricken. All portions of this Agreement which do not violate any
statue or public policy shall continue in full force and effect.
IN WITNESS WHEREOF, THE COMPANY AND THE EMPLOYEE HAVE EXECUTED THIS AGREEMENT AS
OF OCTOBER 31, 1997, RESTATED TO BE EFFECTIVE AS OF APRIL 9, 1997.
HARCOR ENERGY, INC.
By: /s/ Gary S. Peck
-----------------------------------------
Gary S. Peck, Vice President
Finance and Administration
EMPLOYEE
Name:
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EXHIBIT 10.20
PURCHASE AND SALE AGREEMENT
BETWEEN
HARCOR ENERGY, INC.
AS SELLER
AND
PENROC OIL CORPORATION
AS BUYER
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PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 1. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Property . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Ownership of Production from the Property . . . . . . . . . . 2
ARTICLE 2. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Allocated Values . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 3
3.1 Reciprocal Representations and Warranties . . . . . . . . . . 3
3.2 Buyer's Representations and Warranties . . . . . . . . . . . . 4
3.3 Seller's Representations and Warranties . . . . . . . . . . . 5
3.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Representations and Warranties Exclusive . . . . . . . . . . . 5
3.6 Survival of Representations and Warranties . . . . . . . . . . 5
ARTICLE 4. WARRANTY DISCLAIMER. . . . . . . . . . . . . . . . . . . . . . 5
4.1 Title; Encumbrances . . . . . . . . . . . . . . . . . . . . . 5
4.2 Other Property Warranties . . . . . . . . . . . . . . . . . . 5
4.3 Information About the Property . . . . . . . . . . . . . . . . 6
ARTICLE 5. PHYSICAL INSPECTION; ENVIRONMENTAL ASSESSMENT; CASUALTY LOSS. . 6
5.1 Access to Records . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Environmental Assessment and Indemnification . . . . . . . . . 7
5.4 Casualty Losses . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 6. PREFERENTIAL RIGHTS/CONSENTS; TITLE DEFECTS . . . . . . . . . . 9
6.1 Preferential Purchase Rights and Consents to Assign . . . . . 9
6.2 Title Defects . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Right Not to Close . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 7. CLOSING; FINAL SETTLEMENT . . . . . . . . . . . . . . . . . . . 13
7.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Conditions to Closing . . . . . . . . . . . . . . . . . . . . 13
7.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.4. Post-Closing Obligations . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 8. ASSUMPTION OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . 17
8.1 Ownership and Operations . . . . . . . . . . . . . . . . . . . 17
8.2 Plugging and Abandonment Obligations . . . . . . . . . . . . . 18
ARTICLE 9. INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Definition of Claims . . . . . . . . . . . . . . . . . . . . . 18
9.2 APPLICATION OF INDEMNITIES . . . . . . . . . . . . . . . . . . 18
9.3 Buyer's Indemnity . . . . . . . . . . . . . . . . . . . . . . 19
9.4 Seller's Indemnity . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 10. TAXES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 19
10.1 Recording Expenses . . . . . . . . . . . . . . . . . . . . . . 19
10.2 Ad Valorem, Real Property and Personal Property Taxes . . . . 19
10.3 Severance Taxes . . . . . . . . . . . . . . . . . . . . . . . 19
10.4 Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 11. INTERIM OPERATION OF THE PROPERTY . . . . . . . . . . . . . . . 20
11.1 Interim Operations . . . . . . . . . . . . . . . . . . . . . . 20
11.2 Buyer's Approval . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Production Imbalances . . . . . . . . . . . . . . . . . . . . 20
12.2 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . 21
12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.4 Entirety of Agreement; Amendment . . . . . . . . . . . . . . . 21
12.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 21
12.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 21
12.7 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.8 Litigation Costs . . . . . . . . . . . . . . . . . . . . . . . 22
12.9 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.10 Texas Deceptive Trade Practices Act Waiver . . . . . . . . . . 22
</TABLE>
EXHIBITS
A Leases and Certain Related Contracts
B Warranted Property, Allocation of Value
C Non Foreign Affidavit
D Assignment and Bill of Sale
E Release Liens
F Certain Consents and Preferential Purchase Rights
G Disclosure
SCHEDULES
1.2.2
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement"), dated December 3,
1997, but effective as hereinafter set forth at 7:00 a.m., local time, on
January 1, 1998 (the "Effective Date"), is between HarCor Energy, Inc., a
Delaware corporation ("Seller"), and Penroc Oil Corporation, a Texas
corporation ("Buyer").
RECITALS:
Seller owns certain oil and gas properties located in Texas, New Mexico,
Alabama, California, Oklahoma, North Dakota, Wyoming, Michigan and Louisiana,
and related contractual rights and desires to sell these properties and
transfer these contractual rights.
Buyer desires to purchase these properties from Seller and acquire these
contractual rights.
Accordingly, in consideration of the mutual promises contained in this
Agreement, Buyer and Seller agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 The Property. Subject to the terms of this Agreement (including,
without limitation, the exclusions provided in Section 1.2), Seller agrees to
sell and assign to Buyer and Buyer agrees to purchase and acquire from Seller
all of Seller's right and title to, and interest in, the following
(collectively, subject to the exclusions provided in Section 1.2, the
"Property"):
1.1.1 The oil, gas and mineral leases and other interests in oil
and gas described in Exhibit A attached hereto (the "Leases") and all rights
and privileges appurtenant to the Leases;
1.1.2 All rights in any unit in which the Leases are included,
to the extent that these rights arise from and are associated with the Leases,
including without limitation all rights derived from any unitization, pooling,
operating, communitization or other agreement or from any declaration or order
of any governmental authority;
1.1.3 All oil, gas and condensate wells (whether producing, not
producing or abandoned), and water source, water injection and other injection
or disposal wells located on the Leases or lands unitized or pooled with the
Leases;
1.1.4 All equipment, facilities and other personal property on
the Leases used in developing or operating the Leases or producing, treating,
storing, compressing, processing or transporting hydrocarbons on or from the
Leases;
1.1.5 All easements, rights-of-way, licenses, permits,
servitudes and similar interests applicable to or used in operating the Leases
or the personal property described above, including without limitation those
described in Exhibit A, in each case to the extent they are
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assignable or transferable and subject to any consents to assignment or
transfer to which they may be subject;
1.1.6 All contracts and contractual rights and interests
relating to the Leases and the other property described or referred to in this
Section 1.1, including (without limitation) unit agreements, farmout
agreements, farm in agreements, operating agreements, participation agreements,
exploration agreements, and hydrocarbon sales, purchase, gathering,
transportation, treating, marketing, exchange, processing and fractionating
agreements (collectively, the "Related Contracts"), including without
limitation those Related Contracts described in Exhibit A, in each case to the
extent they are assignable or transferable and subject to any consents to
assignment or transfer to which they may be subject;
1.1.7 All seismic data and interpretive geological maps owned by
and in the possession of Seller to the extent, but only to the extent, such
maps and data cover the lands covered by the Leases or the Related Contracts or
lands pooled with lands covered by the Leases, to the extent the same is
assignable or transferable and subject to any confidentiality agreements, use
restrictions and consents to assignment or transfer to which the same may be
subject; and
1.1.8 Without limiting and in addition to the foregoing, all of
Seller's rights, titles and interests in and to the Leases, the lands described
in the Leases and the lands described or referred to in Exhibit A, and in and
to oil and gas leases, working interests, overriding royalty interests, mineral
interests, royalty interests and all other interests and property of every kind
and character, insofar as the same cover or relate to such lands without
limitation as to depth, and the physical property thereon or used or obtained
for use in connection therewith, even though such rights, titles and interests
be incorrectly or insufficiently described or referred to in, or a description
thereof be omitted from, Exhibit A.
1.2 Exclusions. The Property sold and assigned under this Agreement
does not include:
1.2.1 Trade credits, accounts and notes receivable, and
adjustments or refunds (including without limitation transportation tariff
refunds, take-or-pay claims, and audit adjustments) attributable to the
Property with respect to any period before the Effective Date or with respect
to any production prior to the Effective Date; and
1.2.2 All claims, causes of action, rights under contracts or
applicable law, and other rights (a) relating to or arising out of the
ownership or operation of the Leases and other property described in Section
1.1 prior to the Effective Date, or (b) relating to any liabilities and
obligations retained by Seller or for which Seller is obligated to indemnify
Buyer hereunder arising out of the ownership or operation of the Leases and
other property described in Section 1.1 between the Effective Date and the
Closing, such claims and causes of action described in this Section 1.2.2 to
include (without limitation) those claims and causes of action listed in
Schedule 1.2.2.
1.3 Ownership of Production from the Property. If the Closing
occurs, (I) Seller owns all merchantable oil, gas, condensate and distillate
("Hydrocarbons") produced from the Property before the Effective Date, and (ii)
Buyer owns all Hydrocarbons produced from the Property on and after the
Effective Date.
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ARTICLE 2. PURCHASE PRICE
2.1 Purchase Price. Buyer shall pay Seller $13.2 Million for the
Property (the "Purchase Price"), subject to any adjustments to the Purchase
Price made at Closing. Buyer shall, upon execution of this Agreement, pay the
Escrow Agent (as defined in Section 7.3.4) by wire transfer or certified funds
of cash $500,000 (the "Earnest Money Deposit"). In the event the Closing
occurs, the Earnest Money Deposit shall be applied upon the Purchase Price as
set forth in Section 7.3.2(I). Anything in this Agreement to the contrary
notwithstanding, in the event the Closing does not occur, the Escrow Agent
shall pay to Seller and Seller shall be entitled to receive and retain the
Earnest Money Deposit (together with any interest earned thereon) only in the
event that: (I) the conditions contained in this Agreement to which the duties
and obligations of Buyer are subject as set forth in Section 7.2 shall have
been fulfilled, (ii) Seller shall not have materially breached this Agreement,
and (iii) Buyer materially breaches this Agreement by failing or refusing to
close the sale as provided herein on the Closing Date or Buyer terminates this
Agreement. In the event such sale is not closed and the Escrow Agent pays the
Earnest Money Deposit to Seller as provided in this Section 2.1, the Earnest
Money Deposit shall constitute liquidated damages in lieu of all other damages
(and as Seller's sole remedy in such event). The parties hereby acknowledge
that the extent of damages to Seller occasioned by such failure or refusal by
Buyer would be impossible or extremely impractical to ascertain and that the
amount of the Earnest Money Deposit is a fair and reasonable estimate of such
damages under the circumstances. In the event the Earnest Money Deposit is
neither applied upon the Purchase Price pursuant to Section 7.3.2(I) nor paid
to and retained by Seller pursuant to the foregoing provisions of this Section
2.1, the Escrow Agent shall return the Earnest Money Deposit to Buyer on or
before the date on or before which Buyer is entitled to receive it pursuant to
the other provisions of this Agreement. If the sale contemplated hereby is not
consummated at Closing because of a breach of Seller's obligations hereunder,
this Agreement shall not terminate and Buyer shall have the right of specific
performance of the obligations of Seller hereunder by giving written notice of
such election to Seller within thirty (30) days after the scheduled Closing.
If Buyer fails to notify Seller of its election to exercise specific
performance within such thirty (30) day period, this Agreement shall terminate
and neither party shall have any further obligation to the other hereunder,
other than liabilities hereunder arising prior to such termination and those
obligations that by their terms survive termination. In the event Buyer elects
to seek specific performance as provided for above and it is subsequently
determined by the court in which such proceeding is filed that specific
performance cannot be granted to Buyer because such remedy is unavailable to
Buyer, then, in such event, Buyer shall be entitled to all other remedies
available in law or in equity.
2.2 Allocated Values. The Purchase Price has been allocated by Buyer
and Seller among certain wells and other properties that are included as part
of the Property. The wells and other properties described or referred to in
Exhibit B are herein collectively referred to as the "Warranted Property." The
portion of the Purchase Price allocated to each Warranted Property (the
"Allocated Value") is set forth in Exhibit B.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
3.1 Reciprocal Representations and Warranties. Seller and Buyer each
represent and warrant to the other that:
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3.1.1 Corporate Authority. It is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, is duly qualified to carry on its business in the States of
Texas, New Mexico, Alabama, California, Oklahoma, North Dakota, Wyoming,
Michigan and Louisiana (or the failure to be so qualified in any of such states
would not have a material adverse effect on Seller or the Property), and has
all the requisite corporate power and authority to enter into and perform this
Agreement.
3.1.2 Requisite Approvals. It has taken all necessary actions
pursuant to its Certificate of Incorporation, By-laws and other governing
documents to fully authorize it to consummate the transaction contemplated by
this Agreement.
3.1.3 Validity of Obligation. This Agreement and all documents
it is to execute and deliver on or before the Closing Date have been or will be
duly executed by its appropriate officials and constitute or will constitute
valid and legally binding obligations, enforceable against it in accordance
with the terms of this Agreement and such documents, except as such
enforceability may be limited by applicable bankruptcy, insolvency, and other
statutes and laws affecting the rights of creditors, and except in respect of
equitable remedies.
3.1.4 Impediments to Consummation of Agreement. Its executing,
delivering and performing this Agreement does not conflict with or violate any
agreement or instrument to which it is a party, or any law, rule, regulation,
ordinance, judgment, decree or order to which it is subject, subject to
compliance by Seller with any preferential purchase right or consent
requirements applicable to the Property.
3.1.5 Bankruptcy. There are no bankruptcy, reorganization or
receivership proceedings pending, being contemplated by, or to its actual
knowledge, threatened against it.
3.1.6 Broker's Fees. It has not incurred any obligation for
brokers, finders or similar fees for which the other party would be liable.
3.2 Buyer's Representations and Warranties. Buyer represents and
warrants to Seller that:
3.2.1 Independent Evaluation. Buyer is an experienced and
knowledgeable investor in the oil and gas business. Buyer has been advised by
and has relied solely on its own expertise and legal, tax, reservoir
engineering and other professional counsel concerning this transaction, the
Property and the value thereof, as determined by Buyer's examination of
Seller's records and inspection of the Property, and the representations,
warranties and covenants made by the Seller in this Agreement.
3.2.2 Eligibility. Buyer is eligible under all applicable laws
and regulations to own the Property, including without limitation the Leases.
3.2.3 Securities Laws. Buyer is acquiring the Property for its
own account for the purpose of investment and not for any distribution or re-
sale in violation of any applicable state or federal securities law.
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3.3 Seller's Representations and Warranties. Seller represents and
warrants to Buyer that:
3.3.1 Lawsuits and Claims. Except as set forth on Exhibit G,
there is no judgment, order, decree or award, or suit, action or
administrative, arbitration or other proceeding or governmental investigation
of any kind in existence or pending or, to Seller's knowledge, threatened in
writing against Seller which has a material adverse effect on the Property or
the value thereof, and Seller has not received or been advised in writing of
any unsatisfied request for information, notice, administrative inquiry or
claim (including but not limited to those from the U.S. Environmental
Protection Agency or a state or local environmental agency) with respect to the
Property.
3.3.2 Tax Partnerships. The Property is not subject to any tax
partnerships.
3.4 Notice. Seller and Buyer shall each give the other prompt
written notice upon becoming aware of any matter materially affecting any of
its representations or warranties or those of the other party under this
Article 3 or rendering any such warranty or representation untrue.
3.5 Representations and Warranties Exclusive. All representations
and warranties contained in this Agreement are exclusive, and are given in lieu
of all other representations and warranties, express or implied.
3.6 Survival of Representations and Warranties. The representations,
warranties, and indemnities made or provided for in this Agreement shall
survive the Closing and shall not be deemed to have merged with the separate
representations, warranties and covenants made in the Assignment and Bill of
Sale, except that the representations and/or warranties of Buyer and Seller
under this Agreement shall survive for a period of one year after the Closing
Date, except that Seller's warranties contained in Section 3.3 shall expire at
Closing; Buyer's sole remedy with respect to Seller's warranties contained in
Section 3.3 shall be to terminate the Agreement pursuant to Section 7.1 prior
to the Closing. Seller's liability for breach of warranties and
representations made by Seller pursuant to this Agreement shall in any event
not exceed the Purchase Price as adjusted hereunder.
ARTICLE 4. WARRANTY DISCLAIMER.
4.1 Title; Encumbrances. IF THE CLOSING OCCURS, SELLER SHALL CONVEY
THE PROPERTY TO BUYER WITHOUT WARRANTY OF TITLE, EXPRESS OR IMPLIED, AS
PROVIDED IN THE ASSIGNMENT AND BILL OF SALE TO BE DELIVERED PURSUANT TO SECTION
7.3.1.
4.2 Other Property Warranties. SELLER SELLS AND TRANSFERS THE
PROPERTY TO BUYER WITHOUT ANY EXPRESS, STATUTORY OR IMPLIED WARRANTY OR
REPRESENTATION OF ANY KIND, INCLUDING WARRANTIES RELATING TO (I) THE CONDITION
OR MERCHANTABILITY OF THE PROPERTY, (II) THE FITNESS OF THE PROPERTY FOR A
PARTICULAR PURPOSE, OR (III) TITLE TO THE PROPERTY. SUBJECT TO THE PROVISIONS
OF SECTION 5.3, BUYER HAS INSPECTED, OR BEFORE CLOSING WILL HAVE INSPECTED OR
BEEN GIVEN THE OPPORTUNITY TO INSPECT, THE PROPERTY AND IS SATISFIED AS TO THE
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PHYSICAL AND ENVIRONMENTAL CONDITION (BOTH SURFACE AND SUBSURFACE) OF THE
PROPERTY AND ACCEPTS THE PROPERTY "AS IS", "WHERE IS", AND "WITH ALL FAULTS."
4.3 Information About the Property. EXCEPT FOR THE REPRESENTATIONS
AND WARRANTIES PROVIDED IN ARTICLE 3, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS TO (I) THE ACCURACY,
COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO
BUYER IN CONNECTION WITH THE PROPERTY; (II) THE QUALITY AND QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTY; (III) THE ABILITY
OF THE PROPERTY TO PRODUCE HYDROCARBONS, INCLUDING WITHOUT LIMITATION
PRODUCTION RATES, DECLINE RATES AND RECOMPLETION OPPORTUNITIES; (IV) GAS
BALANCING INFORMATION, ALLOWABLES OR OTHER REGULATORY MATTERS, (V) THE PRESENT
OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE
DERIVED FROM THE PROPERTY, OR (VI) THE ENVIRONMENTAL CONDITION OF THE PROPERTY.
ANY AND ALL DATA, INFORMATION OR OTHER RECORDS FURNISHED BY SELLER ARE PROVIDED
TO BUYER AS A CONVENIENCE AND BUYER'S RELIANCE ON OR USE OF THE SAME IS AT
BUYER'S SOLE RISK.
ARTICLE 5. PHYSICAL INSPECTION; ENVIRONMENTAL ASSESSMENT; CASUALTY LOSS
5.1 Access to Records. Except to the extent Seller is restricted
from disclosing such information by existing agreements with third parties,
Seller shall give Buyer, and Buyer's authorized representatives, at mutually
agreeable times before Closing, access to all contract, land, lease,
accounting, well, production and engineering records and pipeline and gathering
system files and all environmental permits and filings and supporting
documentation for such filings in connection with compliance with environmental
requirements, to the extent such data, records, files and documents are in
Seller's possession and relate to the Property (all of the foregoing, subject
to the exclusions stated above, being herein collectively called "Property
Records"). Buyer may photocopy the Property Records at its sole expense.
Buyer shall keep (and cause its representatives to keep) confidential all
information made available to Buyer in accordance with the provisions of the
confidentiality agreement previously executed by Buyer, unless and until
Closing occurs. The confidentiality agreement previously executed by Buyer
will continue in force unless and until Closing occurs, at which time it will
terminate as to the Property, it being further understood and agreed that Buyer
shall be bound by the confidentiality obligations of the Related Contracts
assumed by Buyer pursuant to Article 8 of this Agreement.
5.2 Inspection. Before the Closing, Seller will cooperate with Buyer
in attempting to secure from third party operators access to any portion of the
Property operated by them for Buyer and its representatives, at their sole risk
and expense, to conduct reasonable inspections of the Property. BUYER SHALL
REPAIR ANY DAMAGE TO THE PROPERTY RESULTING FROM ITS INSPECTION AND SHALL
INDEMNIFY, DEFEND AND HOLD SELLER AND EACH SUCH THIRD PARTY OPERATOR HARMLESS
FROM AND AGAINST ANY AND
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ALL LOSSES, DAMAGES, OBLIGATIONS, CLAIMS, LIABILITIES, EXPENSES (INCLUDING
COURT COSTS AND ATTORNEY'S FEES), OR CAUSES OF ACTION ARISING FROM BUYER
INSPECTING AND OBSERVING THE PROPERTY, INCLUDING, WITHOUT LIMITATION, CLAIMS
FOR PERSONAL INJURIES OR DEATH OF EMPLOYEES OF THE BUYER, ITS CONTRACTORS,
AGENTS, CONSULTANTS AND REPRESENTATIVES, AND PROPERTY DAMAGES, REGARDLESS OF
WHETHER SUCH CLAIMS ARE CAUSED BY THE SOLE OR CONCURRENT NEGLIGENCE OF SELLER
OR ANY SUCH THIRD PARTY OPERATOR OR THE CONDITION OF THE PROPERTY.
5.3 Environmental Assessment and Indemnification.
5.3.1 "Adverse Environmental Conditions" means contaminations or
conditions that would require in the aggregate $100,000 or more of out of
pocket costs and expenses to remedy and that are not otherwise permanently
authorized by permit or law, resulting from the existence or any discharge,
release, disposal, production, storage, treatment, or any other activities on,
in or from the Property, or the migration or transportation from other lands to
the Property, prior to the Closing Date, of any wastes, pollutants,
contaminants, hazardous materials or other materials or substances that are
subject to regulation under any laws, rules or regulations relating to the
protection of health or the environment ("Environmental Laws"), including, but
not limited to, the Clean Air Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Federal Water Pollution Control
Act, the Safe Drinking Water Act, the Toxic Substance Control Act, the
Hazardous and Solid Waste Amendments Act of 1984, the Superfund Amendments and
Reauthorization Act of 1986, the Hazardous Materials Transportation Act, the
Clean Water Act, the National Environmental Policy Act, the Endangered Species
Act, the Fish and Wildlife Coordination Act, the National Historic Preservation
Act and the Oil Pollution Act of 1990, as well as any state and local
regulation or law governing the same, similar or related matters.
5.3.2 Buyer shall advise Seller promptly of any Adverse
Environmental Conditions discovered after the date hereof as a result of its
investigation of the Property and the estimated costs for remediating such
conditions. Buyer shall provide such information regarding such Adverse
Environmental Conditions as Seller may reasonably request. If Seller receives
timely notice from Buyer not later than two (2) business days prior to the
Closing Date of any Adverse Environmental Conditions, (a) Seller shall have the
right
(i) to agree to remedy such Adverse Environmental Conditions to
Buyer's reasonable satisfaction, all at Seller's sole cost and
expense, not later than thirty (30) days after the Closing Date,
in which case the amount to be paid to the Seller at the Closing
shall be reduced by an amount equal to the agreed cost of
remedying such Adverse Environmental Conditions (the "Remediation
Amount") and the Buyer shall pay to the Escrow Agent at the
Closing an amount equal to the Remediation Amount in accordance
with the provisions of Section 7.3.4, or
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(ii) if the parties have agreed upon an adjustment to the Purchase
Price in respect of such Adverse Environmental Conditions, to
reduce the Purchase Price by the amount of such adjustment, in
which event Seller shall have no obligation or liability in
respect of such Adverse Environmental Conditions,
and (b) if the reasonable cost of remedying all of the Adverse Environmental
Conditions exceeds $750,000, either party shall have the right to terminate
this Agreement. Each party shall notify the other of any election under the
preceding sentence no later than two business days prior to Closing. If Seller
elects to terminate this Agreement pursuant to the foregoing provision, the
Escrow Agent shall pay to Buyer the Earnest Money Deposit (together with any
interest earned thereon) within three (3) business days of receipt of such
cancellation notice by the party to whom it was addressed. If Buyer elects to
terminate this Agreement pursuant to the foregoing provision, the Escrow Agent
shall pay to Seller and Seller shall be entitled to receive and retain the
Earnest Money Deposit (together with any interest earned thereon). Seller
shall have no liability or obligation to Buyer under this Section 5.3.2 for any
Adverse Environmental Condition for which Seller did not receive timely written
notice of such condition not later than two (2) business days prior to the
Closing Date. Buyer shall grant Seller and its representatives such access to
the Property as may be reasonably necessary provided such access does not
interfere with Buyer's operations.
5.3.3 Except for any costs or expenses incurred by Seller in
discharging any remediation obligations under Section 5.3.2, if the Closing
occurs Buyer shall indemnify, defend and hold Seller harmless from and against
any and all claims, demands, causes of action, liabilities and obligations, and
all costs and expenses (including, without limitation, reasonable attorneys'
fees) associated therewith, arising out of or relating to any discharge,
release, disposal, production, storage, treatment or any activities on, in or
from the Property, or the migration or transportation from any other lands to
the Property, whether before or after the Effective Date, of materials or
substances that are presently, or become in the future, subject to regulation
under Environmental Laws, whether such Environmental Laws are presently
existing or are hereafter enacted, INCLUDING, WITHOUT LIMITATION, ANY CLAIMS,
DEMANDS, CAUSES OF ACTION, LIABILITIES, OR OBLIGATIONS ARISING IN WHOLE OR IN
PART FROM THE SOLE OR CONCURRENT NEGLIGENCE OR GROSS NEGLIGENCE OF SELLER.
5.4 Casualty Losses. If there is any loss resulting from destruction
of Property by fire or other casualty (a "Casualty Loss") before the Closing
Date, Seller shall notify Buyer promptly after Seller learns of such event.
Seller shall have the right, but not the obligation to cure the Casualty Loss
by repairing such damage or, in the case of personal property or fixtures,
replacing them with equivalent items, no later than the date of Closing, all to
Buyer's reasonable satisfaction. If any uncured Casualty Loss exists at
Closing, the Purchase Price shall be reduced by the aggregate reduction in the
value of the Property as a result of such Casualty Loss, as determined by the
mutual agreement of the parties. If the parties are unable to agree on the
reduction in the value of the Property as a result of such Casualty Loss, such
reduction in value shall be determined by arbitration pursuant to Section
6.2.4, the Property will be conveyed to Buyer at Closing without a reduction in
the Purchase Price because of the Casualty Loss, and within ten business days
after the parties receive the determination of the arbitrators Seller shall pay
to Buyer, by wire transfer of immediately available funds, the amount of the
reduction in value of the Property as a result of the Casualty Loss,
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together with interest at ___% per anum (the "Interest Rate") from (and
including) the Closing Date to (but excluding) the date such payment is made.
ARTICLE 6. PREFERENTIAL RIGHTS/CONSENTS; TITLE DEFECTS
6.1 Preferential Purchase Rights and Consents to Assign.
6.1.1 If any of the Property is subject to preferential purchase
rights, rights of first refusal, or similar rights (collectively "Preferential
Rights"), or consents to assign, lessor's approvals or similar rights
(collectively, "Consents"), Seller shall on the date of this Agreement (I)
notify the holders of the Preferential Rights and Consents that it intends to
sell the Property to Buyer, (ii) in the case of a Preferential Right, notify
the holder of such right that the price for the portion of the Property covered
by the Preferential Right is the Allocated Value of such interest, subject to
adjustment in the same manner that the Purchase Price is subject to adjustment
hereunder, (iii) provide them with any other information about the sale of the
Property to which they are entitled, and (iv) in the case of Consents, ask the
holders of the Consents to consent to the assignment of the affected Property
to Buyer. Seller shall promptly notify Buyer whether Preferential Rights are
exercised, waived or deemed waived because of the expiration of the period
within which the Preferential Right may be exercised, or if any Consents are
given or denied. Seller will not be liable to Buyer if any Preferential Rights
are exercised, or any Consents are denied, but the Purchase Price shall be
subject to adjustment to the extent provided below.
6.1.2 If, before Closing, (I) any Preferential Right is validly
exercised or (ii) any Consent (other than consent on a Related Contract that
would not materially and adversely affect the operation of the affected
Property) is denied, Seller and Buyer shall exclude the affected Property at
Closing and deduct the Allocated Value of the affected Property from the
Purchase Price.
6.1.3 If Seller is unable before Closing to obtain a Consent
(other than Consents on the Related Contracts that would not materially and
adversely affect the operation of the affected Property) or is unable to obtain
the waiver of a Preferential Right for which the period within which such
Preferential Right may be exercised has not expired (other than a Preferential
Right referred to in Section 6.1.2), then, unless mutually agreed, Buyer shall
exclude the affected Property at Closing and deduct the Allocated Value of the
affected Property from the Purchase Price. Upon receipt of such Consent, the
waiver of such Preferential Right following Closing, or the expiration of the
period within which the Preferential Right may be exercised (if such right is
not exercised during such period), such Property will be purchased by and
conveyed to Buyer for an amount equal to the Allocated Value of such Property,
appropriately adjusted in a manner consistent with this Agreement, at a
subsequent closing to be held within ten days following receipt by Seller and
forwarding to Buyer of such Consent or waiver, or the expiration of the period
within which the Preferential Right may be exercised, as the case may be;
provided, however, that in the case of a Consent, if such Consent is not
obtained and provided to Seller and Buyer within 120 days following the
Closing, then the Property so affected shall be eliminated from this Agreement
and shall be excluded from the assets covered hereby (unless Buyer agrees to
proceed with the Closing on such Property and Buyer further agrees to indemnify
Seller against claims arising from such sale and assignment on terms acceptable
to Seller, in which event Buyer shall be deemed to have waived any objections
with respect to failing to obtain such Consent).
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6.2 Title Defects.
6.2.1 For the purposes of this Agreement, the following terms
shall have the meanings given them below:
"Defensible Title" shall mean:
(a) with respect to a well listed on Exhibit B, such title
(whether of record or beneficially held pursuant to the provisions of a
participation or exploration agreement listed in Exhibit A) as will
entitle Buyer to receive a percentage of the Hydrocarbons produced and
saved from such well (subject to any depth restrictions noted in Exhibit
A), after deducting all applicable Production Burdens, that is not less
than the "Net Revenue Interest" shown for such well on Exhibit B
throughout the productive life of such well, and will obligate Buyer to
bear and pay a portion of the costs and expenses of operating the well
that is no greater than the "Working Interest" shown for such well on
Exhibit B throughout the productive life of such well and is free and
clear of Material Title Deficiencies (as hereinafter defined); and
(b) with respect to a Related Contract listed on Exhibit B,
such title as will entitle Buyer to the interest in such Related
Contract shown on Exhibit B and is free and clear of Material Title
Deficiencies.
"Material Title Deficiency" means a material deficiency in one or
more of the following respects: (I) Seller's title is subject to an
outstanding mortgage, deed of trust, lien, encumbrance, contractual
burden (other than Production Burdens that do not have the effect of
reducing Seller's net revenue interest below that reflected on Exhibit
B), adverse claim or defect which substantially and adversely affects
the value or operation of the Property in question; (ii) Seller's rights
and interests are subject to being reduced by virtue of the exercise by
a third party of a reversionary, back-in or other similar right not
reflected in Exhibit B; or (iii) Seller is in default under some
material provision of a lease, farmout or other agreement or a right of
way, easement, permit or license affecting the Property in question.
"Net Revenue Interest" means in respect of any lease, well or
unit, the interest (expressed as a percentage) in and to oil and gas
produced from or allocated to such lease, well or unit after deducting
all applicable Production Burdens.
"Production Burdens" means all royalty interests, overriding
royalty interests, production payments, net profits interests or other
similar interests that constitute a burden on, are measured by or are
payable out of the production of Hydrocarbons or the proceeds realized
from the sale or other disposition thereof.
"Title Defect" is any matter that causes the title to a Warranted
Property to fail to qualify as Defensible Title. Neither the
environmental condition of a Warranted Property nor any failure to
obtain Consents to the transfer of Related Contracts will be considered
a Title Defect.
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"Title Defect Amount" is the amount by which a Title Defect
reduces the fair market value of a Warranted Property below its
Allocated Value.
"Working Interest" means, in respect of any lease, well or unit,
the interest (expressed as a percentage) in such lease, well or unit
before giving effect to any applicable Production Burdens, and the
percentage of all costs and expenses required to be borne that are
associated with the exploration, development and operation of such
lease, well or unit.
6.2.2 Buyer may review title to the Warranted Property before
Closing and notify Seller in writing of any Title Defect it discovers as soon
as reasonably practicable after its discovery, but in no event less than two
(2) business days before the Closing Date. Buyer will be deemed to have
conclusively waived any Title Defect for which Buyer has failed to notify
Seller in writing at least two (2) business days prior to the Closing Date.
6.2.3 If Buyer properly notifies Seller of any alleged Title
Defect, Buyer and Seller shall meet and use their best efforts to agree on the
validity of the alleged Title Defect and the corresponding Title Defect Amount
based on the Allocated Value of such Property, and the following provisions
shall apply:
(i) The affected Property will be conveyed to Buyer at
Closing.
(ii) If Buyer and Seller agree that there is a Title Defect and
agree to a Title Defect Amount and Seller elects not to attempt to cure
such Title Defect, the Title Defect Amount will be deducted from the
Purchase Price at Closing and Seller shall have no liability to Buyer
with respect to such Title Defect.
(iii) Seller shall have the right to agree to cure such Title
Defect to Buyer's reasonable satisfaction, all at Seller's sole cost and
expense, not later than thirty (30) days after the Closing Date, in
which case the amount to be paid to the Seller at the Closing shall be
reduced by an amount equal to the Title Defect Amount and the Buyer
shall pay to the Escrow Agent at the Closing an amount equal to the
Title Defect Amount in accordance with the provisions of Section 7.3.4.
If the Seller fails to cure such Title Defect within such thirty day
period, the Escrow Agent shall pay the Title Defect Amount to the Buyer
and the Seller shall have no further liability to the Buyer with respect
to such Title Defect. If the Seller cures such Title Defect within such
thirty day period, the Escrow Agent shall pay the Title Defect Amount to
the Seller.
(iv) If Buyer and Seller are unable to agree on whether a Title
Defect exists or if Buyer and Seller agree that a Title Defect exists
but are unable to agree on the Title Defect Amount, then (A) the amount
to be paid to the Seller at the Closing shall be reduced by an amount
equal to the Title Defect Amount, (B) the Buyer shall pay to the Escrow
Agent at the Closing an amount equal to such Title Defect Amount in
accordance with the provisions of Section 7.3.4, and (C) the parties
shall submit the determination of whether the Title Defect exists or the
Title
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Defect Amount (as the case may be) to arbitration in accordance with the
provisions of Section 6.2.4. In such event, the provisions of Section
6.2.4 shall apply and if the arbitrators determine that a Title Defect
or the Title Defect Amount does exist, within ten (10) business days
after the parties receive the determination of the arbitrators the Buyer
shall be entitled to the payment by the Escrow Agent, in accordance with
the provisions of Section 7.3.4, of the Title Defect Amount determined
by the arbitrators, unless the Seller elects to attempt to cure the
Title Defect pursuant to clause (iii) above in which event the
provisions of clause (iii) shall apply.
6.2.4 Any arbitration conducted pursuant to this Agreement shall
be conducted in Houston, Texas, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association; provided, however, that the
parties hereby agree to modify those rules by adoption of the following
provisions of this Section, which the arbitrators shall be bound to apply. On
or before the fifth day after the Closing Date, Seller must name its choice of
an arbitrator and Buyer must name its choice of an arbitrator. Within seven
days thereafter, the two arbitrators so chosen shall name a third arbitrator.
If any of the three arbitrators has not been named within the appointed time,
then any party may apply to the American Arbitration Association for
appointment of the arbitrator(s) necessary to complete the panel within ten
days. Seller shall pay the compensation and expenses of the arbitrator named
by or for it, Buyer shall pay the compensation and expenses of the arbitrator
named by or for it, and Seller and Buyer shall each pay one-half of the
compensation and expenses of the third arbitrator. Within five days following
the date that a three-person panel is established, the three arbitrators shall
meet and proceed with due dispatch to hear the parties with respect to such
matters. The decision of the arbitration panel, or a majority thereof, shall
be rendered in writing no later than 15 days after the arbitrators have met and
heard the parties. Such decision shall be final and binding on the parties.
6.2.5 The parties acknowledge that those certain liens, bank
loans and encumbrances shown on Exhibit E ("Release Liens") are in existence
with respect to the Property on the Effective Date. The obligations of Seller
under this Agreement are subject to Seller's obtaining the consent to the
transaction contemplated by this Agreement from the holders of the Release
Liens and to obtaining releases of such Release Liens as to the Property.
Seller shall use reasonable efforts to obtain such consent and legally
sufficient and recordable releases of such Release Liens at or before the
Closing in form and substance satisfactory to Buyer; and such Release Liens, if
so released, shall not be considered Title Defects for purposes of this
Agreement. The provisions of the preceding sentence shall not be deemed an
assumption of such liens or encumbrances by Buyer or a waiver of any claim or
defense of Buyer with respect thereto.
6.3 Right Not to Close. If, before the Closing Date,
(i) the net downward adjustments to the Purchase Price as the result
of application of Sections 6.1 and 6.2 (exclusive, for purposes
of this Section 6.3, of any adjustments as a result of the
failure to obtain any consents or waivers of preferential
purchase rights listed on Exhibit F) exceeds $750,000, or
(ii) the reasonable cost of remedying all of the Adverse Environmental
Conditions asserted by the Buyer pursuant to Section 5.3 exceeds
$750,000,
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then either Seller or Buyer may, by notice to the other, elect to terminate
this Agreement and not to proceed with Closing. If Seller is the party
electing to terminate this Agreement, Seller shall return the Earnest Money
Deposit paid by Buyer pursuant to Section 2.1 within three (3) business days of
receipt of such cancellation notice by the party to whom it was addressed. If
Buyer is the party electing to terminate this Agreement, the Escrow Agent shall
pay to Seller and Seller shall be entitled to receive and retain the Earnest
Money Deposit (together with any interest earned thereon) paid by Buyer
pursuant to Section 2.1 free of any claim by Buyer.
ARTICLE 7. CLOSING; FINAL SETTLEMENT
7.1 Closing Date. Unless Buyer and Seller otherwise agree, the
closing of this purchase and sale (the "Closing") will occur on January 15,
1998 (the actual date on which Closing occurs being the "Closing Date"), at
10:00 a.m. local time in Seller's offices in Houston, Texas, except that Seller
may postpone the Closing Date until Seller has obtained the consent and
releases described in Section 6.2.5. Seller shall notify Buyer in writing of
such postponement, if any, not later than January 10, 1998. Provided such
party is not in material default of its obligations under this Agreement,
either party may terminate this Agreement by giving written notice to the other
if the Closing has not occurred on or before the later of (i) July 1, 1998 and
(ii) (if Seller has postponed the Closing Date as above provided) the date
Seller has obtained the consent and releases described in Section 6.2.5. In
the event of an election by either party to terminate this Agreement pursuant
to the foregoing provision, the Escrow Agent shall return to Buyer the Earnest
Money Deposit paid by Buyer pursuant to Section 2.1 within three (3) business
days of receipt of such cancellation notice by the party to whom it was
addressed.
7.2 Conditions to Closing. Each of Buyer and Seller shall not be
obligated to close the transaction that is the subject of this Agreement if:
7.2.1 Any matter represented or warranted by the other party in
this Agreement is not true in any material respect as of the Closing Date, or
there has been a material breach by the other party of its obligations under
this Agreement and such breach is not cured by the Closing Date; or
7.2.2 Any suit or other proceeding (other than a suit or
proceeding initiated by such party hereto) is pending or threatened before any
court or governmental agency seeking to restrain, prohibit, or declare illegal,
or seeking substantial damages in connection with, the transaction that is the
subject of this Agreement; or
7.2.3 Seller fails to obtain, by the Closing Date, the consent
to the transaction contemplated by this Agreement from the holders of the
Release Liens or the releases of such Release Liens as to the Property as
described in Section 6.2.5.
7.3 Closing. Seller and Buyer have the following obligations at
Closing:
7.3.1 Seller's Obligations. At Closing, Seller shall deliver to
Buyer:
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(i) A duly executed Non Foreign Affidavit in the
form of Exhibit C;
(ii) An executed and acknowledged Assignment and
Bill of Sale (in sufficient counterparts for recording) in
the form of Exhibit D (the "Assignment and Bill of Sale");
(iii) Any other appropriate instruments necessary
to effect or support the transaction contemplated in this
Agreement, including, without limitation, any lease
assignment forms or other forms or filings required by
federal or state agencies to transfer ownership or
operation of the Property;
(iv) Letters in lieu of transfer orders, executed
by Seller and Buyer, in form and substance satisfactory to
Buyer, directing all purchasers of production to make
payment of proceeds attributable to production from the
Property after the Effective Date to Buyer; and
(v) Letters to third party pipeline operators,
executed by Seller in form and substance reasonably
satisfactory to Buyer, notifying such operators that Buyer
shall operate all pipeline meters included in the Property
which are currently being operated by Seller.
7.3.2 Buyer's Obligations. At Closing, Buyer shall:
(i) Pay Seller the Purchase Price, as adjusted
under 7.3.3 and any other provisions of this Agreement
(less the amount of the Earnest Money Deposit plus
interest thereon from the date of its payment to the
Escrow Agent until the Closing Date), by wire transfer of
immediately available funds into an account designated by
Seller according to Seller's instructions; and Buyer shall
cause the Escrow Agent to deliver to Seller at the Closing
the amount of the Earnest Money Deposit plus interest
thereon;
(iii) Execute any ratification and joinder
instruments required to transfer Seller's rights,
obligations and interests in the Related Contracts and
other Property;
(iv) Execute any applications necessary to
transfer regulatory permits to which the Property is
subject, and which Seller has agreed to transfer under
this Agreement; and
(v) Execute, acknowledge and deliver to Seller
the Assignment and Bill of Sale.
7.3.3 Purchase Price Adjustment.
7.3.3.1 The Purchase Price shall be adjusted upward
by the following:
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<PAGE> 18
(i) The amount of (1) all overhead charges and
administrative expenses paid by Seller to third parties under the terms
of applicable joint operating agreements, (2) all actual direct
operating expenses paid by Seller, and (3) all actual direct capital
expenditures paid by Seller; but only to the extent that the expenses
and expenditures described in clauses (1), (2) and (3) above arise from,
or are otherwise properly allocable to, the ownership or operation of
the Property after the Effective Date, and do not result from or relate
to remediation of Adverse Environmental Conditions or curing of Title
Defects; and
(ii) An amount equal to all upward adjustments to the
Purchase Price provided in Sections 6.1, 6.2 and 12.1.
7.3.3.2 The Purchase Price shall be adjusted
downward by the following:
(i) The gross proceeds, net of production taxes paid
with respect thereto, actually received by Seller, whether before or
after Closing, that are attributable to the ownership or operation of
the Property from and after the Effective Date (excluding any proceeds
from the sale of the Hydrocarbons in storage on the Effective Date).
The amount of gross proceeds received by Seller shall be determined on
the basis of applicable sales and marketing agreements and not on the
basis of swap or other hedging agreements, which swap or hedging
agreements shall be solely for the account of Seller); and
(ii) An amount equal to all downward adjustments to the
Purchase Price provided in Sections 5.3, 5.4, 6.1, 6.2 and 12.1.
7.3.3.3 At least five (5) days prior to the Closing
Date, Seller shall estimate the amount of the Purchase Price adjustment under
Sections 7.3.3.1 and 7.3.3.2 in good faith and in a bona fide manner and
deliver to Buyer a certificate of the Chief Financial Officer of Seller setting
forth in reasonable detail the calculation thereof. The Purchase Price shall
be adjusted as set forth in such certificate, and the resulting amount shall be
the initially adjusted Purchase Price.
7.3.3.4 As soon as reasonably practicable, and in
any event within 120 days following the Closing Date, Seller shall deliver to
Buyer a statement of the actual Purchase Price adjustment under Sections
7.3.3.1 and 7.3.3.2 (specifying whether the Purchase Price is to be increased
or decreased by such amount), which shall be certified by the Chief Financial
Officer of Seller (the "Purchase Price Adjustment Certificate"), and all
supporting documentation. Within 30 days after delivery of the Purchase Price
Adjustment Certificate, Buyer shall notify Seller whether Buyer agrees or
disagrees with the determination of the Purchase Price adjustment set forth in
the Purchase Price Adjustment Certificate. If Buyer disagrees with such
determination, representatives of Buyer and Seller shall meet and endeavor to
resolve their differences regarding the determination of the Purchase Price
adjustment as soon as reasonably possible. If the representatives of Buyer and
Seller are unable to agree upon such determination of the Purchase Price
adjustment within 20 business days, the independent accounting firm of
______________ shall audit the Purchase Price Adjustment Certificate and
determine the Purchase Price adjustment as soon as reasonably possible. The
decision of such independent accounting firm shall be binding on Seller and
Buyer, and the fees
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and expenses of such independent accounting firm shall be borne one-half by
Seller and one-half by Buyer. If the Purchase Price adjustment as finally
determined pursuant to this Section 7.3.3.4 is a smaller upward adjustment or a
larger downward adjustment than that estimated pursuant to Section 7.3.3.3,
Seller shall pay to Buyer the amount of such excess, plus interest thereon at
the Interest Rate from (and including) the Closing Date to (but excluding) the
date of payment. If the Purchase Price Adjustment Amount as finally determined
pursuant to this Section 7.3.3.4 is a larger upward adjustment or a smaller
downward adjustment than that estimated pursuant to Section 7.3.3.3, Buyer
shall pay to Seller the amount of such deficiency, plus interest thereon at the
Interest Rate from (and including) the Closing Date to (but excluding) the date
of payment. Any payment contemplated by this Section 7.3.3.4 shall be made by
wire transfer in federal or other immediately available funds on or before the
fifth business day following the final determination of the amount thereof.
7.3.4 Escrow Agent. At the Closing, Buyer shall pay to Texas
Commerce Bank N.A., Houston, Texas or another bank mutually acceptable to Buyer
and Seller (the "Escrow Agent") the amounts required to be paid to the Escrow
Agent in accordance with the provisions of Sections 5.3.2 and 6.2.3. Such
payment shall be made by wire transfer in federal or other immediately
available funds. If Seller cures or remedies any Title Defect or Adverse
Environmental Conditions in a timely manner as required by such Sections, then
Seller shall be entitled to payment of the applicable Title Defect Amount or
Remediation Amount out of the funds held by the Escrow Agent. If Seller fails
to cure or remedy the Title Defect or Adverse Environmental Conditions in a
timely manner, then (I) Buyer shall be entitled to payment of the applicable
Title Defect Amount or Remediation Amount out of the funds held by the Escrow
Agent and (ii) Seller shall have no further obligation or liability to Buyer
with respect to or arising out of the uncured or unremediated Title Defect or
Adverse Environmental Conditions. The parties shall direct the Escrow Agent to
make payments in accordance with the provisions of this Section 7.3.4 and
Sections 2.1, 5.3.2, 6.3, 7.1 and 7.3.2, and they shall enter into and execute
an escrow agreement with the Escrow Agent in a mutually acceptable form
consistent with the provisions of this Agreement.
7.3.5 Document Preparation. Unless Seller and Buyer otherwise
agree, Seller will prepare any Closing documents to be executed and delivered
under Sections 7.3.1 and 7.3.2 at Closing and will furnish copies of the same
to Buyer at least two days before the Closing, except as provided elsewhere in
this Agreement for an earlier date.
7.4. Post-Closing Obligations. Seller and Buyer have the following
post-closing obligations:
7.4.1 Property Records. Within five (5) days after Closing,
Seller shall deliver to Buyer the originals (if in Seller's possession) of the
Property Records at a location designated by Buyer. Seller shall have the
right to retain copies of any or all such Property Records. Buyer shall
preserve and maintain all Property Records for at least seven (7) years after
the Closing Date. Buyer shall notify Seller before destroying any Property
Records. Seller reserves the right to access and copy (at its own expense) all
Property Records for seven (7) years after the Closing Date, and Buyer agrees
to provide access to the Property Records to Seller during normal business
hours.
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7.4.2 Recording and Filing. Buyer, within thirty (30) days
after Closing, shall (I) file for record the Assignment and Bill of Sale and
all other instruments that must be recorded to effectuate the transfer of the
Property; and (ii) file for approval with the applicable government agencies
all state and federal transfer and assignment documents for the Property.
Buyer shall provide Seller a recorded copy of the Assignment and Bill of Sale
and other recorded instruments, and approved copies of the state and federal
transfer and assignment documents as soon as they are available. If Buyer
fails, within thirty (30) days after Closing, to file for record the Assignment
and Bill of Sale and all other instruments that must be recorded to effectuate
the transfer of the Property, and file for approval with the applicable
government agencies all state and federal transfer and assignment documents for
the Property, Seller, in addition to any other rights available to it, shall
have the right to specific performance of Buyer's obligations under this
Section.
7.4.3 Audit Rights. For a period of two (2) years following the
Closing Date, any party hereto may at its expense audit the other party's
accounting for any item adjusted between them at Closing or in any pre-Closing
or post-Closing statement, billing, invoice or accounting made on the Property.
7.4.4 Further Assurances. Buyer and Seller agree to execute and
deliver from time to time such further instruments and do such other acts as
may be reasonably necessary to effectuate the purposes of this Agreement.
ARTICLE 8. ASSUMPTION OF OBLIGATIONS
8.1 Ownership and Operations. If the Closing occurs, and in addition
to the liabilities and obligations for which Buyer indemnifies Seller or which
Buyer assumes in this Agreement, Buyer shall assume and perform the following
rights, duties, obligations and liabilities of ownership and operation of the
Property on and after the Effective Date: (I) all of Seller's express and
implied obligations and covenants under the terms of the Leases and the Related
Contracts described in Exhibit A; and all other orders and contracts to which
the Property is subject and of which Buyer has actual or constructive notice;
(ii) responsibility for all royalties, overriding royalties, production
payments, net profits obligations, rentals and shut-in payments and other
burdens or encumbrances to which the Property is subject and of which Buyer has
actual or constructive notice; (iii) responsibility for compliance with all
applicable laws, ordinances, rules and regulations pertaining to the Property,
and the procurement and maintenance of all permits required by public
authorities in connection with the Property; (iv) responsibility for all
liabilities of Seller for net proceeds from production attributable to the
Property as currently held in suspense because of lack of identity or address
of owners, title questions, change of ownership, or similar questions, to the
extent such net proceeds are transferred and delivered to Buyer at the Closing;
and (v) all other obligations assumed by Buyer under this Agreement; provided,
however, that, except to the extent provided in Sections 5.2 and 5.3, Buyer
does not assume any liabilities and obligations to third parties for loss or
damage to property or injury to or death of persons arising from the operation
of the Property during the period from the Effective Date to the Closing.
Seller remains responsible for all costs, expenses and liabilities incurred by
Seller in connection with the ownership or operation of the Property before the
Effective Date and for all liabilities and obligations to third parties for
loss or damage to property or injury to or death of persons arising from the
operation of the Property during the period from the Effective Date to the
Closing (except, in each case, for those costs, expenses,
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liabilities and obligations for which Buyer indemnifies Seller or which Buyer
assumes under the provisions of this Agreement).
8.2 Plugging and Abandonment Obligations. From and after the Closing
Date, Buyer assumes full responsibility and liability for the following
obligations related to the Property (the "Plugging and Abandonment
Obligations"): (I) plugging, replugging and abandoning all wells on the
Property (except wells previously permanently plugged and abandoned by Seller);
(ii) removing and disposing of all structures and equipment comprising part of
the Property,(iii) the necessary and proper capping and burying of all
associated flow lines comprising part of the Property; (iv) restoring the
leasehold premises of the Property; both surface and subsurface, to the
condition they were in before commencement of oil and gas operations, as may be
required by applicable laws, regulation or contract; and (v) any necessary
disposal of Property contaminated by naturally occurring radioactive material
("NORM"). Buyer's obligations under this Section 8.2 include without
limitation obligations arising from contractual requirements and demands made
by authorized regulatory bodies or parties claiming a vested interest in the
Property. With respect to any non-operating interests in the Property being
transferred to Buyer under this Agreement, Buyer shall assume full
responsibility and liability, from and after the Closing Date, for that portion
of the Plugging and Abandonment Obligations for which non-operators are
responsible.
ARTICLE 9. INDEMNITIES
9.1 Definition of Claims. As used in this Agreement, the term
"Claims" means any and all losses, liabilities, damages, obligations, expenses,
fines, penalties, costs, claims, causes of action and judgments for (I)
breaches of contract; (ii) loss or damage to property, injury to or death of
persons, and other tortious injury; and (iii) violations of applicable laws,
rules, regulations, orders or any other legal right or duty actionable at law
or equity. The term "Claims" also includes attorneys fees and court costs
resulting from the defense of any claim or cause of action within the scope of
the indemnities in this Agreement.
9.2 APPLICATION OF INDEMNITIES. UNLESS THIS AGREEMENT EXPRESSLY
PROVIDES TO THE CONTRARY, THE INDEMNITIES SET FORTH IN THIS AGREEMENT APPLY
REGARDLESS OF WHETHER: (I) AN INDEMNIFIED CLAIM ARISES OUT OF OR RESULTS FROM
THE INDEMNIFIED PARTY'S (OR ITS EMPLOYEES', AGENTS', CONTRACTORS', SUCCESSORS'
OR ASSIGNS') SOLE OR CONCURRENT NEGLIGENCE, (II) THE INDEMNIFIED PARTY (OR ITS
EMPLOYEES, AGENTS, CONTRACTORS, SUCCESSORS OR ASSIGNS) IS DEEMED TO BE STRICTLY
LIABLE, IN WHOLE OR PART, FOR AN INDEMNIFIED CLAIM; OR (III) ANY PART OF AN
INDEMNIFIED CLAIM IS THE RESULT OF THE IMPOSITION OF PUNITIVE DAMAGES. ALL
INDEMNITIES SET FORTH IN THIS AGREEMENT EXTEND TO THE OFFICERS, DIRECTORS,
EMPLOYEES AND AFFILIATES OF THE PARTY INDEMNIFIED, AND COVER THE ACTS AND
OMISSIONS OF THE OFFICERS, DIRECTORS, EMPLOYEES, CONTRACTORS, SUCCESSORS AND
ASSIGNS OF THE INDEMNIFYING PARTY.
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9.3 Buyer's Indemnity. Except as provided below in this Section 9.3,
Buyer shall indemnify, defend and hold Seller harmless from and against any and
all Claims caused by, resulting from or incidental to (a) the ownership or
operation of the Property on and after the Effective Date, or (b) the
obligations assumed by Buyer under the other provisions of this Agreement. The
foregoing indemnity shall not apply to third party Claims for loss or damage to
property or injury to or death of persons arising out of the operation of the
Property during the period from the Effective Date to the Closing. Moreover,
the foregoing indemnity shall not apply to any Claims covered by the provisions
of Section 5.3.
9.4 Seller's Indemnity. Except as provided below in this Section
9.4, Seller shall indemnify, defend and hold Buyer harmless from and against
(a) any and all Claims caused by, resulting from or incidental to Seller's
ownership or operation of the Property before the Effective Date, except those
arising out of, resulting from or incidental to the obligations assumed by
Buyer under the other provisions of this Agreement, and (b) any and all third
party Claims for loss or damage to property or injury to or death of persons
arising out of the operation of the Property during the period from the
Effective Date to the Closing. The foregoing indemnity shall not apply to any
Claims covered by the provisions of Sections 5.2 or 5.3.
ARTICLE 10. TAXES AND EXPENSES.
10.1 Recording Expenses. Buyer shall pay all costs of recording and
filing the Assignment and Bill of Sale for the Property, all state and federal
transfer and assignment documents, and all other instruments.
10.2 Ad Valorem, Real Property and Personal Property Taxes. All Ad
Valorem Taxes, Real Property Taxes, Personal Property Taxes, and similar
obligations ("Property Taxes") on the Property are Seller's obligation for
periods before the Effective Date and Buyer's obligation for periods after the
Effective Date. If Property Taxes for the current tax year have not been
assessed and paid as of the Closing Date, the Buyer shall file all required
reports and returns incident to the Property Taxes and pay the Property Taxes
for the current tax year and subsequent periods. The Seller will reimburse the
Buyer promptly for the Seller's proportionate share of these taxes, prorated as
of the Effective Date, upon receipt of evidence of the Buyer's payment of the
taxes. If Property Taxes for the current tax year have been assessed and paid
as of the Closing Date, the Buyer will reimburse the Seller for its
proportionate share of these taxes, prorated as of the Effective Date. Seller
shall furnish to Buyer upon request any information in Seller's possession
regarding the Property to assist Buyer in its preparation and filing of all
required reports and returns incident to the Property Taxes for the current tax
year.
10.3 Severance Taxes. Seller shall bear and pay all severance or
other taxes measured by Hydrocarbon production from the Property, or the
receipt of proceeds therefrom, to the extent attributable to production from
the Property before the Effective Date. Seller shall withhold and pay (or
cause the first purchaser to withhold and pay) on behalf of Buyer all such
taxes on production from the Property between the Effective Date and the
Closing Date. Subject to the obligations of Seller under the preceding
sentence, Buyer shall bear and pay all such taxes on production from the
Property on and after the Effective Date. If either party pays taxes owed by
the other, upon receipt
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of evidence of payment, the nonpaying party will reimburse the paying party
promptly for its proportionate share of such taxes.
10.4 Sales Taxes. The Purchase Price is exclusive of any applicable
sales tax. In the event any sales tax is due in connection with the
transactions contemplated by this Agreement, Buyer shall be responsible for the
same and indemnify Seller against the same.
ARTICLE 11. INTERIM OPERATION OF THE PROPERTY
11.1 Interim Operations. Seller shall use such efforts as are
reasonably available to a nonoperator during the period between the date this
Agreement is executed and the Closing Date (the "Interim Period") (I) to cause
the Property to be maintained and operated in a good and workmanlike manner,
(ii) to maintain or cause to be maintained insurance now in force with respect
to the Property, and (iii) to pay or cause to be paid all costs and expenses
incurred in connection therewith; provided, however, that Seller shall not
propose the commencement of operations for the drilling of any new well or the
redrilling of any existing well on the Property after the date of this
Agreement without the prior written consent of Buyer. Seller shall carry on
the business of Seller with respect to the Property in substantially the same
manner as Seller has heretofore and shall not introduce any substantially new
method of management, operation or accounting with respect to the Property.
11.2 Buyer's Approval. Without prior written consent of Buyer (which
shall not be unreasonably withheld), Seller shall not enter into any new
agreements or commitments with respect to the Property which extend beyond the
Closing, shall not abandon any well located on the Property nor release or
abandon all or any portion of any of the Leases, shall not modify or terminate
any of the material agreements relating to the Property and shall not encumber,
sell or otherwise dispose of any of the Property other than (I) production sold
in the ordinary course of business or otherwise under a Related Contract, or
(ii) personal property that is replaced by equivalent property or consumed in
the normal operation of the Property. Seller agrees to consult with Buyer
before making any expenditures on any well in excess of $25,000 and not
exceeding $50,000, and Seller shall not make any expenditures on any well
exceeding $50,000 without Buyer's prior written consent, which shall not be
unreasonably withheld.
ARTICLE 12. MISCELLANEOUS
12.1 Production Imbalances. If there are any production imbalances
relating to the Property, Seller transfers all imbalances as of the Effective
Date to Buyer. Buyer and Seller hereby agree that if Seller is in fact
underproduced as of the Effective Date with respect to any of the Property, the
Purchase Price will be increased by any amounts due Seller from third parties
(assuming permanent cessation of production as of the Effective Date) as the
result of Seller being an underproduced party with regard to gas produced from
the Property prior to the Effective Date. Buyer and Seller hereby agree that
if Seller is in fact overproduced as of the Effective Date with respect to any
of the Property, the Purchase Price will be decreased by any amounts due third
parties from Seller (assuming permanent cessation of production as of the
Effective Date) as the result of Seller being an overproduced party with regard
to gas produced from the Property prior to the Effective Date.
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12.2 Press Releases. The parties agree that prior to making any
public announcement or statement with respect to the transactions contemplated
by this Agreement, the party desiring to make such public announcement or
statement shall consult with the other parties hereto and exercise their best
good faith efforts to (I) agree upon the text of a joint public announcement or
statement to be made by both of such parties or (ii) obtain approval of the
other party hereto to the text of a public announcement or statement to be made
solely by Seller or Buyer, as the case may be; provided, however, if Seller or
Buyer is required by law to make such public announcement or statement, then
the same may be made without the approval of the other party. The opinion of
counsel of either party shall be conclusive evidence of such requirement by
law.
12.3 Notices. All notices under this Agreement must be in writing.
Any notice under this Agreement may be given by personal delivery, facsimile
transmission, U.S. mail (postage prepaid), or commercial delivery service, and
will be deemed duly given when received by the party charged with such notice
and addressed as follows:
<TABLE>
<S> <C>
Seller: HarCor Energy, Inc. Buyer: Penroc Oil Corporation
- ------ ------
4400 Post Oak Parkway, Suite 2220 P. O. Box 5970
Houston, Texas 77027 Hobbs, New Mexico 88241
Attention: President 5014 Carlsbad Hwy.
Hobbs, New Mexico 88246
FAX: (713) 961-9773 FAX: (505) 393-7051
</TABLE>
Any party, by written notice to the other, may change the address or the
individual to which or to whom notices are to be sent under this Agreement.
12.4 Entirety of Agreement; Amendment. This Agreement constitutes the
entire understanding between the parties with respect to the subject matter
hereof, superseding all negotiations, prior discussions, representations, and
prior agreements and understandings relating to such subject matter. This
Agreement may be amended, modified, and supplemented only in a writing duly
executed by Buyer and Seller.
12.5 Successors and Assigns. This Agreement binds and inures to the
benefit of the parties hereto and their respective permitted successors and
assigns, and nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights, or
remedies. Neither party may assign any of its rights or obligations under this
Agreement prior to the Closing without the prior written consent of the other
party, which consent may be given or withheld in such party's sole discretion.
No permitted assignment by a party of its rights or obligations under this
Agreement shall release such party from its obligations hereunder.
12.6 Governing Law. THIS AGREEMENT IS GOVERNED BY AND MUST BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY
CONFLICTS-OF-LAW RULE OR PRINCIPLE THAT MIGHT APPLY THE LAW OF ANOTHER
JURISDICTION.
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12.7 Exhibits. The Exhibits attached to this Agreement are
incorporated into and made a part of this Agreement. In the event of a
conflict between the provisions of the Exhibits or the executed Assignment and
Bill of Sale and the foregoing provisions of this Agreement, the provisions of
the Exhibits and the executed Assignment and Bill of Sale take precedence over
the foregoing provisions of this Agreement. In the event of a conflict between
the provisions of the pro forma Assignment and Bill of Sale attached to this
Agreement as Exhibit __ and the executed Assignment and Bill of Sale, the
provisions of the executed Assignment and Bill of Sale take precedence.
12.8 Litigation Costs. If any party hereto should hereafter institute
litigation against any other party hereto alleging that such other party has
breached this Agreement or any agreement or other instrument attached hereto or
delivered pursuant hereto, the nonprevailing party or parties (whether
plaintiff or defendant) in such action shall reimburse the prevailing party or
parties for the prevailing party's or parties' reasonable attorneys' fees,
witness fees, court costs and all other costs in connection with such
litigation.
12.9 General. References in this Agreement to Articles, Sections,
subsections, Exhibits and Schedules shall be deemed to refer to articles,
Sections and subsections of and Exhibits and Schedules to this Agreement except
as provided otherwise in this Agreement. As used in this Agreement, "person"
means any natural person or corporation, partnership, limited liability
company, trust, estate, governmental unit or other entity.
12.10 Texas Deceptive Trade Practices Act Waiver. Buyer represents and
warrants to Seller that Buyer: (a) is acquiring the Property for commercial or
business use, (b) has assets of $25,000,000 or more or is owned or controlled
by a corporation or entity with assets of $25,000,000 or more, and (c) has
knowledge and experience in financial and business matters that enable it to
evaluate the merits and risks of the transactions contemplated by this
agreement and is not in a significantly disparate bargaining position with
respect to Seller. MOREOVER, BUYER HEREBY UNCONDITIONALLY AND IRREVOCABLY
WAIVES ANY AND ALL RIGHTS OR REMEDIES THAT IT MAY HAVE UNDER THE DECEPTIVE
TRADE PRACTICES -- CONSUMER PROTECTION ACT OF THE STATE OF TEXAS, BUSINESS AND
COMMERCE CODE SECTION 17.41 THROUGH SECTION 17.63 (OTHER THAN SECTION 17.555).
The authorized representatives of Seller and Buyer sign below indicating
their agreement to the terms of this Agreement on the date first above written.
<TABLE>
<S> <C>
Seller: Buyer:
HarCor Energy, Inc. Penroc Oil Corporation
By: /s/ MARK G. HARRINGTON By: /s/ MOHAMMED YAMIN MERCHANT
---------------------- ----------------------------
Title: CEO and Chairman Title: President
</TABLE>
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<PAGE> 1
EXHIBIT 10.21
January 15, 1998
HarCor Energy, Inc.
Attention: Mr. Mark Harrington, CEO
5 Post Oak Park Blvd., Suite 2220
Houston, Texas 77027
Dear Mr. Harrington:
This Agreement dated effective January 8, 1998, is between HarCor Energy, Inc.
("Seller") and Penroc Oil Corporation ("Buyer") and evidences the agreement of
the parties with respect to various issues which were not fully resolved in
that certain Purchase and Sale Agreement dated December 3, 1997, but effective
as of January 1, 1998, at 7:00 A.M., local time (the "Purchase and Sale
Agreement"). All defined terms in the Purchase and Sale Agreement shall have
the same meaning herein.
For valuable consideration received, Seller and Buyer agree as follows:
1. Subsequent to the execution of the Purchase and Sale Agreement, Buyer
learned that an unforeseen downhole mechanical failure occurred in the
Beaurline No. 9 well, Beaurline/McAllen Ranch Area, South Texas, which
failure, if not fully corrected, would significantly and materially
reduce the value of the property. Seller and Buyer agree as follows
with respect to Seller's interest in the Beaurline #9 well and its
pooled or allocated producing unit (the "Well"): (a) The Purchase
Price shall be reduced by an amount equal to the PV10 value given to
this Well by the Ryder Scott Reserve Report previously furnished to
Buyer by Seller, being an amount equal to $714,911.00, and the Well
shall be excluded from the Property to be conveyed by Buyer at
Closing. (b) Seller will participate in necessary remedial operations
proposed by the Operator in an attempt to restore the Well to its
previous producing condition or in the drilling of a replacement well
to the financial extent as may be determined in Seller's sole
discretion. Seller will advise Buyer of all proposals and remedial
operations to restore the Well. (c) If the Well is restored by
sidetrack or redrill or associated operations, Seller will obtain at
its cost a new evaluation of the Well from Ryder Scott (the "New
Reserve Evaluation"), and Seller will promptly provide same to Buyer.
(d) Buyer will purchase the Well pursuant to the same terms and
provisions as the Purchase and Sale Agreement for a price qual to the
PV10 value given to the Well in the New Reserve Evaluation. Unless
otherwise agreed between Seller and Buyer, the Closing for Buyer's
purchase of the Well will take place at 10:00 A.M., local time, in
Seller's offices on the tenth (10th) business day after Buyer's
receipt of the new Reserve Evaluation, at which time Seller will
deliver to Buyer an executed assignment of the Well, in the same form
as the Assignment and Bill of Sale attached to the Purchase and Sale
Agreement, and Buyer will concurrently deliver the purchase price to
Seller in immediately available funds.
<PAGE> 2
2. Seller agrees to assist Buyer in obtaining any necessary consents for
Buyer to use any and all seismic data in Seller's possession or to
which Seller has access, including but not limited to all such three
dimensional and two dimensional seismic data covering any portion of
the Property, including, but not limited to, the Hostetter Area in
McMullen, Duval and Live Oak Counties, Texas, and the Lapeyrouse
(Starboard) Area in Terrebonne Parish, Louisiana, in the event Buyer
acquires the corresponding Property pursuant to the Purchase and Sale
Agreement, subject to the provisions of Section 1.1.7 of the Purchase
and Sale Agreement.
3. Seller and Buyer agree that Seller's rights in the 2D/3D Geophysical
computer workstation, associated peripheral devices and furniture,
including without limitation, plotter, digitizer and all related
software and software licenses shall constitute a part of the
Property, and Buyer agrees to pay $10,000.00 for such equipment, in
addition to the Purchase Price, without warranty and subject to the
disclaimers and other restrictions on transfer in the Purchase and
Sale Agreement.
4. Seller hereby authorizes Buyer to plug and abandon, on behalf of
Seller, the May B #1, the *WEI 32 #1, and the WEI 32 #3 located on
expired leases not a part of the Property in the Eumont Prospect, Lea
County, New Mexico. Buyer will bill Seller for such services and
Seller agrees to pay Buyer the billed costs within ten (10) business
days after receipt of Buyer's invoice.
5. The Warranted Property described in Exhibit "B" to the Purchase and
Sale Agreement, Schedule 1, Item 16. "California-Chowchilla" may be
transferred and assigned by Seller to the Non-Operator owning a fifty
percent (50%) interest therein prior to the Closing between Seller and
Buyer, and in such case shall be excluded from the Property, or if the
Non-Operator does not agree to accept the above interests prior to the
Closing, the Warranted Property described above will remain a part of
the Property and shall be transferred to Buyer at Closing, and Seller
will maintain its operator's bond concerning such property for a
period of ninety (90) days following Closing.
The authorized representatives of Seller and Buyer sign below indicating their
agreement to the terms of the Agreement on the date first above written.
Seller: Buyer:
HarCor Energy, Inc. Penroc Oil Corporation
By: /s/ MARK HARRINGTON By: /s/ M.Y. MERCHANT
------------------------------ -----------------------------
Mark Harrington M. Y. Merchant
Chief Executive Officer President
Chairman of the Board
* Also included in the plugging and abandonment are the Freedman State wells #1
and 2.
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<PAGE> 3
CLOSING STATEMENT
This Closing Statement (the"Statement"), dated February 6, 1998, but
effective as of January 1,1998, at 7:00 a.m., local time, is between HarCor
Energy, Inc., a Delaware corporation ("Seller"), and Penroc Oil Corporation, a
Texas corporation ("Buyer"), in conjunction with that certain Purchase and Sale
Agreement (the "Agreement"), dated December 3, 1997, by and between Seller and
Buyer, and sets forth the subsequent understanding and agreement of Seller and
Buyer with respect to the subject matter of the Agreement. Capitalized terms
used herein without definition are used herein as defined in the Agreement.
Accordingly, in consideration of the mutual promises contained in this
Statement, Buyer and Seller agree as follows:
1. Attached hereto as Exhibit I and made a part hereof is a true and
correct copy of that certain Letter Agreement dated effective January
15, 1998, by and between HarCor Energy, Inc., and Penroc Oil
Corporation with respect various issues that were not fully resolved
in the Agreement, which terms and provisions thereof are incorporated
herein by reference thereto.
2. Pursuant to Section 7.3.3.3 of the Agreement Seller delivered to Buyer
a Certificate of the Chief Financial Officer of Seller setting forth
in reasonable detail the calculation of the estimate of the amount of
the Purchase Price adjustment; a true and correct copy of the
Certificate, as amended and corrected, is attached hereto as Exhibit
II and incorporated herein by reference.
3. In conjunction with the Certificate of the Chief Financial Officer,
the estimate of the adjusted purchase price and Section 7.3 of the
Agreement regarding Closing obligations, a Closing Settlement
Statement, including a recapitulation of the calculation of the
initially adjusted Purchase Price, is attached hereto as Exhibit III
and incorporated herein by reference.
4. By facsimile letter dated February 4, 1998, Seller notified Buyer of
the bank wiring instructions for the payment of the Purchase Price, as
initially adjusted, by Buyer as set forth in Section 7.3.2 of the
Agreement. A true and correct copy of which letter is attached
hereto as Exhibit IV and incorporated herein by reference. The
initial adjusted Purchase Price was calculated on the basis that
Closing would occur on February 6, 1998, but since Closing is
occurring February 12,1998, additional interest has accrued on the
Earnest Deposit held in escrow that would change the wiring
instructions, and in the interest of simplicity, the parties have
agreed not to change the wiring instructions, and that the difference
in accrued interest would be paid at Closing by Seller to Buyer. At
Closing Seller shall deliver its check in the amount of $404.44 to
Buyer, being the amount of the accrued interest since February 6,
1998.
5. By facsimile letter dated February 12,1998, received February 12, 1998
by Buyer, Seller notified Buyer that under Section 7.1 of the
Agreement that Seller postponed the Closing and that the Closing will
occur on February 12, 1998, at 11:30 a.m. A true and correct copy of
which letter is attached hereto as Exhibit V and incorporated herein
by reference.
<PAGE> 4
6. Seller and Buyer acknowledge that the Agreement was executed and
accepted by both parties by facsimile signature pages, that the
parties agree to execute original signature pages simultaneous with
the execution of this Statement, and that such original signature
pages shall be attached to the Agreement and with the same validity as
if same had been originally executed as of the time of execution of
the Agreement. A true and correct copy of the facsimile signature of
the Agreement is attached hereto as Exhibit VI and incorporated herein
by reference.
7. Seller and Buyer hereby acknowledge the Agreement, as executed, did
not include all Exhibits referenced throughout the terms and
provisions thereof, and certain of the Exhibits, as originally
attached, contained scrivener's errors or were incomplete with respect
to the descriptions, or certain of the Property was eliminated from
this transaction between Seller and Buyer due to the exercise of
preferential rights of purchase under certain Related Contracts. The
following described Exhibits, in the form attached hereto as
designated below, shall be the Exhibits to the Agreement as if such
Exhibits had originally been attached to the Agreement:
a. Exhibit A, Leases and Certain Related Contracts, including
Schedule I. Leases, Schedule II. Contracts, Schedule III.
Preferential Rights, and Schedule IV. Consents, all of which
is attached hereto as Exhibit VII and incorporated herein and
in the Agreement by reference.
b. Exhibit B, Warranted Property, including Schedule I. Inventory
of Wells and Schedule II. Value Allocation, all of which is
attached hereto as Exhibit VIII and incorporated herein and in
the Agreement by reference.
c. Exhibit C, Non Foreign Affidavit, styled "Non Foreign
Certificate", is attached hereto as Exhibit IX and
incorporated herein and in the Agreement by reference.
d. Exhibit D, Assignment and Bill of Sale, is attached hereto as
Exhibit X and incorporated herein and in the Agreement by
reference.
e. Exhibit E, Release Liens, is attached hereto as Exhibit XI and
incorporated herein and in the Agreement by reference.
f. Exhibit F, Certain Consents and Preferential Purchase Rights,
is attached hereto as Exhibit XII and incorporated herein and
in the Agreement by reference.
g. Exhibit G, Disclosure, is attached hereto as Exhibit XIII and
incorporated by reference.
8. Seller and Buyer acknowledge that Section 12.1 of the Agreement
provides that Seller transfers all production imbalances as of the
Effective Date to Buyer, that production imbalances, whether
underproduced or overproduced, are to be valued on the basis of
assuming permanent cessation of production as of the Effective Date,
that as of the Closing
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<PAGE> 5
Date final gas balancing volume statements through December 31,1997,
have not been provided to Seller by all of the respective operators,
and that the applicable gas balancing agreements provide for a cash
balancing based on the actual price received for the gas in the
specific months in which the out of balance conditions occurred.
Seller and Buyer agree that settling the volumes, pricing and cash
balancing at the time of Closing is in the best interest of the
parties. Therefore Seller and Buyer agree that the provisions of
Section 12.1 of the Agreement are satisfied and that all imbalances
have been transferred at Closing based on the estimates of 50,564
MMBtu of underproduced gas at an average price of $1.68 for a total
cash value of $84,799.00, which cash value has been incorporated in
the initially adjusted Purchase Price as set forth in the Closing
Settlement Statement attached hereto as Exhibit III and as reflected
in the Certificate of the Chief Financial Officer of Seller attached
hereto as Exhibit II.
9. Section 7.3.1(v) of the Agreement provides that Seller shall deliver
to Buyer letters to third party pipeline operators notifying such
operators that Buyer shall operate all pipeline meters included in the
Property which are currently being operated by Seller. Seller has
delivered no such letters and represents to Buyer that Seller does not
operate any such pipeline meters as would require delivery of such
letters.
10. Seller and Buyer entered into that certain Escrow Agreement dated
December 31, 1997, by and between Penroc Oil Corporation, and HarCor
Energy, Inc., collectively as the "Other Parties", and Texas Commerce
Bank National Association, the "Bank", as Escrow Agent for the deposit
of the Earnest Money Deposit. The parties hereto acknowledge that no
additional amounts are required to be paid to the Escrow Agent in
accordance with the provisions of Sections 5.3.2 and 6.2.3 of the
Agreement. Seller and Buyer have executed the written instructions
dated February 6, 1998 directing the Escrow Agent to disburse the
Earnest Money Deposit and accrued interest to Seller. A true and
correct copy of which written instructions are attached hereto as
Exhibit XIV and incorporated by reference.
11. Should either Seller or Buyer desire to make a public announcement
regarding the conclusion of this transaction, such party shall comply
with Section 12.2 of the Agreement, and a true and correct copy of
such announcement will be attached to this Statement as Exhibit XV and
be incorporated herein.
12. Buyer acknowledges that Buyer has had an opportunity to inspect the
Property as provided in the Agreement, and Buyer makes no claim of
Adverse Environmental Conditions pursuant to Section 5.3 of the
Agreement, otherwise than agreed to by Seller and Buyer herein below.
a. Seller grants to Buyer written authorization to plug and
abandon the Freedman #1 and #2 Wells located on expired leases
not a part of the Property in the Eumont Prospect in Lea
County, New Mexico, including without limitation surface
restoration, in accordance with the rules and regulations of
the governmental authority having jurisdiction and related
agreements , and Seller agrees to be liable for all expenses
and liabilities incurred in connection therewith. Buyer shall
invoice Seller for such costs and expenses incurred in
relation thereto, and Seller agrees to
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<PAGE> 6
pay the amount of the invoice to Buyer within ten(10) business
days after receipt of the Buyer's invoice.
b. Seller confirms Buyer's notification to Seller in November
1997 regarding the Federal D #3 Well located in the Eumont
Prospect. Seller authorizes Buyer to apply for the proper
state permits and commence the operations to conform the well
to be in compliance with the state regulations at Buyer's
sole cost and expense. Buyer and Seller agree that the costs
of such operations shall be $20,000.00. The Purchase Price
has been reduced by $20,000.00 as Seller's full payment to
Buyer, and Buyer releases Seller from any further cost by
reason of such matter.
c. Seller authorizes Buyer to complete the operations for the
environmental remediation of the surface conditions relating
to the tank battery sites on the Harris well, the State AD
well and the New Mexico 'E' State well, which operations have
not been completed due to adverse weather conditions and the
delays incident thereto. Seller and Buyer agree that the
remaining operations will cost $12,000.00, which cost and
expense will be borne by Seller and Buyer on an equal basis
according to a preexisting agreement. The Purchase Price has
been reduced by $6,000.00 as Seller's full payment and
satisfaction under this and the preexisting agreement to Buyer
to conduct such operations, and Buyer releases Seller from any
further cost by reason of such matter.
13. Seller hereby transfers and assigns to Buyer as of the Effective Date
all claims, causes of action, rights under contracts or applicable
law, and other rights that Seller may have against Cabot Oil & Gas
Corporation, its agents, representatives, successors and assigns,
relating to the fields in South Texas that are a part of the Property
relating to or arising out of the ownership or operation of the Leases
and other property described in Section 1.1 of the Agreement, and
Buyer shall indemnify, defend and hold Seller harmless from and
against any and all Claims caused by, resulting from or incidental to
the prosecution or otherwise of the rights assigned to Buyer in this
paragraph. Seller does not hereby transfer and assign to Buyer any
other claims, causes of action, rights under contracts or applicable
law, and other rights, excluded from the Property and reserved by
Seller pursuant to Section 1.2.2 of the Agreement (the "Excluded
Claims"). Notwithstanding anything in the Agreement to the contrary,
Seller shall indemnify, defend and hold Buyer harmless from and
against any and all Claims affecting the Property, or Buyer's
ownership or operations of the Property, after the Effective Date, and
resulting from or incidental to the Excluded Claims or Seller's
prosecution or assertion of the Excluded Claims.
14. Buyer has notified Seller in the attached list marked as Exhibit XVI
hereto of several Consents (to the assignment to Buyer of Leases)that
have not been obtained as of the date hereof. The most material of
these Consents are required from The Louisiana Land & Exploration
Company in the Lapeyrouse Area, Terrebonne Parish, Louisiana. Buyer
reserves all of its rights under Section 6.1.3 of the Agreement to
seek an adjustment of the Purchase Price at the time of the
post-Closing adjustment provided for in Section 7.3.3.4 of the
Agreement for the denial of such Consents, and if the Consents are
denied, the Purchase Price will be reduced by $20,000 at the time of
the post-Closing adjustment.
-4-
<PAGE> 7
15. Section 8.1 of the Agreement provides that Buyer shall assume
responsibility for all liabilities of Seller for net proceeds from
production attributable to the Property as currently held in suspense
to the extent such net proceeds are transferred to and delivered to
Buyer at the Closing. Seller acknowledges and agrees with Buyer that
Seller retains all liability of Seller under Section 8.1 of the
Agreement as no such net proceeds from production held in suspense
were transferred and delivered to Buyer.
16. Seller agrees to pay Invoice #8140-01 from Penwell Energy, Inc., dated
January 8, 1998 for costs related to the TXL "1" #1 well in the ERG
Prospect, Reeves County, Texas, in the amount of $56,340.00 pursuant
to Section 8.1 of the Agreement as a cost incurred in connection with
the operation of the Property before the Effective Date. Seller
represents to Buyer that the amounts of the invoice are not included
in the adjustments of the Purchase Price as reflected in the
Certificate of the Chief Financial Officer attached hereto as Exhibit
II.
17. In confirmation of Seller's representations in Section 3.1.1
(Corporate Authority) of the Agreement Seller has submitted to Buyer
the Certificate of Secretary of HarCor Energy, Inc., dated January 28,
1998. A true and correct copy of such Certificate is attached hereto
as Exhibit XVII and incorporated herein by reference.
18. In confirmation of Buyer's representations in Section 3.1.1(Corporate
Authority) of the Agreement Buyer has submitted to Seller the
Unanimous Consent of Board of Directors of Penroc Oil Corporation
dated February 3, 1998. A true and correct copy of such Consent is
attached hereto as Exhibit XVIII and incorporated herein by reference.
19. Section 10.2 of the Agreement provides that Seller will pay all
Property Taxes assessed for all tax periods through the Effective
Date, and such Property Taxes remain the obligation of Seller.
Attached hereto as Exhibit XIX and incorporated herein by reference is
the Certificate dated February 5, 1998, of the Chief Financial Officer
that there are outstanding unpaid Property Taxes in the amount of
$0.00. Seller shall furnish Buyer with evidence that all Property
Taxes for periods before the Effective Date have been paid at the time
of the post-Closing adjustment provided in Section 7.3.3.4 of the
Agreement.
20. Section 7.4 of the Agreement provides that within five (5) days after
Closing, Seller shall deliver to Buyer the originals of the Property
Records (as defined in Section 5.1) at a location designated by Buyer.
Buyer hereby designates Ted Rhodes as its representative to direct
preparation and delivery of the Property Records, the location of such
delivery, and to accept custody of the Property Records on behalf of
Buyer. The Property Records will be delivered at a time mutually
agreeable to the parties within five (5) days of Closing. Included
within the definition of Property Records is information contained in
the bound volumes containing the documents regarding the financing
agreements relating to the Release Liens. Buyer is willing to accept
a duplicated copy of such volumes and agrees to allow Seller to retain
the original for its records, and Seller agrees to deliver such
duplicated copy within five (5) days of Closing.
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<PAGE> 8
21. The parties agree to resolution of the title issue set forth in
Paragraph No. 2 of the Statement of Title Defects letter dated
February 3, 1998, as set forth herein. Seller will deliver to Buyer a
fully executed, recordable instrument in which Saba Energy of Texas
Incorporated quitclaims all of its rights, titles and interests to
Buyer in and to that portion of the Property identified as Jennings
Lake Field, Matagorda County, Texas, and White Kitchen Field, LaSalle
County, Texas, in the Agreement, insofar and only insofar as the 6%
interest more fully described in Statement of Title Defects, effective
as of January 1, 1995, on or before the date of the post-Closing
adjustment, or the Allocated Value thereof, being 6% of $350,000.00 or
$21,000.00, shall be deducted from the Purchase Price and will be
accounted for in the final Purchase Price adjustment provided for in
Section 7.3.3.4 of the Agreement.
22. All alleged Title Defects and objections to the condition of the
Property given to Seller by Buyer in previous notices have been
satisfied or waived by Buyer, except as set out in this Closing
Statement.
The authorized representatives of Seller and Buyer sign below
indicating their agreement to the terms of this Statement on the date first
above written.
Seller: Buyer:
HarCor Energy, Inc. Penroc Oil Corporation
By: By:
------------------------ -------------------------------
Name: Mark G. Harrington Name: M. Y. Merchant
---------------------- -----------------------------
Title: Chairman and CEO Title: President
--------------------- ----------------------------
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