<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1999
or
[_] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period From ___________ to __________
Commission file number 0-9498
BELLWETHER EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-0437769
(State of incorporation) (IRS Employer Identification Number)
1331 Lamar, Suite 1455 Houston, Texas 77010-3039
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (713) 650-1025
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 [_]
As of August 2, 1999, 13,853,791 shares of common stock of Bellwether
Exploration Company were outstanding.
1
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BELLWETHER EXPLORATION COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page #
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets:
June 30, 1999 (Unaudited) and December 31, 1998.................... 3
Condensed Consolidated Statements of Operations (Unaudited):
Three months and six months ended June 30, 1999 and June 30, 1998.. 5
Condensed Consolidated Statements of Cash Flows (Unaudited):
Six months ended June 30, 1999 and June 30, 1998................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited)..... 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...........24
PART II. OTHER INFORMATION....................................................25
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
ASSETS
June 30, December 31,
1999 1998
--------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 1,262 $ 10
Accounts receivable and accrued revenues............... 12,837 16,455
Prepaid expenses and other............................. 1,476 1,719
--------- ---------
Total current assets.................................. 15,575 18,184
--------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties (full cost method).............. 313,917 289,231
Gas plant facilities................................... 17,529 17,406
--------- ---------
331,446 306,637
Accumulated depreciation, depletion and amortization... (208,985) (198,421)
--------- ---------
122,461 108,216
--------- ---------
OTHER ASSETS........................................... 4,411 4,796
--------- ---------
$ 142,447 $ 131,196
========= =========
See accompanying notes to condensed consolidated financial statements
3
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BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1999 1998
--------- ---------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.............. $ 12,361 $ 11,982
Due to related parties................................ 159 125
--------- ---------
Total current liabilities............................ 12,520 12,107
--------- ---------
LONG-TERM DEBT........................................ 116,400 104,400
OTHER LIABILITIES..................................... 200 200
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; none issued or outstanding at
June 30, 1999 and December 31, 1998.................. --- ---
Common stock, $0.01 par value, 30,000,000 shares
authorized, 13,853,791 and 13,853,991 shares issued
at June 30, 1999 and December 31, 1998, respectively. 142 142
Additional paid-in capital............................ 80,442 80,442
Retained earnings..................................... (65,352) (64,191)
Treasury stock, at cost, 311,000 shares............... (1,905) (1,904)
--------- ---------
Total stockholders' equity.......................... 13,327 14,489
--------- ---------
$ 142,447 $ 131,196
========= =========
See accompanying notes to condensed consolidated financial statements
4
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BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
1999 1998 1999 1998
-------- -------- ------- --------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas revenues.......................... $ 14,024 $ 20,306 $ 26,751 $ 39,730
Gas plant operations, net..................... 254 321 475 547
Interest and other income..................... 986 326 1,269 513
-------- -------- -------- --------
15,264 20,953 28,495 40,790
-------- -------- -------- --------
COST AND EXPENSES:
Production expenses........................... 5,013 6,760 10,625 12,893
Depreciation, depletion and amortization...... 5,764 8,821 10,444 17,559
General and administrative expenses........... 1,474 1,997 2,868 4,608
Interest expense.............................. 2,890 2,976 5,719 5,955
-------- -------- -------- --------
15,141 20,554 29,656 41,015
-------- -------- -------- --------
Income (loss) before income taxes.............. 123 399 (1,161) (225)
Provision (benefit) for income taxes........... --- 152 --- (80)
-------- -------- -------- --------
NET INCOME (LOSS).............................. $ 123 $ 247 $ (1,161) $ (145)
======== ======== ======== ========
Net income (loss) per share.................... $ 0.01 $ 0.02 $ (0.08) $ (0.01)
======== ======== ======== ========
Net income (loss) per share-diluted............ $ 0.01 $ 0.02 $ (0.08) $ (0.01)
======== ======== ======== ========
Weighted average common shares
outstanding................................... 13,854 14,138 13,854 14,094
======== ======== ======== ========
Weighted average common shares outstanding
-diluted...................................... 13,894 14,416 13,854 14,094
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
Six Months Ended
June 30,
--------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS................................................ $ (1,161) $ (145)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization........... 10,854 17,990
Deferred income taxes.............................. --- (775)
-------- --------
9,693 17,070
Change in assets and liabilities:
Accounts receivable and accrued revenue................ 3,618 4,414
Accounts payable and other liabilities................. 379 2,092
Due from (to) related parties.......................... 34 7,056
Other.................................................. 115 (839)
-------- --------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES........ 13,839 29,793
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties.................. (14,269) (531)
Additions to properties and facilities................. (10,573) (23,208)
Proceeds from sales of properties...................... 256 663
-------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES............ (24,586) (23,076)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings............................... 12,000 ---
Exercise of stock options.............................. --- 1,502
Purchase of treasury shares............................ (1) ---
-------- --------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES........ 11,999 1,502
-------- --------
Net increase in cash and cash equivalents.............. 1,252 8,219
Cash and cash equivalents at beginning of period....... 10 2,699
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 1,262 $ 10,918
======== ========
See accompanying notes to condensed consolidated financial statements
6
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BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(Amounts in thousands)
Six Months Ended
June 30,
---------------------
1999 1998
------ ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................... $5,313 $5,592
Income taxes..................................... $ 28 $1,204
See accompanying notes to condensed consolidated financial statements
7
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BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and, therefore,
do not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements
include all adjustments, which are of a normal recurring nature, necessary
to present fairly the financial position at June 30, 1999 and December 31,
1998, and the results of operations and changes in cash flows for the
periods ended June 30, 1999 and 1998. These financial statements should be
read in conjunction with the consolidated financial statements and notes to
the consolidated financial statements in the December 31, 1998 Form 10-K of
Bellwether Exploration Company (the "Company") that was filed with the
Securities and Exchange Commission on March 22, 1999.
Certain reclassifications of prior period statements have been made to
conform with current reporting practices.
In order to prepare these financial statements in conformity with generally
accepted accounting principles, management of the Company has made a number
of estimates and assumptions relating to the reporting of assets and
liabilities, the disclosure of contingent assets and liabilities, and
reserve information. Actual results could differ from those estimates.
8
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BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. STOCKHOLDERS' EQUITY
SFAS No. 128 requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted
EPS computation. For the six months ended June 30, 1999 and 1998, diluted
earnings per common share are not calculated since the issuance or
conversion of additional securities would have an antidilutive effect.
SFAS NO. 128 RECONCILIATION (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
June 30, 1999 June 30, 1998
----------------------------------------- -----------------------------------------
Loss Shares Per Share Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ------------- --------- ----------- ------------- ---------
LOSS PER COMMON SHARE:
<S> <C> <C> <C> <C> <C> <C>
Loss available to common
stockholders.................. $ 1,161 13,854 $.08 $ 145 14,094 $ .01
==== ======
EFFECT OF DILUTIVE SECURITIES:
Options and Warrants........... $ --- --- $ --- ---
------- ------- ------ -------
LOSS PER COMMON SHARE-DILUTED:
Loss available to common
stockholders and assumed
conversions................... $ 1,161 13,854 $.08 $ 145 14,094 $ .01
======= ======= ==== ====== ======= ======
</TABLE>
Securities that could potentially dilute basic earnings per share in the
future, that were not included in the computation of diluted earnings per
share because to do so would have been antidiluted are as follows:
For the Periods Ended June 30,
------------------------------------
1999 (shares) 1998 (shares)
----------------- -----------------
Options and Warrants 16,000 312,000
====== =======
9
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BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In September 1998, the Company's Board of Directors authorized the
repurchase of up to $5 million of the Company's common stock. As of June
30, 1999, 311,000 shares had been acquired at an aggregate price of
$1,905,000. These treasury shares are reported at cost as a reduction to
Stockholders' Equity.
3. LONG TERM DEBT
In April 1997, the Company entered into a senior unsecured revolving
credit facility ("Senior Credit Facility") which currently has a borrowing
base of $55.0 million and a maturity date of November 5, 2003. The Company
may elect an interest rate based either on a margin plus LIBOR or the
higher of the prime rate or the sum of 1/2 of 1% plus the Federal Funds
Rate. For LIBOR borrowings, the interest rate will vary from LIBOR plus
1.0% to LIBOR plus 1.75% based upon the borrowing base usage. As of
June 30, 1999 there were $16.4 million borrowings outstanding under the
Senior Credit Facility.
The Senior Credit Facility contains various covenants including certain
required financial measurements for current ratio, consolidated tangible
net worth and interest coverage ratio. In addition, the Senior Credit
Facility includes certain limitations on restricted payments, dividends,
incurrence of additional funded indebtedness and asset sales.
In April 1997, the Company issued $100.0 million of 10-7/8% senior
subordinated notes ("Notes") that mature April 1, 2007. Interest on the
Notes is payable semi-annually on April 1 and October 1. The Notes contain
certain covenants, including limitations on indebtedness, liens, dividends
and other payment restrictions affecting restricted subsidiaries, issuance
and sales of restricted subsidiary stock, dispositions of proceeds of asset
sales and restrictions on mergers and consolidations or sales of assets.
Effective September 22, 1998, the Company entered into an eight and a half
year interest rate swap agreement with a notional value of $80 million.
Under the agreement, the Company receives a fixed interest rate and pays a
floating interest rate based on the simple average of three foreign LIBOR
rates. Floating rates are redetermined for a six month period each April 1
and October 1. The floating rate for the period from April 1, 1999 to
October 1, 1999 is 9.39%. Through April 1, 2002 the floating rate is
capped at 10.875% and capped at 12.875% thereafter.
10
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BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards
of accounting for and disclosures of derivative instruments and hedging
activities. This statement is effective for fiscal years beginning after
June 15, 2000. The Company has not yet determined the impact of this
statement on the Company's financial condition or results of operations.
5. NATURAL GAS AND CRUDE OIL HEDGING
Oil and gas revenues decreased $1,631,000 and $1,643,000 in the three and
six months ended June 30, 1999, and increased $438,000 and $962,000 in the
three and six month period ended June 30, 1998, as a result of hedging
activity.
Since year end 1998, the Company has entered into two contracts which
establish a maximum and minimum sales price ("collar"). The first
establishes a collar for 30,000 MMBTU per day for July 1, 1999 through
October 31, 1999 with a floor NYMEX quoted price of $2.20 per MMBTU and a
ceiling NYMEX quoted price of $2.61 per MMBTU, and the second establishes a
collar for 15,000 MMBTU per day for November 1, 1999 through March 31, 2000
with a floor NYMEX quoted price of $2.40 per MMBTU and a ceiling NYMEX
quoted price of $3.10 per MMBTU. In addition, the Company has current
contracts to hedge a total of 368 MBBLS of oil during the months of July
through September 1999 at a weighted average NYMEX quoted price of $15.58
per barrel. The fair value at June 30, 1999 of these swap agreements was a
loss of $1,171,000.
6. LEGAL PROCEEDING
The Company is a defendant in Cause No. C-4417-96-G, A.R. Guerra, et al. v.
Eastern Exploration, Inc., et al., in the 370th Judicial District Court of
Hidalgo County, Texas. On May 11, 1999, the trial court granted
plaintiffs' Motion for Summary Judgment and denied defendants' Motions for
Summary Judgment. The Company was not notified of the trial court's
judgment until May 18, 1999. The trial court awarded plaintiffs in excess
of $5.8 million in damages plus interest. The Company has a 75% interest
in the leases made the subject of the lawsuit, but the judgment is joint
and several against all defendants.
The majority of the damages awarded to plaintiffs consist of compensatory
royalties assessed under a compensatory royalty clause in plaintiffs' 648-
acre oil and gas lease. Defendants contend that the unambiguous meaning of
the compensatory royalty clause is that, if a well is drilled within 1,200
feet of the 648-acre lease, lessee must either commence an offset well
within 120 days of the offending well, or commence payment of compensatory
royalties within 120 days of the offending well calculated on production
from the well or wells drilled within 1,200 feet.
11
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BELLWETHER EXPLORATION COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Plaintiffs contend that the unambiguous meaning of the compensatory royalty
clause is that (1) lessees duties under the clause were expanded to the
entirety of the gas unit within which plaintiffs' 648-acre lease is
located; (2) if a well is drilled within 1,200 feet of the gas unit in
which plaintiffs' 648-acre lease is located, the compensatory royalty
provisions are merely "triggered"; (3) once the compensatory royalty
provisions are triggered, lessee has a retroactive duty to commence an
offset well or commence payment of compensatory royalties within 120 days
of the first well drilled in the common field or reservoir underlying
plaintiffs' 648-acre lease, regardless of when that first well was drilled
and regardless of whether that first well is more than 1,200 feet away from
either the gas unit or the 648-acre lease. Plaintiffs claim that the
compensatory royalty provisions were triggered when a well was allegedly
drilled within 1,200 feet of the gas unit within which plaintiffs' 648-acre
lease is located. Because defendants could not go back in time and
commence an offset well within 120 days of the first well that was
allegedly drilled in the common field or reservoir underlying plaintiffs'
648-acre lease, defendants had to go back in time and commence payment of
compensatory royalties calculated on all wells allegedly drilled in the
common field or reservoir. In granting plaintiffs' Motion for Summary
Judgement, the trial court adopted this interpretation of the clause.
The Company believes that the trial court's judgment is in error for the
following reasons, among others: (1) plaintiffs interpretation is
unreasonable as a matter of law; (2) the duties under the compensatory
royalty clause did not expand to the entirety of the unit, and because it
is undisputed that no well was ever drilled within 1,200 feet of
plaintiffs' 648-acre lease, lessees' duties under the compensatory royalty
clause never came into effect as a matter of law; and (3) even if the
duties under the compensatory royalty clause did expand to the entirety of
the unit, defendants timely drilled an offset well within 120 days of the
well that was allegedly drilled within 1,200 feet of the gas unit in which
plaintiffs' 648-acre lease is located, and therefore no compensatory
royalties are due as a matter of law. Because the Company believes that
the trial court's judgment is in error, the Company perfected an appeal of
the judgment on August 9, 1999. The Company intends to vigorously
prosecute the appeal, and believes, with its legal counsel, that a reversal
of the judgment is more likely than not to occur. Such an appeal could,
however, require Bellwether to secure a bond in the amount of up to the
full amount of the judgment, although it is more likely Bellwether's
bonding obligation will be in the $3.5 million range.
12
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BELLWETHER EXPLORATION COMPANY
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company strives to maximize long-term shareholder value through aggressive
growth in reserves and cash flow using advanced technologies, implementation of
a low cost structure and maintenance of a capital structure supportive of
growth. The Company employs an integrated interdisciplinary team approach to a
balanced program of strategic acquisitions of producing oil and gas properties
and technology driven development and exploration activities. The funding of
these activities has historically been provided by operating cash flows, bank
financing, equity placements and sale of non-core assets.
The Company invested $24.8 million in oil and gas properties for the six months
ended June 30, 1999 versus $23.7 million for the same period in 1998. The 1999
period included a net expenditure of $13.2 million on June 30, 1999 to acquire
producing oil and gas properties in the Gulf of Mexico. The results for the
three and six month periods do not include any revenue, production costs or
expenses relative to these properties. Cash flows from operations before
changes in assets and liabilities were $9.7 million for the six months ended
June 30, 1999 compared to $17.1 million provided by operating activities in the
same period of 1998. At June 30, 1999, the Company had $38.6 million of
available debt capacity under the Senior Credit Facility.
1999 CAPITAL EXPENDITURES
During 1999, the Company anticipates investing approximately $45.0 million,
primarily for development and exploratory drilling activities, leasehold and
seismic acquisitions and the producing property acquisition discussed above.
The Company believes its cash flow provided by operating activities and
borrowings under its credit facilities will be sufficient to meet these
projected capital investments (See Note 3 of the Notes to Condensed Consolidated
Financial Statements). The Company continues to review acquisition opportunities
and the consummation of such a transaction will directly impact anticipated
capital expenditures.
GAS BALANCING
It is customary in the industry for working interest partners to sell more or
less than their entitled share of natural gas. The settlement or disposition of
existing gas balancing positions is not anticipated to materially impact the
financial condition of the Company.
13
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BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS PROPERTY ACCOUNTING
The Company utilizes the full cost method of accounting for its investment in
oil and gas properties. Under this method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
as incurred. To the extent that capitalized costs of oil and gas properties,
net of accumulated depreciation, depletion and amortization, exceed the
discounted future net revenues of proved oil and gas reserves net of deferred
taxes, such excess capitalized costs would be charged to operations. Due to
declines in oil and gas prices at year end, and to a lesser extent, downward
revisions in estimated proved reserves, the Company recorded a $73.9 million
pretax impairment charge in the fiscal year ended December 31, 1998. No such
charges to operations were required during the six month periods ending June 30,
1999 or 1998.
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the Company for
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------
<S> <C> <C> <C> <C>
Production:
Oil and condensate (MBBLs)...................... 501 605 1,021 1,177
Natural gas (MMCF).............................. 4,196 6,025 8,981 11,756
Average sales price: (1)
Oil and condensate (per BBL).................... $13.56 $11.29 $11.42 $ 11.93
Natural gas (per MCF).......................... $ 2.11 $ 2.17 $ 1.86 $ 2.10
Average costs:
Production expenses (per MCFE).................. $ .70 $ .70 $ .70 $ .69
General and administrative expense
(per MCFE)................................... $ .20 $ .21 $ .19 $ .25
Depreciation, depletion and amortization
(per MCFE)(2)................................ $ .76 $ .90 $ .65 $ .90
</TABLE>
(1) Average sales prices exclude the effect of hedges, which decreased revenues
by $1,631,000 and $1,643,000 in the three and six month periods in 1999,
and increased revenues by $438,000 and $962,000 in the three and six month
periods in 1998.
(2) Excludes depreciation, depletion and amortization on gas plants and other
assets of $310,000 and $616,000 in the three and six month periods in 1999,
and of $102,000 and $561,000 in the three and six month periods ended in
1998.
14
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BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net income for the quarters ended June 30, 1999 and 1998 was $123,000 or $.01
per share, and $247,000 or $.02 per share, respectively. While oil and gas
revenues were approximately 31% lower in the quarter ended June 30, 1999,
expenses were, likewise, lower by 26% as compared to the quarter ended June 30,
1998.
Oil and gas revenues for the three months ended June 30, 1999 were $14.0
million, as compared to $20.3 million for the respective period in 1998. The
31% decrease in oil and gas revenues is primarily due to the decline in oil and
gas production. Production volumes reflect normal declines from primarily the
offshore Gulf of Mexico properties. Oil production was down 17% compared to the
same quarter of 1998 with 501,000 and 605,000 barrels for the three month
periods ended June 30, 1999 and 1998, respectively. Gas production was down 30%
compared to the same quarter of 1998 with 4,196 and 6,025 million cubic feet
(MMcf) for the three month periods ended June 30, 1999 and 1998, respectively.
Oil prices averaged $13.56 per barrel in the three month period ended June 30,
1999 as compared to $11.29 per barrel in the comparable period of 1998. Gas
prices averaged $2.11 per mcf in the three month period ended June 30, 1999 as
compared to $2.17 per mcf in the comparable period of 1998. This represents a
3% decline in gas prices. Oil and gas hedges in place in 1998 resulted in
$438,000 of additional oil and gas revenues in the period ended June 30, 1998
while a decrease in oil and gas revenues of $1,631,000 was reflected in the same
period of 1999.
Net gas plant operating profit was $254,000 in the three months ended June 30,
1999 and $321,000 in the same period of 1998. While throughput volumes were
slightly down in 1999 as compared to 1998, liquid prices were slightly higher in
1999 resulting in gas plant revenues in 1999 comparable to gas plant revenues in
1998. Gas plant expenses were approximately 22% higher in the three month
period ended June 30, 1999 versus the three month period ended June 30, 1998.
The increase was due to increased chemical and labor costs attributable to the
amine unit. The amine unit problems have been successfully resolved and
expenses should be lower in the next quarter.
Interest and other income increased from $326,000 for the three months ended
June 30, 1998 to $986,000 for the three months ended June 30, 1999 primarily as
a result of the receipt of take or pay revenue contract settlements.
Production expenses for the three months ended June 30, 1999 totaled $5.0
million, or 26% below the $6.8 million for the three months June 30, 1998. The
decrease results from certain uneconomical properties being abandoned and the
declining production in the Gulf of Mexico properties mentioned above. On an
Mcf equivalency basis (Mcfe), production expenses of $.70 per Mcfe for the
quarter ended June 30, 1999 were flat as compared to quarter ended June 30,
1998.
15
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BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Depreciation, depletion and amortization was $5.8 million for the three months
ended June 30, 1999 and $8.8 million for the three month period ended June 30,
1998. The decline resulted from the $73.9 million impairment charge made at
December 31, 1998 as well as decreased production volumes. Depreciation,
depletion and amortization per Mcfe has declined from $.90 per Mcfe in 1998 to
$.76 per Mcfe in 1999.
General and administrative expenses totaled $1.5 million in the three months
ended June 30, 1999 as compared to $2.0 million for the comparable period of
fiscal 1998. A decrease in outsourcing costs from $1.0 million to $.5 million
was the major contribution to the decline. The Company is charged a management
fee under its current outsourcing contract which is based upon a specified
percentage of the average book value of the Company's total assets, excluding
cash, plus a percentage of operating cash flows. Due to the $73.9 million
impairment charge described above, the Company's total assets and resulting
percentage of such assets was reduced. On an Mcfe basis, general and
administrative expenses were $.20 per Mcfe in the period ended June 30, 1999 and
$.21 per Mcfe in the period ended June 30, 1998.
Interest expense remained relatively flat at $2.9 million for the three months
ended June 30, 1999 and $3.0 million in the same period of 1998 even though the
Company had higher average balances outstanding in 1999. Savings of $301,000
realized as an interest rate swap accounted for the decline.
The provision for federal and state income taxes for the three months ended June
30, 1999 and 1998 are based upon a 0% and 38% effective tax rate, respectively.
No tax has been recorded in 1999 due to the adjustment to the Company's tax
valuation allowance for the current periods' net income from operations.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net loss for the six months ended June 30, 1999 and 1998 was $1.2 million or
$.08 per share, and $.1 million or $.01 per share, respectively. The increased
loss is due to lower oil and gas prices in the first quarter of 1999 and lower
oil and gas production as compared to the six months ended June 30, 1998.
Oil and gas revenues for the six months ended June 30, 1999 were $26.8 million,
as compared to $39.7 million for the respective period in 1998. The 33%
decrease in oil and gas revenues is partially due to the decline in oil and gas
prices in the first quarter. Oil prices averaged $11.42 per barrel in the six
month period ended June 30, 1999 as compared to $11.93 per barrel in the
comparable period of 1998. Gas prices averaged $1.86 per mcf in the six month
period ended June 30, 1999 as compared to $2.10 per mcf in the comparable period
of 1998. Oil and gas hedges in place in 1998 resulted in $962,000 of additional
oil and gas revenues in the period ended June 30, 1998 while a decrease in
revenues of $1,643,000 was reflected in the same period of 1999.
Production volumes reflect normal declines from primarily the offshore Gulf of
Mexico properties. Oil production was down 13% compared to the same quarter of
1998 with 1,021,000 and 1,177,000 barrels for the six month periods ended
June 30, 1999 and 1998, respectively. Gas production was down 24% compared to
the same period of 1998 with 8,981 MMcf and 11,756 MMcf for the six month
periods ended June 30, 1999 and 1998, respectively.
16
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net gas plant operating profit was $475,000 in the six months ended June 30,
1999 and $547,000 in the same period of 1998. Lower average natural gas liquid
prices in 1999 as compared to 1998 was the reason for the decrease in net gas
plant operating profit.
Interest and other income increased from $.5 million at June 30, 1998 to $1.3
million at June 30, 1999 primarily as a result of the receipt of take or pay
revenue contract settlements.
Production expenses for the six months ended June 30, 1999 totaled $10.6
million, or 18% below the $12.9 million for the six months June 30, 1998. The
decrease results from certain uneconomical properties being abandoned and the
declining production in the Gulf of Mexico properties mentioned above. On an
Mcfe basis, production expenses of $.70 per Mcfe for the six months ended June
30, 1999 were almost flat as compared to production expenses of $.69 per Mcfe
for the six months ended June 30, 1998. The decreased oil and gas volumes
mentioned above resulted in the increased production costs on an equivalency
basis.
Depreciation, depletion and amortization was $10.4 million for the six months
ended June 30, 1999 and $17.6 million for the six month period ended June 30,
1998. The decline resulted from the $73.9 million impairment charge made at
December 31, 1998 as well as decreased production volumes. Depreciation,
depletion and amortization per Mcfe has declined from $.90 per Mcfe in 1998 to
$.65 per Mcfe in 1999.
General and administrative expenses totaled $2.9 million in the six months ended
June 30, 1999 as compared to $4.6 million for the comparable period of fiscal
1998. A decrease in outsourcing costs from $2.3 million to $1.1 million was
the major contribution to the decline. The Company is charged a management fee
under its current outsourcing contract which is based upon a specified
percentage of the average book value of the Company's total assets, excluding
cash, plus a percentage of operating cash flows. Due to the $73.9 million
impairment charge described above, the Company's total assets and resulting
percentage of such assets was reduced. Additionally, the 1998 period included
costs related to the closing of the Company's Dallas exploration office in March
1998 and certain transition costs related to the change of the Company's 1997
fiscal year. On an Mcfe basis, general and administrative expenses were $.19
per Mcfe in the period ended June 30, 1999 and $.25 per Mcfe in the period ended
June 30, 1998.
Interest expense remained relatively flat at $5.7 million for the six months
ended June 30, 1999 and $6.0 million in the same period of 1998 even though the
Company had higher average balances outstanding in 1999. Savings of $482,000
realized as an interest rate swap accounted for the decline.
The provision for federal and state income taxes for the six months ended June
30, 1999 and 1998 are based upon a 0% and 36% effective tax rate, respectively.
No tax accrual has been made in 1999 because of an increase in the Company's tax
valuation allowance for the benefit for the current period's net loss from
operations.
17
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SUBSEQUENT EVENTS
In late July, the Board of Directors formed an Office of the Chief Executive to
oversee the day-to-day running of the Company's operations. Directors J.P.
Bryan and Townes Pressler will constitute the Office of the Chief Executive.
Mr. Bryan will serve as Chairman and CEO and, with Mr. Pressler, will be
actively involved in the daily direction and operations of the Company until a
new CEO can be found. Mr. J. Darby Sere, previously Chairman and CEO and
William C. Rankin, previously Senior Vice President and Chief Financial Officer
left the Company to pursue other opportunities. The Company will immediately
commence a search for a new Chief Financial Officer. Mr. Bryan is Senior
Managing Director of and a holder of Common Stock of the parent corporation of
Torch Energy Advisors, Inc. ("Torch"). The Company is party to an
administrative services agreement with Torch, pursuant to which Torch performs
certain administrative functions for the Company, including financial,
accounting, legal and technical support.
YEAR 2000 ISSUES
The Year 2000 problem ("Y2k") refers to the inability of computer and other
information technology systems to properly process date and time information.
The problem was caused, in part, by the outdated programming practice of using
two digits rather than four to represent the year in a date. The consequence of
the Y2k problem is that information technology and embedded processing systems
are at risk of malfunction, particularly during the transition between 1999 to
2000.
The effects of Y2k are exacerbated by the interdependence of computer and
telecommunication systems throughout the world. This interdependence also
exists among the Company and its vendors, customers and business partners, as
well as with government agencies.
The risks of Y2k fall into three general areas: 1) Corporate Systems, 2) Field
Systems and 3) Third Party Exposure. The Company is addressing each of these
areas through a readiness process that follows the steps below:
a) Planning and Awareness
b) Inventory and Assessment
c) Identify Potential Problems and their Business Impact
d) Identify/Approve Solutions
e) Test and Implement Solutions
f) Contingency Planning
The Company outsources a substantial portion of its information technology and
field operations to Torch. The Company and Torch have jointly developed a plan
to address the Company's Year 2000 issues. (As used in the remainder of this
discussion, references to the Company include the Torch employees assisting the
Company in its Year 2000 compliance program.)
18
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company has formed a Y2k Team comprised of representatives from senior
management, exploration, exploitation, accounting, legal and internal audit.
The continuing progress of this Y2k Team is reported regularly to the Company's
Board of Directors.
The estimated total costs for Y2k readiness have been nominal. It is
anticipated that such costs for complete Y2k readiness will continue to be
nominal as much of these costs are borne by Torch under the terms of the
existing outsourcing agreement. In addition, there have been no material
capital expenditures for Y2k and there is not anticipated to be material capital
expenditures because most major critical field operations do not have date
sensitive equipment.
CORPORATE SYSTEMS
1. Planning and Awareness. All employees have attended Y2k informational
programs including a general discussion of what Y2k is and how it could
affect the business. Employees of all levels of the organization have been
asked to participate in the identification of potential Y2k risks.
2. Inventory and Assessment. The Company has completed an inventory of the
traditional computing platforms including client/server systems, LAN systems
and PC systems, as well as an inventory of all systems software and operating
systems for each computing system. In addition, third party service
interfaces, banking/treasury interfaces and telecommunications have been
cataloged.
Assessment of component compliance (compliant, not-compliant, expected date
of compliance, etc.) has been completed and included research of product
information on the Internet, contacting peer group companies and accessing
information that peer group companies have already found.
3. Identification. The failure to identify and correct a material Y2k problem
in the Corporate Systems could result in inaccurate or untimely financial
information for management decision-making or financial reporting purposes.
The severity of such problems may impact the duration during which quality
information is available to management. At this time, management believes
that any Y2k disruptions associated with its financial and administration
systems will not have a material effect on the Company.
4. Identify/Approve Solutions. Based upon the assessments of components'
compliance, solutions are determined. These solutions include: 1) fix or
replace the non-compliant component, 2) buy patches or replacement items, 3)
develop workarounds, 4) identify alternate automated processes, 5) design
manual procedures and 6) develop business continuity plans for specific items
or systems.
19
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
5. Test and Implement Solutions. Since April 1998 Torch has been working on a
upgrade to its accounting software and is expected to achieve full Y2k
compliance by August 1999. In addition, all network and desktop applications
used by the Company have been inventoried and are generally Y2k compliant.
The costs of all such risk assessments and remediation are borne by Torch
under the terms of Bellwether's outsourcing agreements.
6. Contingency Planning. Notwithstanding the foregoing, should there be
significant unanticipated disruptions in the Company's financial and
administrative systems, a number of accounting processes that are currently
automated will need to be performed manually. The Company is currently
considering its options with respect to contingency arrangements for
temporary staffing to accommodate such situations.
FIELD SYSTEMS
1. Planning and Awareness. The Company's Y2k program has involved all levels of
management of field and facility assets from production foremen and higher.
Employees at all levels of the organization have been asked to participate in
the identification of potential Y2k risk, which might otherwise go unnoticed
by higher level employees and officers of Bellwether, and as a result, the
Company believes that awareness of the issue is high.
2. Inventory and Assessment. This step entailed locating all embedded chip
technology used in the field operations including safety systems, measurement
devices, overflow valves, SCADA systems and other field processes that are
date-or-time-sensitive. It is estimated that there are less than a hundred
embedded components residing in the computer systems within Bellwether's
operated oil and natural gas fields and processing plants. During the
assessment stage a list of assets to be tested was assembled. Consideration
was given to 1) issues of health and safety, 2) environmental concerns, 3)
economic factors and 4) other business risks as appropriate. Vendors and
manufacturers have been contacted as well as product research through the
Internet and the use of peer group company shared information. To date, the
majority of embedded components researched have been deemed either date-
insensitive or Y2k compliant. However, the complexity of embedded systems is
such that a small minority of non-compliant components, even a single non-
compliant component, can corrupt an entire system. Now that the component
level evaluation is substantially complete, a broader evaluation at the
system level has commenced. Bellwether anticipates that the system level
evaluation will be completed by the end of the third quarter 1999.
3. Identification. The failure to identify and correct a material Y2k problem
could result in outcomes ranging from errors in data reporting to
curtailments or shutdowns in production or discharges of materials onto the
environment. The Company prioritized the remediation of embedded components
and systems which are either known to be Y2k non-compliant or which have
higher risk of Y2k failures.
20
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
To assist in this effort, Bellwether and Torch retained consultants
knowledgeable and experienced in the assessment of Y2k issues impacting field
operations. Bellwether gave extremely high priority to the remediation of any
situation that could impact employee health and safety or environmental
security. The cost of the assessment was not material to Bellwether's
financial results. Despite these efforts, it is possible that there will be
production disruptions or other Y2k related problems associated with Y2k non-
compliance. Depending on the magnitude of any such disruptions or other
problems, and the time and cost required to correct them, such failures could
materially and adversely impact the Company's results of operations,
liquidity and financial condition.
4. Identify/Approve Solutions. Based upon the assessment of field systems,
regarding compliance or non-compliance, solutions were determined. These
potential solutions included 1) fix or replace non-compliant items, 2) buy
patches or replacement items, 3) develop workarounds, 4) identify alternative
automated processes, 5) design manual procedures and 6) develop business
continuity plans for specific items or systems.
5. Test and Implement Solutions. Once identified, assessed and prioritized,
Bellwether is continuing to test, upgrade and certify those embedded
components and systems in field process control units deemed to pose the
greatest risk of significant non-compliance. It is important to note that in
some circumstances, the procedures used to test embedded components for Y2k
compliance themselves pose a risk of damaging the component or corrupting the
system. Accordingly, there may be situations in which a decision not to test
may be deemed the most prudent.
The Company does not expect the cost of testing and upgrading its embedded
chips to be material due to the number of components and the low cost of such
components. If this assumption is incorrect, the Company may incur material
costs in connection with testing and remedying Year 2000 problems. In
addition, if the Company is not successful and ultimately experiences Y2k
related failures, the costs attributable to lost production, damages to
facilities and environmental damages may be material. The effort to address
the Y2k situation is dynamic and may likely not be fully completed by
December 31, 1999.
6. Contingency Planning. Should material production disruptions occur as a
result of Y2k failures in the field operations, Bellwether's operating cash
flow will be impacted. This contingency is being factored into deliberations
on capital budgeting, liquidity and capital adequacy. It is management's
intention to maintain adequate financial flexibility to sustain the Company
during any such period of cash flow disruption.
21
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THIRD PARTY EXPOSURES
1. Planning and Awareness. The Company has been involved in informational
programs with its employees and the employees of Torch who have significant
interaction with outside vendors, customers and business partners of the
Company. All levels of employees in the organization have been asked to
participate in the identification of potential third party Y2k risk, which
might otherwise go unnoticed by higher level employees and officers of
Bellwether, and as a result, awareness of the issue is considered high.
2. Inventory and Assessment. Surveys of general Y2k readiness have been sent to
all vendors, customers and business partners of the Company. An assessment
is made regarding the priority of risk associated with each third party, and
how the third party's level of compliance directly affects day-to-day
business. The Company's most critical customers are outside operators of
wells, gas plants, refineries, natural gas marketers and pipelines.
3. Identification. Refineries are extremely complex operations containing
hundreds or thousands of computerized processes. The failure on the part of
a Bellwether refinery customer to identify and correct a material Y2k problem
could result in material disruptions in the sale of Bellwether's production
to that refinery. In many cases, affected Bellwether production may not be
easily shifted to other markets, and markets may have similar effects.
Although the Company has made inquiries to key third parties on the subject
of Y2k readiness and will continue to do so, it has no ability to require
responses to such inquiries or to independently verify their accuracy.
Accordingly, management is unable to express any view about whether there
will be material production disruptions associated with third party Y2k non-
compliance. Depending on the magnitude of any such disruptions and the time
required to correct them, such failures could materially and adversely impact
the Company's results of operations, liquidity and financial condition.
Other significant concerns include the integrity of global telecommunication
systems, the readiness of commercial banks to execute electronic fund
transfers and of the ability of the financial community to maintain an
orderly market in Bellwether's securities.
4. Identify/Approve Solutions. By prioritizing the various third party risks
mentioned above, a list of most critical third party vendors, customers and
business partners has been determined. By cross-referencing the results of
the Y2k readiness survey with the Company's priority list of third parties,
solutions can be determined. These may involve field and/or office visits
and more detailed meetings to access the third party's Y2k compliance.
22
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
5. Test and Implement Solutions. Where the Company perceives significant risk
of Y2k non-compliance that may have a material impact on the Company, and
where the relationship between the Company and a vendor, customer or business
partner permits, joint testing may be undertaken during 1999. Joint testing
would occur following upgrades and other remediation to hardware, software
and communications links, as applicable, with the intent of determining that
the remediated system being tested will perform as expected after
December 31, 1999.
6. Contingency Planning. Should material production disruptions occur as a
result of Y2k failures of third parties, Bellwether's operating cash flow
will be impacted. This contingency is being factored into deliberations on
capital budgeting, liquidity and capital adequacy. It is management's
intention to maintain adequate financial flexibility to sustain the Company
during any such period of cash flow disruption.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included herein, including without limitation,
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in the notes to the financial statements
regarding the Company's financial position, capital budget, legal proceedings,
intent to acquire oil and gas properties, estimated quantities and net present
values of reserves, business strategy, plans and objectives of management of the
Company for future operations, gas plant operations and the effect of gas
balancing and the Year 2000 problem, are forward-looking statements. There can
be no assurances that such forward looking statements will prove to have been
correct. Important factors that could cause actual results to differ materially
from the Company's expectations ("Cautionary Statements") include the volatility
of oil and gas prices, operating hazards, government regulations, exploration
risks and other factors described in the Company's Form 10-K filed with the
Securities and Exchange Commission. All subsequent written and oral forward-
looking statements attributable to the Company or persons acting on its behalf
are expressly qualified by the Cautionary Statements.
23
<PAGE>
BELLWETHER EXPLORATION COMPANY
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including adverse changes in commodity
prices and interest rates.
Since year end 1998, the Company has entered into two contracts which establish
a maximum and minimum sales price ("collar"). The first establishes a collar
for 30,000 MMBTU per day for July 1, 1999 through October 31, 1999 with a floor
NYMEX quoted price of $2.20 per MMBTU and a ceiling NYMEX quoted price of $2.61
per MMBTU, and the second establishes a collar for 15,000 MMBTU per day for
November 1, 1999 through March 31, 2000 with a floor NYMEX quoted price of $2.40
per MMBTU and a ceiling NYMEX quoted price of $3.10 per MMBTU. In addition, the
Company has current contracts to hedge a total of 368 MBBLS of oil during the
months of July through September 1999 at a weighted average NYMEX quoted price
of $15.58 per barrel. The fair value at June 30, 1999 of these swap agreements
was a loss of $1,171,000. A 10% change in prices would result in approximately
$700,000 change in the loss.
24
<PAGE>
BELLWETHER EXPLORATION COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in Cause No. C-4417-96-G, A.R. Guerra,
et al. v. Eastern Exploration, Inc., et al., in the 370th Judicial
District Court of Hidalgo County, Texas. On May 11, 1999, the
trial court granted plaintiffs' Motion for Summary Judgment and
denied defendants' Motions for Summary Judgment. The Company was
not notified of the trial court's judgment until May 18, 1999.
The trial court awarded plaintiffs in excess of $5.8 million in
damages plus interest. The Company has a 75% interest in the
leases made the subject of the lawsuit, but the judgment is joint
and several against all defendants.
The majority of the damages awarded to plaintiffs consist of
compensatory royalties assessed under a compensatory royalty
clause in plaintiffs' 648-acre oil and gas lease. Defendants
contend that the unambiguous meaning of the compensatory royalty
clause is that, if a well is drilled within 1,200 feet of the 648-
acre lease, lessee must either commence an offset well within 120
days of the offending well, or commence payment of compensatory
royalties within 120 days of the offending well calculated on
production from the well or wells drilled within 1,200 feet.
Plaintiffs contend that the unambiguous meaning of the
compensatory royalty clause is that (1) lessees duties under the
clause were expanded to the entirety of the gas unit within which
plaintiffs' 648-acre lease is located; (2) if a well is drilled
within 1,200 feet of the gas unit in which plaintiffs' 648-acre
lease is located, the compensatory royalty provisions are merely
"triggered"; (3) once the compensatory royalty provisions are
triggered, lessee has a retroactive duty to commence an offset
well or commence payment of compensatory royalties within 120 days
of the first well drilled in the common field or reservoir
underlying plaintiffs' 648-acre lease, regardless of when that
first well was drilled and regardless of whether that first well
is more than 1,200 feet away from either the gas unit or the 648-
acre lease. Plaintiffs claim that the compensatory royalty
provisions were triggered when a well was allegedly drilled within
1,200 feet of the gas unit within which plaintiffs' 648-acre lease
is located. Because defendants could not go back in time and
commence an offset well within 120 days of the first well that was
allegedly drilled in the common field or reservoir underlying
plaintiffs' 648-acre lease, defendants had to go back in time and
commence payment of compensatory royalties calculated on all wells
allegedly drilled in the common field or reservoir. In granting
plaintiffs' Motion for Summary Judgement, the trial court adopted
this interpretation of the clause.
The Company believes that the trial court's judgment is in error
for the following reasons, among others: (1) plaintiffs
interpretation is unreasonable as a matter of law; (2) the duties
under the compensatory royalty clause did not expand to the
entirety of the unit, and because it is undisputed that no well
was ever drilled within 1,200 feet of
25
<PAGE>
BELLWETHER EXPLORATION COMPANY
PART II. OTHER INFORMATION (CONTINUED)
plaintiffs' 648-acre lease, lessees' duties under the compensatory
royalty clause never came into effect as a matter of law; and (3)
even if the duties under the compensatory royalty clause did
expand to the entirety of the unit, defendants timely drilled an
offset well within 120 days of the well that was allegedly drilled
within 1,200 feet of the gas unit in which plaintiffs' 648-acre
lease is located, and therefore no compensatory royalties are due
as a matter of law. Because the Company believes that the trial
court's judgment is in error, the Company perfected an appeal of
the judgment on August 9, 1999. The Company intends to
vigorously prosecute the appeal, and believes, with its legal
counsel, that a reversal of the judgment is more likely than not
to occur. Such an appeal could, however, require Bellwether to
secure a bond in the amount of up to the full amount of the
judgment, although it is more likely Bellwether's bonding
obligation will be in the $3.5 million range.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Proxy statement was sent to all shareholders of record as of
April 13, 1999 for the following matters which were voted on at
the annual meeting of shareholders held on May 28, 1999:
1. J.P. Bryan, Habib Kairouz, A.K. McLanahan, Vincent H. Buckley,
Dr. Jack Birks, and Townes Pressler were elected as directors with
12,201,094 shares voting in favor, 92,561 shares abstaining and no
shares voting against. J. Darby Sere was elected with 12,201,077
shares voting in favor, 92,578 abstaining and no shares voting
against.
No other matters were brought up at the meeting.
A copy of the Proxy Statement was filed with the Securities and
Exchange Commission on April 23, 1999 and is incorporated herein
by reference.
ITEM 5. OTHER INFORMATION
None.
26
<PAGE>
BELLWETHER EXPLORATION COMPANY
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
The following exhibits are filed with this Form 10-Q and they
are identified by the number indicated.
10.15 Purchase and Sale Agreement dated June 11, 1999
between Bellwether Exploration Company as Buyer and
Energen Resources MAQ, Inc. as Seller - Included
herewith
10.16 Separation contract dated August 9, 1999 between the
Company and J. Darby Sere - Included herewith
10.17 Separation contract dated August 9, 1999 between the
Company and William C. Rankin - Included herewith
21.1 Subsidiaries of Bellwether Exploration Company -
Included herewith
27 Financial Data Schedule - Included herewith
b. Reports on Form 8-K.
None.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BELLWETHER EXPLORATION COMPANY
------------------------------
(Registrant)
Date: August 13, 1999 By: /s/ J.P. Bryan
--------------------------
J.P. Bryan
Chairman and Chief Executive Officer
Date: August 13, 1999 By: /s/ J.P. Bryan
--------------------------
J.P. Bryan
Chief Financial Officer
28
<PAGE>
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
ENERGEN RESOURCES MAQ, INC.
AS SELLER
AND
BELLWETHER EXPLORATION COMPANY
AS BUYER
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS........................................................... 1
ARTICLE 2. SALE AND PURCHASE..................................................... 7
ARTICLE 3. PURCHASE PRICE........................................................ 7
3.1 Purchase Price.................................................... 7
3.2 Earnest Money Deposit............................................. 7
3.3 Allocation........................................................ 7
3.4 Preferential Rights............................................... 7
3.5 Consents.......................................................... 8
ARTICLE 4. REVIEW BY BUYER....................................................... 8
4.1 Review of Records................................................. 8
4.2 Alleged Adverse Matters........................................... 8
4.3 Adjustment of Purchase Price for Title Defects.................... 9
4.4 Waiver............................................................ 10
ARTICLE 5. INSPECTION OF PROPERTIES.............................................. 10
ARTICLE 6. ACCOUNTING............................................................ 10
6.1 Revenues, Expenses and Capital Expenditures....................... 10
6.2 Taxes............................................................. 11
6.3 Obligations and Credits........................................... 11
6.4 Gas Imbalances.................................................... 11
6.5 Miscellaneous Accounting.......................................... 12
6.6 Final Accounting Settlement....................................... 12
6.7 Post-Final Accounting Settlement.................................. 12
6.8 Audit Rights...................................................... 13
ARTICLE 7. CASUALTY AND CONDEMNATION............................................ 13
ARTICLE 8. INDEMNITIES........................................................... 14
8.1 Seller's Indemnity Obligations (excluding Environmental Claims)... 14
8.2 Buyer's Indemnity Obligations (excluding Environmental Claims).... 14
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.3 Environmental Claims.............................................. 15
8.4 Asbestos and NORM................................................. 15
8.5 Notice and Cooperation............................................ 15
8.6 Defense of Claims................................................. 15
8.7 Waiver of Certain Damages......................................... 16
8.8. Limitation on Indemnities......................................... 16
ARTICLE 9. WARRANTIES AND DISCLAIMERS........................................... 16
9.1 Special Warranty of Title......................................... 16
9.2 Disclaimer - Representations and Warranties....................... 16
9.3 Disclaimer - Statements and Information........................... 17
ARTICLE 10. SELLER'S REPRESENTATIONS AND WARRANTIES............................. 17
10.1 Organization and Good Standing.................................... 17
10.2 Corporate Authority; Authorization of Agreement................... 17
10.3 No Violations..................................................... 18
10.4 Absence of Certain Changes........................................ 18
10.5 Operating Costs................................................... 18
10.6 Litigation and Other Disputes..................................... 18
10.7 Bankruptcy........................................................ 19
10.8 Material Contracts................................................ 19
10.9 Approvals and Preferential Rights................................. 19
10.10 Compliance with Law and Permits................................... 19
10.11 Environmental Compliance.......................................... 20
10.12 Status of Contracts............................................... 20
10.13 Production Burdens, Taxes, Expenses and Revenues.................. 20
10.14 Production Sales Matters.......................................... 20
10.15 Capital Commitments............................................... 21
10.16 Limitation on Representations..................................... 21
ARTICLE 11. BUYER'S REPRESENTATIONS AND WARRANTIES............................... 21
11.1 Organization and Good Standing.................................... 21
11.2 Corporate Authority; Authorization of Agreement................... 21
11.3 No Violations..................................................... 22
11.4 SEC Disclosure.................................................... 22
11.5 Independent Evaluation............................................ 22
11.6 Buyer's Reliance.................................................. 22
11.7 Qualified Leaseholder............................................. 22
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ARTICLE 12. ADDITIONAL AGREEMENTS................................................ 23
12.1 Covenants of Seller............................................... 23
12.2 Notice of Loss.................................................... 23
12.3 Subsequent Operations............................................. 23
12.4 Buyer's Assumption of Obligations................................. 23
12.5 Records........................................................... 24
ARTICLE 13. ARBITRATION.......................................................... 24
ARTICLE 14. CONDITIONS PRECEDENT TO CLOSING...................................... 25
14.1 Conditions Precedent to Seller's Obligation to Close.............. 25
14.2 Conditions Precedent to Buyer's Obligation to Close............... 26
ARTICLE 15. TERMINATION.......................................................... 26
15.1 Grounds for Termination........................................... 26
15.2 Effect of Termination............................................. 27
15.3 Dispute over Right to Terminate................................... 27
15.4 Return of Documents............................................... 28
15.5 Confidentiality................................................... 28
ARTICLE 16. THE CLOSING.......................................................... 28
16.1. Preliminary Closing Statement..................................... 28
16.2 Obligations of Seller at Closing.................................. 28
16.3 Obligations of Buyer at Closing................................... 29
16.4 Site of Closing................................................... 29
ARTICLE 17. MISCELLANEOUS........................................................ 29
17.1 Notices........................................................... 29
17.2 Conveyance Costs.................................................. 30
17.3 Brokers' Fees..................................................... 30
17.4 Further Assurances................................................ 30
17.5 Survival of Representations and Warranties........................ 30
17.6 Amendments and Severability....................................... 30
17.7 Successors and Assigns............................................ 31
17.8 Headings.......................................................... 31
17.9 Governing Law..................................................... 31
17.10 No Partnership Created............................................ 31
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17.11 Public Announcements.............................................. 31
17.12 No Third Party Beneficiaries...................................... 31
17.13 Deceptive Trade Practices......................................... 31
17.14 Tax Deferred Exchange Election.................................... 32
17.15 Not to be Construed Against Drafter............................... 32
17.16 Entire Agreement.................................................. 32
17.17 Conspicuousness of Provisions..................................... 32
17.18 Execution in Counterparts......................................... 32
17.19 High Island Block 71.............................................. 32
EXHIBITS
EXHIBIT A - DESCRIPTION OF PROPERTIES
EXHIBIT B - NONE
EXHIBIT C - ASSIGNMENT AND BILL OF SALE
EXHIBIT D - CERTIFICATE
EXHIBIT E - NON-FOREIGN AFFIDAVIT
EXHIBIT F - LIST OF CONTRACTS
EXHIBIT G - LITIGATION AND CLAIMS
EXHIBIT H - ALLOCATION OF PURCHASE PRICE
EXHIBIT I - GAS IMBALANCES
EXHIBIT J - APPROVALS AND PREFERENTIAL RIGHTS
EXHIBIT K - VIOLATIONS OF LAWS
EXHIBIT L - PRODUCTION SALES MATTERS
EXHIBIT M - CAPITAL COMMITMENTS
EXHIBIT N - HI 71 FORM OF ASSIGNMENT
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is dated June 11, 1999,
by and between ENERGEN RESOURCES MAQ, INC., a Delaware corporation, with an
office at 605 21st Street North, Birmingham, Alabama 35203-2707 (hereinafter
referred to as "Seller") and BELLWETHER EXPLORATION COMPANY, a Delaware
corporation, with an office at 1331 Lamar, Suite 1455, Houston, Texas 77010-3039
(hereinafter referred to as "Buyer"), and is based on the following premises:
WHEREAS, Seller desires to sell, assign and convey to Buyer and Buyer
desires to purchase and accept certain oil and gas properties and related
interests; and
WHEREAS, the parties have reached agreement regarding such sale and
purchase.
NOW, THEREFORE, for valuable consideration and the mutual covenants and
agreements herein contained, Seller and Buyer agree as follows:
ARTICLE 1. DEFINITIONS
1. Definitions: In this Agreement, capitalized terms have the meanings
provided in this Article 1, unless expressly provided otherwise in other
Articles. All defined terms include both the singular and the plural. All
references to Articles or Sections refer to Articles or Sections in this
Agreement, and all references to Exhibits refer to the Exhibits attached to this
Agreement. The Exhibits which are attached hereto are incorporated in and made
a part of this Agreement.
"Accounting Referee" has the meaning set forth in Section 6.8.
"Affiliate" means and includes any entity that, directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with the entity specified.
"Alleged Adverse Matters" has the meaning set forth in Section 4.2.
"Alleged Title Defect" means a Title Defect (as hereinafter defined) which
is asserted by Buyer in accordance with Section 4.3.
"Assignment and Bill of Sale" means a document in the form of Exhibit C.
"Assumed Obligations" has the meaning set forth in Section 12.4.
"Business Day" means a Day (as hereinafter defined) excluding Saturdays,
Sundays and U.S. legal holidays.
<PAGE>
"Casualty Loss" means any loss, damage or reduction in value resulting from
mechanical failure or defects, catastrophic occurrences, acts of God and any
other losses which are not the result of normal wear and tear or of natural
reservoir changes.
"Certificate" means a document in the form of Exhibit D.
"Claim" means any and all claims, demands, suits, causes of action,
investigations, administrative proceedings, other legal proceedings, losses,
damages, liabilities, judgments, assessments, settlements, fines, notices of
violation, penalties, interest, obligations, responsibilities and costs
(including attorneys' fees and costs of litigation) of any kind or character
(whether or not asserted prior to the date hereof, and whether known or unknown,
fixed or unfixed, conditional or unconditional, based on negligence, strict
liability or otherwise, choate or inchoate, liquidated or unliquidated, secured
or unsecured, accrued, absolute, contingent or otherwise) which are brought by
or owed to a Third Party (as hereinafter defined).
"Close" or "Closing" means the consummation of the transfer of title to the
Properties to Buyer, including execution and delivery of all documents provided
herein.
"Closing Date" means June 30, 1999, or such other date as may be mutually
agreed upon by the parties or on which Closing occurs in accordance with the
terms of this Agreement.
"Day" means a calendar day consisting of twenty-four (24) hours from
midnight to midnight.
"Defensible Title" means, as to the Leases, such title held by Seller that,
subject to and except for the Permitted Encumbrances (as hereinafter defined):
(a) Entitles Seller to own and receive payment of revenues for not
less than the "Net Revenue Interests" set forth on Exhibit A of all oil,
gas and associated liquid and gaseous hydrocarbons produced, saved and
marketed from the Leases;
(b) Obligates Seller to bear costs and expenses relating to the
ownership, operation, maintenance and repair of the wells and facilities
located on or attributable to the Leases in an amount not greater than the
"Working Interests" set forth on Exhibit A, unless there is a corresponding
proportionate increase in the Net Revenue Interests; and
(c) Is free and clear of all liens, encumbrances, burdens and defects
that a reasonable and prudent person engaged in the business of ownership,
development and operation of oil and gas properties with knowledge of all
applicable facts and circumstances and the understanding of their legal
significance would not be willing to accept with respect to portions of the
Leases affected thereby.
"Earnest Money Deposit" has the meaning set forth in Section 3.2.
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"Effective Time" means January 1, 1999, at 7:00 a.m., local time where the
Properties are located.
"Environmental Claims" means all Claims for pollution or environmental
damages of any kind, including without limitation, those relating to: (a)
remediation and/or clean-up thereof, (b) damage to and/or loss of any property
or resource, and/or (c) injury or death of any person(s) whomsoever, including
without limitation Claims relating to breach of Environmental Laws, common law
causes of action such as negligence, gross negligence, strict liability,
nuisance or trespass, or fault imposed by statute, rule, regulation or otherwise
(but specifically excluding any Claims relating to asbestos or NORM (as
hereinafter defined), which are covered by Section 8.4 hereof), and including
all costs associated with remediation and clean up, and fines and penalties
associated with any of the foregoing.
"Environmental Laws" means all laws, statutes, ordinances, permits,
orders, judgments, rules or regulations which are promulgated, issued or enacted
by a governmental entity having appropriate jurisdiction that, (a) relate to the
prevention of pollution or environmental damage, (b) the remediation of
pollution or environmental damage, or (c) the protection of the environment
generally; including without limitation, the Clean Air Act, as amended, the
Clean Water Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Federal Water Pollution
Control Act, as amended, the Resource Conservation and Recovery Act of 1976, as
amended, the Safe Drinking Water Act, as amended, the Toxic Substance and
Control Act, as amended, the Superfund Amendments and Reauthorization Act of
1986, as amended, the Hazardous and the Solid Waste Amendments Act of 1984, as
amended, and the Oil Pollution Act of 1990, as amended.
"Final Accounting Settlement" has the meaning set forth in Section 6.6.
"Final Settlement Date" has the meaning set forth in Section 6.6.
"Forest Imbalance Claim" has the meaning given to such term on Exhibit G.
"Hydrocarbons" has the meaning given to such term in the definition of
Properties.
"Laws" means any and all applicable laws, statutes, ordinances, permits,
decrees, orders, judgments, rules or regulations (including without limitation
Environmental Laws) which are promulgated, issued or enacted by a governmental
entity having appropriate jurisdiction.
"Leases" has the meaning given to such term in the definition of
Properties.
"Material Contracts" means those contracts listed on Exhibit F.
"NPDES Claim" has the meaning given to such term on Exhibit G.
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"Non-Foreign Affidavit" means a document in the form of Exhibit E.
"NORM" means naturally occurring radioactive materials.
"Permitted Encumbrances" means:
(a) Royalties, overriding royalties, production payments, reversionary
interests, convertible interests, net profits interests, division orders
and similar burdens encumbering the Properties as of the Effective Time to
the extent the net cumulative effect of such burdens do not operate to (i)
reduce the net revenue interests of the Properties to less than the net
revenue interests set forth on Exhibit A or (ii) cause an increase in the
working interest in any Property from that shown on Exhibit A without a
proportionate increase in the net revenue interest for such Property;
(b) Preferential purchase rights and consents to assignment and
similar contractual provisions encumbering the Properties with respect to
which, prior to Closing, (i) waivers or consents are obtained from the
appropriate parties, or (ii) the appropriate time period for asserting such
rights have expired without an exercise of such rights;
(c) Preferential purchase rights encumbering the Properties which are
exercised by a Third Party, if the affected Properties are withdrawn from
this sale transaction and handled in accordance with Section 3.4;
(d) All rights to consent by, required notices to, filings with, or
other actions by governmental entities in connection with the sale or
conveyance of the Properties, if the same are customarily obtained
subsequent to the transfer of title;
(e) Rights reserved to or vested in any governmental entity having
appropriate jurisdiction to control or regulate the Properties in any
manner whatsoever, and all Laws of any such governmental entity;
(f) Easements, rights-of-way, servitudes, surface leases, sub-surface
leases, pipelines, platforms, facilities, utility lines, telephone lines,
power lines, and structures on, over and through the Properties, to the
extent such rights, interests or structures do not materially interfere
with the operation of the Properties;
(g) Liens for taxes or assessments not yet due or not yet delinquent
or, if delinquent, that are being contested by Seller in good faith in the
normal course of business;
(h) Liens of operators relating to obligations not yet due or not yet
delinquent;
(i) The Material Contracts; and
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(j) Alleged Adverse Matters and Title Defects which Buyer has waived
under Section 4.4.
"Properties" means the following properties (real, personal or mixed) and
rights (contractual or otherwise):
(a) All of Seller's right, title and interest in, to and under or
derived from the oil and gas leasehold interests, record title interests,
operating rights interests, fee interests, mineral interests and overriding
royalty interests described on Exhibit A (collectively, the "Leases");
(b) All of Seller's right, title and interest in and to, or derived
from, all of the presently existing and valid unitization and pooling
agreements and units (including all units formed by voluntary agreement and
those formed under the rules, regulations, orders or other official acts of
any governmental entity having appropriate jurisdiction) to the extent they
relate to any of the interests which are expressly described on Exhibit A;
(c) All of Seller's right, title and interest in and to all oil, gas
and/or other liquid or gaseous hydrocarbons (collectively, the
"Hydrocarbons") produced from or attributable to Seller's interest in the
Leases and attributable to the period from and after the Effective Time;
(d) All of Seller's right, title and interest in and to, or derived
from, all of the presently existing and valid oil sales contracts,
casinghead gas sales contracts, gas sales contracts, processing contracts,
gathering contracts, transportation contracts, easements, rights-of-way,
servitudes, surface leases and other contracts (including the Material
Contracts), to the extent the same are assignable and relate to any of the
interests which are expressly described on Exhibit A;
(e) All of Seller's right, title and interest in and to all personal
property and improvements (collectively, the "Equipment"), including
without limitation, wells (whether producing, plugged and abandoned, shut-
in, injection, disposal or water supply), tanks, boilers, platforms,
buildings, fixtures, machinery, equipment, pipelines, utility lines, power
lines, telephone lines, telegraph lines and other appurtenances located on,
in, under and about the Leases, to the extent the same are situated upon
and used or held for use by Seller solely in connection with the ownership,
operation, maintenance and repair of the interests which are expressly
described on Exhibit A, subject to the reservations stated below;
(f) All of Seller's Records;
(g) All franchises, licenses, permits, approvals, consents,
certificates and other authorizations and other rights granted by
governmental authorities and all certificates of convenience or necessity,
immunities, privileges, grants and other rights that relate to the
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Properties or the ownership or operation of any thereof, to the extent the
same are assignable (the "Permits"); and
(h) All (i) accounts, instruments and general intangibles (as such
terms are defined in the Uniform Commercial Code of Texas) attributable to
the Properties with respect to any period of time on or after the Effective
Time, and (ii) liens and security interests in favor of Seller, whether
choate or inchoate, under any law, rule or regulation or under any of the
Material Contracts (a) arising from the ownership, operation or sale or
other disposition on or after the Effective Time of any of the Properties
or (b) arising in favor of Seller whether by contract or statute as the
operator or non-operator of certain of the Properties.
"Purchase Price" has the meaning set forth in Section 3.1.
"Records" means all of Seller's books, records and files related to the
Properties, including all (i) abstracts, title opinions, title reports,
environmental site assessments, environmental compliance reports, lease and land
files, surveys, analyses, compilations, correspondence, filings with and reports
to regulatory agencies and other documents and instruments that in any manner
relate to the Properties, (ii) computer databases that are owned by or licensed
to Seller that relate to the Properties, (iii) geophysical, geological,
engineering, exploration, production and other technical data, magnetic field
recordings, digital processing tapes, field prints, summaries, reports and maps,
whether written or in electronically reproducible form, that are in the
possession of Seller and relate to the Properties and (iv) all other books,
records, files and magnetic tapes containing title or other information that are
in the possession of Seller and relate to the Properties (the "Data"), but
specifically excluding (i) previous offers and economic analyses associated with
the acquisition, sale or exchange of the Properties, (ii) interpretive
information, (iii) personnel information, (iv) corporate, legal, financial and
tax information, (v) information covered by a non-disclosure obligation, (vi)
information covered by a legal privilege and (vii) any other information that
Seller does not have the right to assign to Buyer.
"Title Adjustment" has the meaning set forth in Section 4.3.
"Title/Casualty Basket Amount" means the sum of U.S. $50,000.
"Title Defect" means any lien, encumbrance, encroachment or defect
associated with Seller's title to the Properties (excluding Permitted
Encumbrances) that would cause Seller not to have Defensible Title.
"Third Party" means any person or entity, governmental or otherwise, other
than Seller and Buyer.
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ARTICLE 2. SALE AND PURCHASE
On the Closing Date, effective as of the Effective Time, and upon the terms
and conditions herein set forth, Seller agrees to sell and assign the Properties
to Buyer and Buyer agrees to buy and accept the Properties.
ARTICLE 3. PURCHASE PRICE
3.1 Purchase Price. Subject to adjustments as set forth herein, the
total purchase price for the Properties shall be Twenty-Two Million Two Hundred
Fifty Thousand Dollars (US $22,250,000.00) (the "Purchase Price"), payable in
full at Closing in immediately available funds.
3.2 Earnest Money Deposit. Upon the execution of this Agreement, Buyer
shall pay to Seller a deposit in the amount of Three Million Dollars (US
$3,000,000.00) (the "Earnest Money Deposit"). If Closing occurs, the Purchase
Price shall be credited by the amount of the Earnest Money Deposit. If Closing
does not occur, the Earnest Money Deposit shall be refunded to Buyer, unless (a)
Closing does not occur because of Buyer's failure or refusal to Close in breach
of this Agreement or (b) because the conditions precedent to Seller's obligation
to Close provided in Section 14.1 are unmet at the time set for Closing, in
which case Seller shall retain the Earnest Money Deposit as liquidated damages
and not as a penalty. If, however, in the case of either (a) or (b) above, any
conditions precedent to Buyer's obligation to Close provided in Section 14.2 are
unmet at the time set for Closing, Seller shall not be entitled to retain the
Earnest Money Deposit as hereinabove provided. In the event that Closing occurs
after June 30, 1999, through no fault of Seller, interest shall be payable on
the Purchase Price from June 30, 1999 through and including the Closing Date at
the rate of ten percent (10%) per annum.
3.3 Allocation. Attached hereto as Exhibit H is Buyer's good faith
allocation of the Purchase Price which shall be used in providing any required
preferential purchase right notifications.
3.4 Preferential Rights. If any of the Properties are burdened with
preferential purchase rights, the assignment of the Properties subject to such
preferential rights shall be conditioned upon Seller obtaining the necessary
waiver or expiration of such right, and this Agreement shall not constitute an
assignment or attempted assignment thereof without such waiver or expiration. If
the time for exercising any preferential purchase right has not expired and the
holder thereof has not waived the same prior to the Closing Date, the Property
affected by such preferential right shall be conveyed to Buyer at Closing,
subject to the preferential right and without any reduction in the Purchase
Price. If the holder of the preferential right elects to purchase the Property
affected by the preferential right after Closing, Buyer shall be obligated to
convey such Property to the holder of such preferential right and Buyer shall be
entitled to the proceeds resulting therefrom. If, prior to Closing, a holder of
a preferential purchase right notifies Seller that it intends to exercise its
rights with respect to any of the Properties to which its preferential purchase
right applies, the Properties covered by said preferential purchase right shall
be excluded from the Properties to be conveyed to Buyer, and the Purchase Price
shall be reduced by the value allocated to said Properties by Buyer in
accordance with Section 3.3. If the holder of the preferential purchase right
fails to consummate the purchase of the Properties, Seller shall promptly notify
Buyer in writing. Within five (5) Business Days after Buyer's
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receipt of such notice or the Closing Date, whichever is later, Seller shall
sell to Buyer, and Buyer shall purchase from Seller, such Properties under the
terms of this Agreement for a price equal to the aforesaid value allocated to
such Properties. Notwithstanding the foregoing, Buyer shall have no obligation
to purchase such Properties if Buyer is not notified in writing of the
preferential purchase right holder's failure to consummate the purchase of such
Properties within sixty (60) Days following Closing.
3.5 Consents. If any of the oil, gas or mineral leases which are part
of the Properties require the consent of a Third Party to assign Seller's
interest therein, the assignment of such lease(s) subject to consent
requirements shall be conditioned upon Seller obtaining such consent prior to
Closing (except for consents from governmental bodies customarily obtained after
assignment which shall not be required to be obtained prior to Closing). With
respect to any leasehold interest for which consent is not obtained prior to
Closing, such interest shall not be conveyed to Buyer at Closing and the
Purchase Price shall be reduced to account for exclusion of the affected
Property. If Seller obtains the required consent(s) within sixty (60) days
following Closing, Seller shall sell and Buyer shall purchase the interest(s)
affected thereby under the terms of this Agreement for a price equal to the
Purchase Price adjustment made therefor at Closing. There shall be no
obligations of sale or purchase of the affected interest(s) in the Properties
following sixty (60) days after the Closing Date.
ARTICLE 4. REVIEW BY BUYER
4.1 Review of Records. Seller shall make available to Buyer Records in
Seller's possession relating to the Properties. Buyer shall be entitled to
review said Records and shall have a right to request a reasonable number of
copies of such Records, at Buyer's expense.
4.2 Alleged Adverse Matters. If, as a result of Buyer's due diligence
review and inspection of Seller's Records, Buyer discovers provisions of any
contract(s) (including the Material Contracts) which would (as to each such
contractual or other matter discovered) have a material adverse effect on the
value or operation of the Properties or any portion thereof (collectively, the
"Alleged Adverse Matters"), then as soon as reasonably practicable after Buyer's
review of the applicable Records, but in no event later than ten (10) Business
Days prior to the Closing Date, Buyer shall notify Seller in writing of any such
Alleged Adverse Matters. For purposes hereof "material" means (i) as to each
Alleged Adverse Matter a value or effect net to Seller's interest in the
Properties greater than Twenty-Five Thousand Dollars (US $25,000) and (ii) as to
all Alleged Adverse Matters a value or effect net to Seller's interest in the
Properties greater than Two Hundred Fifty Thousand Dollars (US $250,000) in the
aggregate. Buyer's notice of Alleged Adverse Matters shall include a
description and full explanation of each such matter being claimed and a value
which Buyer in good faith attributes to such matter. Seller may undertake to
satisfy some, all or none of Buyer's Alleged Adverse Matters at Seller's sole
cost and expense. Buyer and Seller shall meet at least three (3) Business Days
prior to the Closing Date in an attempt to mutually agree on a proposed
resolution with respect to any Alleged Adverse Matters which remain uncured.
For all Alleged Adverse Matters which are established by agreement of the
parties or pursuant to the arbitration procedures established
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herein and not otherwise resolved by Seller prior to Closing, there shall be a
reduction in the Purchase Price equal to the amount or value thereof, as agreed
by the parties or decided by arbitration, and an adjustment therefor shall be
made in the preliminary Closing statement or in the Final Accounting Statement,
as appropriate. If the parties cannot reach resolution of Alleged Adverse
Matters within the time period specified above, Closing shall not be delayed,
postponed or canceled, but either party has the right, exercisable within sixty
(60) days after the Closing Date, to refer the same to arbitration in accordance
with Article 13. Subject to the terms of Article 13, the decision of the
arbitrators regarding such dispute over Alleged Adverse Matters shall be final
as between the parties.
4.3 Adjustment of Purchase Price for Title Defects. As soon as
reasonably practicable after Buyer's review of the Records in accordance with
Section 4.1, but in no event later than ten (10) Business Days prior to the
Closing Date, Buyer shall notify Seller in writing of any Properties which are
subject to Alleged Title Defects and/or whose net revenue interest and/or
working interest is/are less than or greater than that amount specified on
Exhibit A (collectively, the "Title Adjustments"). Seller also shall promptly
notify Buyer in writing of any such instances of which Seller becomes aware.
Notice of Title Defects or Title Adjustments shall include a description and
full explanation of each Title Defect and Title Adjustment being claimed and a
value which Buyer in good faith attributes to each. With respect to Alleged
Title Defects, Seller may undertake to satisfy some, all or none of those raised
by Buyer, at Seller's sole cost and expense. Buyer and Seller shall meet at
least three (3) Business Days prior to the Closing Date in an attempt to
mutually agree on a resolution with respect to any Alleged Title Defects or
Title Adjustments which by such time have not been agreed between the parties in
writing. It is recognized that good faith differences of opinion may exist
between Buyer and Seller in connection with Alleged Title Defects or Title
Adjustments, including without limitation, disputes as to (i) whether or not the
alleged defect constitutes a Title Defect within the meaning of this Agreement,
(ii) whether or not the magnitude of such defect is great enough that Buyer is
contractually entitled to assert such Title Defect, (iii) whether or not the
Title Defect was properly and timely asserted by Buyer pursuant to this Article,
and (iv) the appropriate upward or downward adjustment, if any, to be made to
the Purchase Price on account of such Title Defect. In determining whether a
portion of a Property contains a Title Defect, it is the intent of the parties
to include, when possible, only that portion of the Property adversely affected.
If the value properly allocated to a Title Defect cannot be determined directly
from Exhibit H because the Title Defect is included within, but does not totally
comprise the Property to which the allocated value relates, Seller and Buyer
shall attempt to proportionately reduce the allocated value on Exhibit H.
Closing shall not be delayed, postponed or canceled because a resolution of a
Title Defect or Title Adjustment is not agreed prior to the Closing Date, except
to the extent that the Alleged Title Defect being asserted is failure of
Seller's title in whole or in part to any portion(s) of the Properties (a
"Material Defect"). To the extent that any portion(s) of the Properties are
alleged to be affected by a Material Defect which remains on the scheduled
Closing Date uncured or otherwise unresolved by the parties, such affected
portion(s) of the Properties shall be excluded from the Properties conveyed to
Buyer at Closing and the Purchase Price shall be reduced accordingly. If the
parties cannot mutually agree on a Purchase Price adjustment for a Material
Defect, Buyer shall have the right to (i) proceed to Closing and accept the
Property with the Material Defect with no Purchase Price adjustment or (ii)
terminate this Agreement as to the Property affected by the Material Defect and
receive a
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Purchase Price adjustment for such Property as set forth on Exhibit H or, where
applicable, the proportionate allocated value. If any difference of opinion
regarding an Alleged Title Defect (excluding any Material Defect) or Title
Adjustment or value of the Title Defect (excluding any Material Defect) or Title
Adjustment (collectively, the "Title Defect Dispute") is not resolved by mutual
agreement of Buyer and Seller prior to the Closing Date, then either party has
the right, exercisable within sixty (60) days after the Closing Date, to refer
the same to arbitration in accordance with Article 13, but using one (1)
mutually agreeable arbitrator who is an attorney licensed in the state in which
the Properties are located and who has at least fifteen (15) years oil and gas
title experience in such state. Subject to the terms of Article 13, the decision
of the arbitrator regarding Title Defect Dispute(s) shall be final as between
the parties.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN NO EVENT SHALL EITHER
PARTY HAVE ANY OBLIGATIONS HEREUNDER WITH RESPECT TO ANY TITLE DEFECTS OR TITLE
ADJUSTMENTS EXCEPT TO THE EXTENT THAT (I) EACH SUCH TITLE DEFECT OR TITLE
ADJUSTMENT EXCEEDS FIFTEEN THOUSAND DOLLARS ($15,000) AND (II) ALL SUCH TITLE
DEFECTS AND TITLE ADJUSTMENTS, TOGETHER WITH THE VALUE OF ALL CASUALTY LOSSES
AND/OR TAKINGS UNDER ARTICLE 7, EXCEED IN THE AGGREGATE THE TITLE/CASUALTY
BASKET AMOUNT, AND EACH PARTY HEREBY WAIVES ALL UPWARD OR DOWNWARD ADJUSTMENTS
TO THE PURCHASE PRICE FOR TITLE DEFECTS AND/OR TITLE ADJUSTMENTS THE INDIVIDUAL
VALUE OF WHICH IS $15,000 OR LESS AND THE CUMULATIVE VALUE OF WHICH, TOGETHER
WITH THE VALUE OF ALL CASUALTY LOSSES AND/OR TAKINGS UNDER ARTICLE 7, IS LESS
THAN THE TITLE/CASUALTY BASKET AMOUNT.
4.4 WAIVER. EXCEPT FOR CLAIMS BUYER ASSERTS UNDER SELLER'S SPECIAL
WARRANTY OF TITLE DESCRIBED IN SECTION 9.1 AND CLAIMS ASSERTED UNDER ARTICLE 8,
ALL ALLEGED ADVERSE MATTERS, ALLEGED TITLE DEFECTS AND TITLE ADJUSTMENTS WHICH
ARE NOT RAISED BY BUYER WITHIN THE TIME PERIODS PROVIDED IN SECTIONS 4.2 AND 4.3
OR WHICH ARE RAISED AND NOT THEREAFTER SUBMITTED TO ARBITRATION IN ACCORDANCE
WITH SUCH SECTIONS SHALL BE DEEMED WAIVED BY BUYER FOR ALL PURPOSES, AND BUYER
SHALL HAVE NO RIGHT TO SEEK AN ADJUSTMENT TO THE PURCHASE PRICE, MAKE A CLAIM
AGAINST SELLER OR SEEK INDEMNIFICATION FROM SELLER ON ACCOUNT OF THE SAME. ALL
UPWARD TITLE ADJUSTMENTS WHICH ARE NOT RAISED BY SELLER WITHIN THE TIME PERIOD
PROVIDED IN SECTION 4.3 OR WHICH ARE RAISED AND NOT THEREAFTER SUBMITTED TO
ARBITRATION IN ACCORDANCE WITH SUCH SECTION SHALL BE DEEMED WAIVED BY SELLER FOR
ALL PURPOSES, AND SELLER SHALL HAVE NO RIGHT TO SEEK AN ADJUSTMENT TO THE
PURCHASE PRICE, MAKE A CLAIM AGAINST BUYER OR SEEK INDEMNIFICATION FROM BUYER ON
ACCOUNT OF THE SAME.
ARTICLE 5. INSPECTION OF PROPERTIES
Prior to entering into this Agreement, Seller has allowed Buyer access to
the Properties for the purpose of conducting a physical and environmental
inspection thereof.
ARTICLE 6. ACCOUNTING
6.1 Revenues, Expenses and Capital Expenditures. All Hydrocarbons
produced prior to the Effective Time (irrespective of whether payment for the
same has been made or received) which
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are attributable to the Properties shall belong to Seller, and all such
Hydrocarbons produced from and after the Effective Time shall belong to Buyer.
Seller shall be entitled to all revenues and related accounts receivable
attributable to the ownership or operation of the Properties, and shall be
responsible for all costs and expenses and related accounts payable attributable
to the ownership or operation of the Properties, to the extent they relate to
the time prior to the Effective Time. Buyer shall be entitled to all revenues
and related accounts receivable attributable to the ownership or operation of
the Properties, and shall be responsible for all costs and expenses and related
accounts payable attributable to the ownership or operation of the Properties,
to the extent they relate to the time from and after the Effective Time. The
actual amounts or values associated with the above shall be accounted for in the
Final Accounting Settlement. Buyer shall assume Seller's suspense funds
associated with the acquired Properties as of the Effective Time, and these
funds shall be accounted for in the Final Accounting Settlement.
6.2 Taxes. All taxes and assessments, including without limitation,
excise, ad valorem, property, production and severance taxes and any other
federal, state and local taxes and assessments attributable to the ownership or
operation of the Properties prior to the Effective Time shall remain Seller's
responsibility, and all deductions, credits and refunds pertaining to the
aforementioned taxes and assessments, no matter when received, shall belong to
Seller. All taxes and assessments, including without limitation, excise, ad
valorem, property, production and severance taxes and any other federal, state
and local taxes and assessments attributable to the ownership or operation of
the Properties after the Effective Time shall be Buyer's responsibility, and all
deductions, credits and refunds pertaining to the aforementioned taxes and
assessments, no matter when received, shall belong to Buyer. The actual
amounts or values associated with the above, if any, shall be accounted for in
the Final Accounting Settlement. The parties agree that the transaction
contemplated herein is an occasional sale of assets by Seller in which Seller
does not trade in the ordinary course of its business. Accordingly, the
parties will take commercially reasonable actions to establish the occasional
sale exemption from any sales tax associated with the transaction contemplated
herein. Notwithstanding the foregoing, Buyer shall be solely responsible for all
transfer, sales, use or similar taxes resulting from or associated with the
transaction contemplated under this Agreement.
6.3 Obligations and Credits. Any and all prepaid insurance premiums,
utility charges, taxes, rentals and any other prepays, to the extent applicable
to periods of time after the Effective Time and to the extent attributable to
the Properties shall be reimbursed to Seller by Buyer; and accrued payables
applicable to periods of time prior to the Effective Time, if any, and
attributable to the Properties shall be the responsibility of Seller. The
actual amounts or values associated with the above shall be accounted for in the
Final Accounting Settlement.
6.4 Gas Imbalances. Seller's estimate of the aggregate gas imbalance as
of the Effective Time for all the Properties (exclusive of the Forest Imbalance
Claim) is 716,363 mcf overproduced (cumulative working interests), as more
particularly set forth for each of the Properties on Exhibit I. On or before
three (3) Business Days prior to the Closing Date, Seller shall provide Buyer
with a revised gas imbalance schedule for all the Properties as of the Effective
Time. There shall be a Purchase Price adjustment at Closing for the volumetric
difference in the estimated and revised
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imbalance calculated on Seller's net revenue interest at a price of $1.70 per
mcf. To the extent that there is any difference between Seller's actual
aggregate gas imbalance as of the Effective Time and the imbalance position
settled at Closing, then an adjustment shall be made at the $1.70 per net mcf
rate in the Final Accounting Settlement. There shall be no further gas imbalance
adjustments after the Final Settlement Date. In the event of a Title Defect
affecting all or a portion of the Properties, the aggregate gas imbalance shown
above shall be adjusted to take into account the affected Property. Any Purchase
Price adjustments for gas imbalances shall be made only on those Properties
purchased by Buyer.
6.5 Miscellaneous Accounting.
6.5.1 A preliminary Closing statement will be prepared for Closing,
as provided in Section 16.1.
6.5.2 In addition to the items set forth in Sections 6.1 and 6.2, any
other amounts due between Buyer and Seller related to the ownership or
operation of the Properties shall be accounted for in the Final Accounting
Settlement.
6.6 Final Accounting Settlement. As soon as reasonably practicable,
but in no event later than ninety (90) Days after Closing, Seller shall deliver
to Buyer a post-Closing statement setting forth a detailed final calculation of
all post-Closing adjustments applicable to the period between the Effective Time
and the Closing Date ("Final Accounting Settlement"). As soon as reasonably
practicable, but in no event later than thirty (30) Days after Buyer receives
the post-Closing statement, Buyer shall deliver to Seller a written report
containing any changes Buyer proposes to be made to such statement. As soon as
reasonably practicable, but in no event later than thirty (30) days after Seller
receives Buyer's proposed changes to the post-Closing statement, the parties
shall meet and undertake to agree on the post-Closing adjustments. If the
parties fail to agree on the post-Closing adjustments, resolution shall be
handled in accordance with Section 6.8. The date upon which all amounts
associated with the Final Accounting Settlement are agreed to by the parties,
whether by decision of the Accounting Referee or otherwise, shall be herein
called the "Final Settlement Date". Any amounts owed by either party to the
other as a result of such post-Closing adjustments shall be paid within five (5)
Business Days after the Final Settlement Date. The adjustments to the Purchase
Price under this Article 6 and the payments under this Section 6.6 shall not be
limited by or applied against the deductible amounts set forth in Article 8
hereof.
6.7 Post-Final Accounting Settlement. Any revenues received or costs
and expenses paid by Buyer after the Final Accounting Settlement which are
attributable to the ownership or operation of the Properties prior to the
Effective Time shall be billed to or reimbursed to Seller, as appropriate. Any
revenues received or costs and expenses paid by Seller after the Final
Accounting Settlement which are attributable to the ownership or operation of
the Properties after the Effective Time shall be billed to or reimbursed to
Buyer, as appropriate.
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6.8 Audit Rights. In order to verify the information provided by the
parties under this Article 6, Buyer and Seller shall each have the right to
conduct, at such party's sole expense, an audit of the other party's records
relating thereto for a period of one (1) year after the Closing Date.
OBJECTIONS OR EXCEPTIONS WHICH ARE NOT RAISED WITHIN SUCH ONE-YEAR AUDIT PERIOD
SHALL BE CONCLUSIVELY DEEMED TO BE WAIVED BY THE PARTIES FOR ALL PURPOSES, AND
NEITHER PARTY SHALL HAVE THE RIGHT TO MAKE A CLAIM AGAINST THE OTHER PARTY OR
SEEK INDEMNIFICATION OR REIMBURSEMENT FROM THE OTHER PARTY ASSOCIATED WITH THE
SAME. If within such fifteen (15) Days after receiving the results of a
party's audit conducted in accordance with this Article, the parties still
cannot reach agreement, the disputed items shall be resolved by submitting the
same to Price Waterhouse Coopers, or if such firm declines to act in such
capacity, by such other firm of independent nationally recognized accountants
mutually acceptable to the parties (the "Accounting Referee"). The Accounting
Referee shall be instructed to resolve the accounting dispute(s) within thirty
(30) Days after having the relevant materials submitted to it for review. The
decision of the Accounting Referee shall be binding and non-appealable by the
parties. The fees and expenses associated with the Accounting Referee shall be
borne equally by Buyer and Seller.
ARTICLE 7. CASUALTY AND CONDEMNATION
If a substantial part of the Properties shall be (a) destroyed prior to
Closing by a Casualty Loss, or (b) taken in condemnation or if proceedings for
such purposes shall be pending (collectively referred to as a "Taking"); then
either Buyer or Seller may terminate this Agreement prior to the Closing. For
the purpose of this Section 7.1, the term "substantial" shall be defined as ten
percent (10%) of the unadjusted Purchase Price. If either party terminates
this Agreement in accordance with this Section, neither party shall have any
further obligations, except as provided in this Article and in Section 15.2.1.
If neither party terminates this Agreement, this Agreement shall remain in
full force and effect, and Seller and Buyer shall attempt to agree on a
reduction in the Purchase Price, reflecting the reduction in the value of the
Properties affected by the Casualty Loss and/or Taking. If the parties cannot
agree on a reduction, the Seller's good faith calculation shall be used for
purposes of Closing. Notwithstanding anything herein to the contrary, in no
event shall either party have any obligations hereunder with respect to any
Casualty Loss and/or Taking except to the extent that the value of all such
Casualty Losses and/or Takings, together with the amount of all Title Defects
and/or Title Adjustments allowed under Section 4.3, exceed in the aggregate the
Title/Casualty Basket Amount, and Buyer hereby waives all downward adjustments
to the Purchase Price for all Casualty Losses and/or Takings the cumulative
value of which (together with the amount of all Title Defects and/or Title
Adjustments allowed under Section 4.3) is less than the Title/Casualty Basket
Amount. Unless otherwise agreed by the parties, Seller shall retain any and
all sums paid to Seller, unpaid awards, insurance proceeds and other payments
associated with or attributable to Casualty Losses and/or Takings.
If there is a dispute over the value of any Casualty Loss and/or Taking,
Buyer may submit the matter to arbitration in accordance with Article 13 within
sixty (60) Days after Closing, or if a party
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terminates this Agreement under this provision and the other party disputes the
party's right to terminate hereunder, the disputing party may submit the matter
to arbitration in accordance with Article 13 within sixty (60) Days after the
date which had been scheduled for Closing. IF BUYER DISPUTES THE PURCHASE PRICE
ADJUSTMENT FOR ANY CASUALTY LOSS AND/OR TAKING OR A PARTY DISPUTES TERMINATION,
AND BUYER OR THE DISPUTING PARTY, AS APPLICABLE, DOES NOT INITIATE AN
ARBITRATION PROCEEDING TO RESOLVE THE MATTER WITHIN THE APPLICABLE TIME PERIODS
SPECIFIED IN THE FOREGOING SENTENCE, SUCH PARTY IN EITHER CASE SHALL BE DEEMED
TO HAVE WAIVED ITS RIGHTS WITH RESPECT TO SUCH DISPUTE.
ARTICLE 8. INDEMNITIES
8.1 SELLER'S INDEMNITY OBLIGATIONS (EXCLUDING ENVIRONMENTAL CLAIMS)
EXCEPT FOR ENVIRONMENTAL CLAIMS WHICH SHALL BE HANDLED IN ACCORDANCE WITH
SECTION 8.3, SELLER SHALL RELEASE BUYER AND BUYER'S AFFILIATES AND THEIR
RESPECTIVE OFFICERS, DIRECTORS AND EMPLOYEES (COLLECTIVELY, THE "BUYER GROUP")
FROM AND SHALL FULLY PROTECT, INDEMNIFY, AND DEFEND BUYER GROUP FROM AND AGAINST
ANY AND ALL CLAIMS AND ANY AND ALL OCCURRENCES AND CONDITIONS WHICH WOULD
CONSTITUTE CLAIMS BUT WHICH ARE ASSERTED BY SELLER, RELATING TO, ARISING OUT OF,
OR CONNECTED WITH (I) THE BREACH BY SELLER OF THE REPRESENTATIONS CONTAINED IN
ARTICLE 10 HEREOF, (II) THE MATTERS SET FORTH ON EXHIBIT G AND (III) SELLER'S
OWNERSHIP OR OPERATION OF THE PROPERTIES PRIOR TO THE EFFECTIVE TIME, REGARDLESS
OF ANY NEGLIGENCE OF ACT OR OMISSION BY BUYER GROUP; PROVIDED, HOWEVER, THAT,
EXCEPT WITH RESPECT TO THE MATTERS DESCRIBED ON EXHIBIT G, PROPER NOTICE UNDER
SECTION 8.5 SHALL HAVE BEEN SUBMITTED TO SELLER WITHIN NINE (9) MONTHS AFTER THE
CLOSING DATE, AND FURTHER PROVIDED THAT BUYER SHALL BEAR SOLE RESPONSIBILITY FOR
THE COSTS ASSOCIATED WITH ALL SUCH CLAIMS (IN AGGREGATE) UP TO TWO HUNDRED FIFTY
THOUSAND DOLLARS (US $250,000). WITH RESPECT TO THE MATTERS DESCRIBED ON
EXHIBIT G, THERE SHALL BE NO TIME LIMIT FOR BUYER TO ASSERT A CLAIM FOR
INDEMNITY AND BUYER SHALL NOT BEAR RESPONSIBILITY FOR ANY OF THE COSTS
ASSOCIATED WITH SUCH MATTERS.
8.2 BUYER'S INDEMNITY OBLIGATIONS (EXCLUDING ENVIRONMENTAL CLAIMS)
EXCEPT FOR ENVIRONMENTAL CLAIMS WHICH SHALL BE HANDLED IN ACCORDANCE WITH
SECTION 8.3, BUYER SHALL RELEASE SELLER AND SELLER'S AFFILIATES AND THEIR
RESPECTIVE OFFICERS, DIRECTORS AND EMPLOYEES (COLLECTIVELY, THE "SELLER GROUP")
FROM AND SHALL FULLY PROTECT, INDEMNIFY, AND DEFEND THE SELLER GROUP FROM AND
AGAINST ANY AND ALL CLAIMS AND ANY AND ALL OCCURRENCES AND CONDITIONS WHICH
WOULD CONSTITUTE CLAIMS BUT WHICH ARE ASSERTED BY BUYER RELATING TO, ARISING OUT
OF, OR CONNECTED WITH (I) THE BREACH BY BUYER OF THE REPRESENTATIONS CONTAINED
IN ARTICLE 11 HEREOF, (II) THE ASSUMED OBLIGATIONS AND (III) THE OWNERSHIP OR
OPERATION OF THE PROPERTIES (A) PERTAINING TO THE PERIOD AFTER THE EFFECTIVE
TIME, AND (B) PERTAINING TO THE PERIOD PRIOR TO THE EFFECTIVE TIME, UNLESS SUCH
CLAIMS OR OCCURRENCES AND CONDITIONS SHALL HAVE BEEN SUBMITTED TO SELLER IN
ACCORDANCE WITH THE NOTICE PROVISIONS HEREOF WITHIN NINE (9) MONTHS AFTER THE
CLOSING DATE AND ARE IN THE AGGREGATE GREATER THAN TWO HUNDRED FIFTY THOUSAND
DOLLARS (US $250,000). THIS INDEMNITY SHALL APPLY REGARDLESS OF ANY NEGLIGENCE
OF ACT OR OMISSION BY SELLER GROUP.
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8.3 ENVIRONMENTAL CLAIMS. BUYER SHALL RELEASE SELLER GROUP AND SHALL
FULLY PROTECT, INDEMNIFY, AND DEFEND SELLER GROUP FROM AND AGAINST ANY AND ALL
ENVIRONMENTAL CLAIMS (SPECIFICALLY EXCLUDING, HOWEVER, THE NPDES CLAIM) AND ANY
AND ALL OCCURRENCES AND CONDITIONS WHICH WOULD CONSTITUTE ENVIRONMENTAL CLAIMS
BUT WHICH ARE ASSERTED BY BUYER, RELATING TO, ARISING OUT OF OR CONNECTED WITH
THE OWNERSHIP OR OPERATION OF THE PROPERTIES (I) PERTAINING TO THE PERIOD AFTER
THE EFFECTIVE TIME, AND (II) PERTAINING TO THE PERIOD PRIOR TO THE EFFECTIVE
TIME, UNLESS SUCH ENVIRONMENTAL CLAIMS OR OCCURRENCES AND CONDITIONS SHALL HAVE
BEEN SUBMITTED TO SELLER IN ACCORDANCE WITH THE NOTICE PROVISIONS HEREOF WITHIN
NINE (9) MONTHS AFTER THE CLOSING DATE AND ARE IN THE AGGREGATE GREATER THAN TWO
HUNDRED FIFTY THOUSAND DOLLARS (US $250,000), IN WHICH CASE SELLER SHALL
INDEMNIFY BUYER WITH RESPECT TO SUCH ENVIRONMENTAL CLAIMS AS PROVIDED IN SECTION
8.1 ABOVE.
8.4 Asbestos and NORM. The parties acknowledge that the Properties may
contain asbestos and/or NORM, and that special procedures may be required for
the assessment, remediation, removal, transportation or disposal of asbestos and
NORM. Buyer agrees to assume any and all liability associated with or
attributable to the assessment, remediation, removal, transportation and
disposal of the asbestos or NORM associated with or attributable to the
Properties and shall conduct said activities in accordance with all applicable
Laws.
8.5 Notice and Cooperation. If a Claim is asserted against a party for
which the party would be liable under the provisions of this Agreement, it is a
condition precedent to the indemnifying party's obligations hereunder that the
indemnified party gives the indemnifying party written notice of such Claim
setting forth full particulars of the Claim, as known by the indemnified party,
including a copy of the Claim (if it was a written Claim.) The indemnified
party shall make a good faith effort to notify the indemnifying party within one
(1) month of receipt of a Claim and shall in all events effect such notice
within such time as will allow the indemnifying party to defend against such
Claim and no later than three (3) calendar months after receipt of the Claim by
the indemnified party. The notice of a Claim given hereunder is referred to as
a "Claim Notice."
8.6 Defense of Claims.
8.6.1 Counsel. Upon receipt of a Claim Notice, the indemnifying
party may assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party.
The indemnified party shall cooperate in all reasonable respects in such
defense. If any Claim involves Claims with respect to which Buyer
indemnifies Seller and also Claims for which Seller indemnifies Buyer, each
party shall have the right to assume the defense of and hire counsel for
that portion of the Claim for which it has liability. The indemnified
party shall have the right to employ separate counsel in any Claim and to
participate in the defense thereof, provided the fees and expenses of
counsel employed by an indemnified party shall be at the expense of the
indemnified party unless otherwise agreed between the parties.
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8.6.2 Settlement. If the indemnifying party does not notify the
indemnified party within the earlier to occur of: (a) the time a response
is due in the relevant litigation matter, or (b) three (3) calendar months
after receipt of the Claim Notice, that the indemnifying party elects to
undertake the defense thereof, the indemnified party has the right to
defend, at the sole expense of the indemnifying party, the Claim with
counsel of its own choosing, subject to the right of the indemnifying party
to assume the defense of any Claim at any time prior to settlement or final
determination thereof at the indemnifying party's sole expense. In such
event, the indemnified party shall send a written notice to the
indemnifying party of any proposed settlement of any Claim, which
settlement the indemnifying party may accept or reject, in its reasonable
judgment, within thirty (30) days of receipt of such notice, unless the
settlement offer is limited to a shorter period of time in which case the
indemnifying party shall have such shorter period of time in which to
accept or reject the proposed settlement. Failure of the indemnifying
party to accept or reject such settlement within the thirty (30)-day period
shall be deemed to be its rejection of such settlement. The indemnified
party may settle any matter over the objection of the indemnifying party
but shall in so doing be deemed to have waived any right to indemnity
therefor as to (and only as to) liabilities with respect to which the
indemnifying party has recognized its liability.
8.7 WAIVER OF CERTAIN DAMAGES. EACH OF THE PARTIES HEREBY WAIVES, AND
AGREES NOT TO SEEK, INDIRECT, CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR SPECIAL
DAMAGES OF ANY KIND WITH RESPECT TO ANY CLAIM, OCCURRENCE, CONDITION OR DISPUTE,
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR BREACH HEREOF; PROVIDED,
HOWEVER, THAT THIS PROVISION DOES NOT DIMINISH OR AFFECT IN ANY WAY THE PARTIES'
RIGHTS AND OBLIGATIONS UNDER ANY INDEMNITIES PROVIDED FOR IN THIS AGREEMENT.
8.8. LIMITATION ON INDEMNITIES. IN NO EVENT SHALL AN INDEMNIFYING PARTY
HAVE ANY OBLIGATION OF INDEMNIFICATION TO THE OTHER PARTY, IF THE CLAIM,
OCCURRENCE, CONDITION OR DISPUTE FOR WHICH INDEMNITY IS SOUGHT WAS CAUSED BY THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY
AND/OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS
OR AFFILIATES.
ARTICLE 9. WARRANTIES AND DISCLAIMERS
9.1 SPECIAL WARRANTY OF TITLE. SELLER SHALL WARRANT AND DEFEND TITLE TO
THE PROPERTIES CONVEYED TO BUYER AGAINST EVERY PERSON WHOMSOEVER LAWFULLY
CLAIMING THE PROPERTIES OR ANY PART THEREOF BY, THROUGH OR UNDER SELLER, BUT NOT
OTHERWISE, AND SUBJECT TO THE PERMITTED ENCUMBRANCES.
9.2 DISCLAIMER - REPRESENTATIONS AND WARRANTIES. BUYER ACKNOWLEDGES AND
AGREES THAT THE PROPERTIES ARE BEING SOLD, ASSIGNED AND CONVEYED FROM SELLER TO
BUYER "AS-IS, WHERE-IS", AND WITH ALL FAULTS IN THEIR PRESENT CONDITION AND
STATE OF REPAIR, WITHOUT RECOURSE. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SELLER HEREBY
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DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES CONCERNING THE PROPERTIES,
EXPRESS, STATUTORY, IMPLIED OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY
WARRANTY OF TITLE (EXCEPT AS SET FORTH IN SECTION 9.1), THE QUALITY OF
HYDROCARBON RESERVES, THE QUANTITY OF HYDROCARBON RESERVES, THE AMOUNT OF
REVENUES, THE AMOUNT OF OPERATING COSTS, CONDITION (PHYSICAL OR ENVIRONMENTAL),
QUALITY, COMPLIANCE WITH APPLICABLE LAWS, ABSENCE OF DEFECTS (LATENT OR PATENT),
SAFETY, STATE OF REPAIR, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
AND BUYER EXPRESSLY RELEASES SELLER FROM THE SAME.
9.3 DISCLAIMER - STATEMENTS AND INFORMATION. EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT, SELLER DISCLAIMS ANY AND ALL LIABILITY AND
RESPONSIBILITY FOR AND ASSOCIATED WITH THE QUALITY, ACCURACY, COMPLETENESS OR
MATERIALITY OF THE RECORDS AND ANY OTHER INFORMATION PROVIDED AT ANY TIME
(WHETHER ORAL OR WRITTEN) TO BUYER, ITS OFFICERS, AGENTS, EMPLOYEES AND
REPRESENTATIVES IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREIN,
INCLUDING WITHOUT LIMITATION, QUALITY OF HYDROCARBON RESERVES, QUANTITY OF
HYDROCARBON RESERVES, AMOUNT OF REVENUES, AMOUNT OF OPERATING COSTS, FINANCIAL
DATA, CONTRACT DATA, ENVIRONMENTAL CONDITION OF THE PROPERTIES, PHYSICAL
CONDITION OF THE PROPERTIES AND CONTINUED FINANCIAL VIABILITY OF THE PROPERTIES,
AND BUYER EXPRESSLY RELEASES SELLER FROM THE SAME.
ARTICLE 10. SELLER'S REPRESENTATIONS AND WARRANTIES
Seller represents and warrants to Buyer that on the date hereof and as of
the Closing Date:
10.1 Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and has all requisite corporate power and authority to own and lease
the Properties. Seller is duly licensed or qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
Properties are located.
10.2 Corporate Authority; Authorization of Agreement. Seller has all
requisite corporate power and authority to execute and deliver this Agreement,
to consummate the transactions contemplated herein and to perform all of the
terms and conditions to be performed by it as provided for in this Agreement.
The execution and delivery of this Agreement by Seller, the performance by
Seller of all of the terms and conditions to be performed by it and the
consummation of the transactions contemplated herein have been duly authorized
and approved by all necessary corporate action. This Agreement has been duly
executed and delivered by Seller and constitutes the valid and binding
obligation of Seller, enforceable against it in accordance with its terms,
except as such
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enforceability may be limited by bankruptcy, insolvency or other Laws relating
to or affecting the enforcement of creditors' rights and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity).
10.3 No Violations. The execution and delivery of this Agreement by
Seller does not, and the fulfillment and compliance with the terms and
conditions hereof and the consummation of the transactions contemplated herein,
will not:
(a) Conflict with or require the consent of any person or entity under
any of the terms, conditions or provisions of the certificate of
incorporation or bylaws of Seller;
(b) Violate any provision of, or require any filing, consent or
approval under any Law applicable to or binding upon Seller (assuming
receipt of all consents and approvals of governmental entities customarily
obtained subsequent to the transfers of title);
(c) Conflict with, result in a breach of, constitute a default under
or constitute an event that with notice or lapse of time, or both, would
constitute a default under, accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or approval
under, (i) any mortgage, indenture, loan, credit agreement or other
agreement, evidencing indebtedness for borrowed money to which Seller is a
party or by which Seller is bound or (ii) any order, judgment or decree of
any governmental entity or tribal authority; or
(d) Result in the creation or imposition of any lien or encumbrance
upon the Properties.
10.4 Absence of Certain Changes. Between the execution date hereof and
the Closing Date, there have not been and there shall not be without Buyer's
prior written consent:
(a) A sale, lease or other disposition of any material part of the
Properties;
(b) A mortgage, pledge or grant of a lien or security interest in any
of the Properties; or
(c) A contract or commitment to do any of the foregoing.
10.5 Operating Costs. To the best of Seller's knowledge, all costs
incurred in connection with operation of the Properties have been fully paid and
discharged by Seller, except normal expenses incurred in operating the
Properties within the previous sixty (60) Days or as to which Seller has not yet
been billed or as to which Seller is disputing in good faith.
10.6 Litigation and Other Disputes. Except the matters listed on Exhibit
G (liability for which shall be retained by Seller), there is no action, suit or
proceeding pending or, to the best of
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Seller's knowledge, threatened against Seller or the Properties which would
reasonably be expected to have a material adverse effect on Buyer or Buyer's
interest in the Properties after Closing or to prevent the consummation of the
transaction contemplated by this Agreement. For purposes of this provision,
"material" means an impact of greater than Twenty-Five Thousand Dollars (US
$25,000).
10.7 Bankruptcy. There are no bankruptcy, reorganization or receivership
proceedings pending, being contemplated by or, to the best of Seller's
knowledge, threatened against Seller.
10.8 Material Contracts. To the best of Seller's knowledge, Exhibit F
sets forth a list of the following contracts, agreements, and commitments to
which any of the Properties are bound: (a) any agreement with any affiliate of
Seller; (b) any agreement or contract of Seller for the sale, exchange or other
disposition of Hydrocarbons produced from the Properties that is not cancelable
without penalty on not more than 60 days prior written notice; (c) any agreement
of Seller to sell, lease, farmout or otherwise dispose of any of its interests
in any of the Properties other than conventional rights of reassignment; (d) any
tax partnership agreement of Seller affecting any of the Properties; (e) any
operating agreement to which Seller's interests in any of the Properties is
subject; (f) any agreement pursuant to which Seller has not consented to, or
forfeited, its rights to participate in future oil and gas operations; (g) any
agreement pursuant to which Seller has received an advance payment, prepayment
or similar deposit, and has a refund obligation, with respect to any gas or
products purchased, sold, gathered, processed or marketed by or for Seller out
of the Properties, (h) any contract that requires Seller to expend more than
$200,000 in any year in connection with the Properties; (i) any option to
purchase or call on the Hydrocarbons produced from the Properties; and (j) any
lease, title retention agreement, or security interest affecting any of the
Equipment.
10.9 Approvals and Preferential Rights. To the best of Seller's
knowledge, except for those consents and approvals customarily obtained
subsequent to the transfer of title, Exhibit J contains a complete and accurate
list of all approvals, consents, filings and notifications required to be
obtained, made or given by Seller for the assignment or transfer of the
Properties (including, without limitation, the Permits) to Buyer and all
preferential purchase rights that affect the Properties.
10.10 Compliance with Law and Permits. Except for those matters set forth
on Exhibit K hereto and such other matters as would not have a material adverse
effect on the value of the Properties, to the best of Seller's knowledge, Seller
and those third parties operating any portion of the Properties, (a) are in
material compliance with all laws, rules, regulations, ordinances, orders,
decisions and decrees of all governmental authorities having jurisdiction with
respect to the Properties or the ownership or operation of any thereof; (b) have
obtained all necessary governmental permits, licenses, approvals, consents,
certificates and other authorizations with regard to the ownership or operation
of the Properties and have maintained the same in effect and no material
violations exist in respect of such permits, licenses, approvals, consents,
certificates or authorizations; and (c) are not aware of any facts, conditions
or circumstances in connection with, related to or associated with the
Properties or the ownership or operation of any thereof that could reasonably be
expected to give rise to any claim or assertion that Seller, the Properties or
the ownership or operation of any thereof is not in material compliance with any
applicable law, rule, regulation, ordinance, order, decision or
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decree of any governmental authority or with any term or conditions of any
applicable permit, license, approval, consent, certificate or other
authorization.
10.11 Environmental Compliance. Except for those matters set forth on
Exhibit K hereto and such other matters as would not have a material adverse
effect on the value of the Properties, to the best of Seller's knowledge, Seller
and those third parties operating any portion of the Properties, (a) have
obtained and maintained in effect all environmental and health and safety
permits, licenses, approvals, consents, certificates and other authorizations
necessary for the ownership or operation of the Properties ("Environmental
Permits"); (b) are in material compliance with all applicable Environmental Laws
and with all terms and conditions of all Environmental Permits, and all prior
instances of noncompliance have been fully and finally resolved to the
satisfaction of all governmental authorities with jurisdiction over such
matters; (c) are not subject to any Environmental Claims arising from, based
upon, associated with or related to the Properties or the ownership or operation
of any thereof; (d) have not received any notice of any Environmental Claim or
any violation, noncompliance or possible noncompliance with any Environmental
Law or the terms or conditions of any Environmental Permit, arising from, based
upon, associated with or related to the Properties or the ownership or operation
of any thereof; and (e) are not otherwise aware of any facts, conditions or
circumstances in connection with, related to or associated with the Properties
or the ownership or operation of any thereof, that could reasonably be expected
to give rise to any Environmental Claim or any claim or assertion that Seller,
the Properties or the ownership or operation thereof is not in compliance with
Environmental Laws or the terms or conditions of any Environmental Permit.
10.12 Status of Contracts. (a) All of the Material Contracts are in full
force and effect, and (b) neither Seller nor, to the knowledge of Seller, any
other party to the Material Contracts (i) is in breach of or default, or with
the lapse of time or the giving of notice, or both, would be in breach or
default, with respect to any of its obligations thereunder to the extent that
such breaches or defaults would have a material adverse impact on any of the
Properties or (ii) has given or threatened to give notice of any default under
or inquiry into any possible default under, or action to alter, terminate,
rescind or procure a judicial reformation of any Material Contract.
10.13 Production Burdens, Taxes, Expenses and Revenues. To the best of
Seller's knowledge, (a) all rentals, royalties, excess royalty, overriding
royalty interests and other payments due under or with respect to the Properties
have been properly and timely paid, (b) all ad valorem, property, production,
severance and other taxes based on or measured by the ownership of the
Properties or the production of Hydrocarbons from the Properties have been
properly and timely paid, (c) all expenses payable by Seller under the terms of
the Material Contracts have been properly and timely paid except for such
expenses as are being currently paid prior to delinquency or are being contested
in good faith in the ordinary course of business and (d) all of the proceeds
from the sale of Hydrocarbons are being properly and timely paid to Seller by
the purchasers of production without suspension or indemnity other than standard
division order indemnities.
10.14 Production Sales Matters. Except as set forth on Exhibit L, to the
best of Seller's knowledge, (a) none of the purchasers under any production
sales contracts is entitled to "makeup"
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or otherwise receive deliveries of Hydrocarbons without paying at the time of
such deliveries the full contract price therefor by reason of payments made
prior to the Effective Time; (b) none of the purchasers under any production
sales contracts has exercised any economic out provision; (c) none of the
purchasers under any production sales contracts has curtailed its takes of
natural gas in violation of such contracts; (d) none of the purchasers under any
production sales contracts has given notice that it desires to amend the
production sales contracts with respect to price or quantity of deliveries under
take-or-pay provisions or otherwise; and (e) Seller is not obligated to pay any
penalties or other payments under any gas transportation or other agreement as a
result of the delivery of quantities of gas from the Properties in excess of the
contract requirements.
10.15 Capital Commitments. Exhibit M contains a complete and accurate
list as of the date of this Agreement of (a) all authorities for expenditures
("AFEs") to drill or rework wells or for capital expenditures pursuant to any of
the Material Contracts that have been proposed by any person on or after the
Effective Time, whether or not accepted by Seller or any other person, and (b)
all AFEs and oral or written commitments to drill or rework wells or for other
capital expenditures pursuant to any of the Material Contracts that are equal to
or greater than US $200,000 and for which all of the activities anticipated in
such AFEs or commitments have not been completed by the date of this Agreement.
10.16 Limitation on Representations. The representations contained in
Sections 10.5 through 10.15 shall survive Closing for a period of nine (9)
months after the Closing Date and shall thereupon terminate. Furthermore, the
representations contained in Sections 10.5 through 10.15 are limited in scope to
those matters that either occurred or that Seller received actual knowledge of
during the time period extending from October 15, 1998 through the Closing Date.
ARTICLE 11. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller that on the date hereof and as of
the Closing Date:
11.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and has all requisite corporate power and authority to own and lease
the Properties. Buyer is duly licensed or qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the Properties
are located.
11.2 Corporate Authority; Authorization of Agreement. Buyer has all
requisite corporate power and authority to execute and deliver this Agreement,
to consummate the transactions contemplated herein and to perform all the terms
and conditions to be performed by it as provided for in this Agreement. The
execution and delivery of this Agreement by Buyer, the performance by Buyer of
all the terms and conditions to be performed by it and the consummation of the
transactions contemplated herein have been duly authorized and approved by all
necessary corporate action. This Agreement has been duly executed and delivered
by Buyer and constitutes the valid and binding obligation of Buyer, enforceable
against it in accordance with its terms, except as such enforceability
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may be limited by bankruptcy, insolvency or other Laws relating to or affecting
the enforcement of creditors' rights and general principles of equity
(regardless of whether such enforceability is considered in a proceeding at law
or in equity).
11.3 No Violations. The execution and delivery of this Agreement by
Buyer does not, and the fulfillment and compliance with the terms and conditions
hereof and the consummation of the transactions contemplated herein, do not:
(a) Conflict with or require the consent of any person or entity under
any of the terms, conditions or provisions of the certificate of
incorporation or bylaws of Buyer;
(b) Violate any provision of, or require any filing, consent or
approval under any Law applicable to or binding upon Buyer; or
(c) Conflict with, result in a breach of, constitute a default under
or constitute an event that with notice or lapse of time, or both, would
constitute a default under, accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or approval
under, (i) any mortgage, indenture, loan, credit agreement or other
agreement evidencing indebtedness for borrowed money to which Buyer is a
party or by which Buyer is bound, or (ii) any order, judgment or decree of
any governmental entity or tribal authority.
11.4 SEC Disclosure. Buyer is an experienced and knowledgeable investor
and operator in the oil and gas business. Buyer is acquiring the Properties for
its own account for use in its trade or business, and not with a view toward or
for sale in connection with any distribution thereof, nor with any present
intention of making a distribution thereof within the meaning of the Securities
Act of 1933, as amended.
11.5 INDEPENDENT EVALUATION. AS OF CLOSING, BUYER REPRESENTS THAT IT IS
SOPHISTICATED IN THE EVALUATION, PURCHASE, OPERATION AND OWNERSHIP OF OIL AND
GAS PROPERTIES AND THAT IN MAKING ITS DECISION TO ENTER INTO THIS AGREEMENT AND
TO CONSUMMATE THE TRANSACTION CONTEMPLATED HEREIN, BUYER HAS RELIED AND SHALL
RELY SOLELY ON SELLER'S REPRESENTATIONS CONTAINED HEREIN AND ON ITS OWN
INDEPENDENT INVESTIGATION AND EVALUATION OF THE PROPERTIES AND HAS SATISFIED
ITSELF AS TO THE PHYSICAL CONDITION AND ENVIRONMENTAL CONDITION OF THE
PROPERTIES.
11.6 BUYER'S RELIANCE. BUYER ACKNOWLEDGES AND AGREES THAT IT IS ENTITLED
TO RELY ONLY ON THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
AGREEMENT.
11.7 Qualified Leaseholder. Buyer meets the area-wide bonding and any
other bonding requirements of the Minerals Management Service and other
governmental authorities, and, after the Closing, Buyer anticipates that it will
continue to be able to meet such bonding requirements. Buyer is and, after the
Closing, is expected to continue to be, otherwise qualified to own the
Properties.
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The consummation of the transactions contemplated hereby will not cause Buyer to
be disqualified to be an owner of federal oil, gas, and mineral leases in the
Gulf of Mexico region, or to exceed any acreage limitation imposed by any law,
statute, rule or regulation. Buyer is not aware of any fact that could
reasonably be expected to cause the Minerals Management Service or other
governmental authorities to fail to unconditionally approve the assignment of
the Properties to Buyer.
ARTICLE 12. ADDITIONAL AGREEMENTS
12.1 Covenants of Seller. From the date hereof until Closing, without
first obtaining the consent of Buyer, Seller has not and will not:
(a) waive any right of material value relating to the Properties;
(b) convey, encumber, mortgage, pledge any of the Properties nor
dispose of any of the Properties, other than the sale of production in the
ordinary course of business and except as may be required in connection
with the exercise of preferential rights affecting the Properties;
(c) enter into, modify or terminate any contracts relating to the
Properties;
(d) vote to commit to any material project or material expenditure
under any operating agreement affecting the Properties or elect to
participate in any operation on the Properties requiring an expenditure of
greater than Two Hundred Thousand Dollars (US $200,000) to Seller's
interest, except to the extent required in an emergency to protect life or
property from immediate harm or destruction; or
(e) contract or commit itself to do any of the foregoing.
12.2 Notice of Loss. From the date hereof until Closing, Seller shall
promptly notify Buyer of any loss or damage to the Properties, or any part
thereof, known to Seller and in the aggregate exceeding Twenty-five Thousand
Dollars (US $25,000) net to Seller's interest.
12.3 Subsequent Operations. Seller makes no representations or
warranties to Buyer as to the transferability or assignability of operatorship
of the Properties. Buyer acknowledges that the rights and obligations
associated with operatorship of the Properties are governed by the applicable
agreement(s) and that operatorship of the Properties shall be decided in
accordance with the terms of said agreement(s); provided, however, Seller agrees
to provide reasonable assistance to Buyer (at no expense to Seller) in
connection with Buyer's effort to be designated as operator of the Properties.
12.4 Buyer's Assumption of Obligations. Except as otherwise expressly
provided in this Agreement, Buyer agrees to assume and shall timely perform and
discharge all duties and obligations of Seller insofar as the same relate to or
arise out of Seller's interest in the Properties relating to the period of time
after the Closing, including, without limitation, all duties and obligations of
Seller
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under all the Material Contracts (the "Assumed Obligations"), and Buyer shall
indemnify and hold Seller harmless from and against any and all liabilities of
whatsoever nature arising out of Buyer's failure to properly perform or
discharge the Assumed Obligations, except to the extent the same relate to the
breach of any representation or warranty of Seller as set forth in and limited
by this Agreement, or the breach of, or failure to perform or satisfy any
covenant of Seller set forth in this Agreement. Buyer agrees to accept full
responsibility for Seller's proportionate share of the costs and expenses
associated with or attributable to the plugging and abandonment of all wells,
and the removal of all equipment, platforms and facilities conveyed to Buyer
under this Agreement and the remediation, restoration and clean up of the
Properties. In conducting the duties and obligations contained in this Section
12.4, Buyer shall comply with the applicable Laws of all governmental entities
and tribal authorities having appropriate jurisdiction. Buyer shall not assume
(i) any duties, obligations or liabilities with respect to or relating to any
matter disclosed under, or that should have been disclosed, under Exhibit G and
(ii) any obligation of Seller to pay or discharge any refunds, including
interest and penalties, if any, that may be imposed by any governmental
authority arising from the sale of Hydrocarbons and operation of the Properties
prior to the Effective Time.
12.5 Records. Within thirty (30) Days after Closing, Seller shall
furnish to Buyer all Records which are maintained by Seller, provided, however,
that Seller is entitled to retain copies of any or all such Records and to
retain as long as needed, the originals of any Records required in connection
with any litigation or other proceedings listed on Exhibit G. Buyer agrees to
maintain the Records received from Seller in accordance herewith for a period of
six (6) years after the Closing Date and to afford Seller reasonable access to
the Records as requested by Seller. If Buyer desires to dispose of any such
Records prior to the end of the six (6) year period, Buyer shall offer in
writing to Seller to deliver such Records to Seller; if Seller elects not to
receive such Records or fails to respond to Buyer's notice within thirty (30)
Business Days after receipt thereof, then Buyer may dispose of such Records
within its discretion.
ARTICLE 13. ARBITRATION
ANY DISPUTE ARISING UNDER THIS AGREEMENT ("ARBITRABLE DISPUTE") SHALL BE
REFERRED TO AND RESOLVED BY BINDING ARBITRATION IN BIRMINGHAM, ALABAMA BY THREE
(3) ARBITRATORS, IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION; AND, TO THE MAXIMUM EXTENT APPLICABLE, THE
FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES CODE). IF THERE IS ANY
INCONSISTENCY BETWEEN THIS ARTICLE AND ANY STATUTE OR RULES, THIS ARTICLE SHALL
CONTROL. ARBITRATION SHALL BE INITIATED (A) WITHIN THE APPLICABLE TIME LIMITS
SET FORTH IN THIS AGREEMENT AND NOT THEREAFTER, PROVIDED THAT IF NO TIME LIMIT
IS GIVEN, WITHIN THE TIME PERIOD ALLOWED BY THE APPLICABLE STATUTE OF
LIMITATIONS, (B) BY ONE PARTY ("CLAIMANT") GIVING WRITTEN NOTICE TO THE OTHER OR
ADVERSARIAL PARTY ("RESPONDENT") AND TO THE BIRMINGHAM REGIONAL OFFICE OF THE
AMERICAN ARBITRATION ASSOCIATION ("AAA"), ATTENTION:
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REGIONAL VICE PRESIDENT, WITH A COPY TO THE ADMINISTRATOR OF THE AAA, THAT THE
CLAIMANT ELECTS TO REFER THE ARBITRABLE DISPUTE TO ARBITRATION, AND THAT THE
CLAIMANT HAS APPOINTED AN ARBITRATOR, WHO SHALL BE IDENTIFIED IN SUCH NOTICE.
THE RESPONDENT SHALL NOTIFY THE CLAIMANT AND THE AAA WITHIN TEN (10) DAYS AFTER
RECEIPT OF CLAIMANT'S NOTICE, IDENTIFYING THE ARBITRATOR WHO THE RESPONDENT HAS
APPOINTED. THE TWO (2) ARBITRATORS SO CHOSEN SHALL SELECT A THIRD ARBITRATOR
WITHIN TEN (10) DAYS AFTER THE SECOND ARBITRATOR HAS BEEN APPOINTED. UPON
FAILURE OF A PARTY TO ACT WITHIN THE TIME SPECIFIED FOR NAMING AN ARBITRATOR,
SUCH ARBITRATOR SHALL BE APPOINTED BY THE ADMINISTRATOR'S DESIGNEE. 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, PROVIDED HOWEVER THAT ALL COSTS CAN BE ASSESSED AGAINST
THE LOSING PARTY, IF THE ARBITRATORS SO DECIDE. ALL ARBITRATORS MUST BE NEUTRAL
PARTIES WHO HAVE NEVER BEEN OFFICERS, DIRECTORS OR EMPLOYEES OF THE PARTIES OR
ANY OF THEIR AFFILIATES, MUST HAVE NOT LESS THAN FIFTEEN (15) YEARS EXPERIENCE
IN THE OIL AND GAS INDUSTRY, AND MUST HAVE A FORMAL FINANCIAL/ACCOUNTING,
ENGINEERING OR LEGAL EDUCATION. THE HEARING SHALL BE COMMENCED WITHIN THIRTY
(30) DAYS AFTER THE SELECTION OF THE ARBITRATORS. THE PARTIES AND THE
ARBITRATORS SHALL PROCEED DILIGENTLY AND IN GOOD FAITH IN ORDER THAT THE
ARBITRAL AWARD SHALL BE MADE AS PROMPTLY AS POSSIBLE. THE INTERPRETATION,
CONSTRUCTION AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
TEXAS, AND TO THE MAXIMUM EXTENT ALLOWED BY LAW, IN ALL ARBITRATION PROCEEDINGS
THE LAWS OF TEXAS SHALL BE APPLIED, WITHOUT REGARD TO ANY CONFLICTS OF LAWS
PRINCIPLES. ALL STATUTES OF LIMITATION AND OF REPOSE THAT WOULD OTHERWISE BE
APPLICABLE SHALL APPLY TO ANY ARBITRATION PROCEEDING. THE TRIBUNAL SHALL NOT
HAVE THE AUTHORITY TO GRANT OR AWARD INDIRECT, CONSEQUENTIAL, PUNITIVE,
EXEMPLARY OR SPECIAL DAMAGES.
ARTICLE 14. CONDITIONS PRECEDENT TO CLOSING
14.1 Conditions Precedent to Seller's Obligation to Close. Seller shall
be obligated to consummate the sale of the Properties as contemplated by this
Agreement on the Closing Date, provided the following conditions precedent have
been satisfied or have been waived by Seller:
14.1.1 All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of
Closing as though such representations and warranties were made at and as
of such time;
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14.1.2 Buyer shall have complied in all material respects with all
obligations and conditions contained in this Agreement to be performed or
complied with by Buyer at or prior to the Closing; and
14.1.3 No suit, action or other proceedings shall be pending before
any court or governmental entity in which it is sought by a person or
entity (other than the parties hereto or any of their Affiliates, officers,
directors, or employees) to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement, or to
obtain substantial damages in connection with the transaction contemplated
herein, nor shall there be any investigation by a governmental entity
pending which might result in any such suit, action or other proceedings
seeking to restrain, enjoin or otherwise prohibit the consummation of the
transaction contemplated by this Agreement.
14.2 Conditions Precedent to Buyer's Obligation to Close. Buyer shall be
obligated to consummate the purchase of the Properties as contemplated by this
Agreement on the Closing Date, provided that the following conditions precedent
have been satisfied or have been waived by Buyer:
14.2.1 All representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects at and as of
Closing as though such representations and warranties were made at and as
of such time;
14.2.2 Seller shall have complied in all material respects with all
obligations and conditions contained in this Agreement to be performed or
complied with by Seller at or prior to the Closing; and
14.2.3 No suit, action or other proceedings shall be pending before
any court or governmental entity in which it is sought by a person or
entity (other than the parties hereto or any of their Affiliates, officers,
directors, or employees) to restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement, or to
obtain substantial damages in connection with the transaction contemplated
herein, nor shall there be any investigation by a governmental entity
pending which might result in any such suit, action or other proceedings
seeking to restrain, enjoin or otherwise prohibit the consummation of the
transaction contemplated by this Agreement.
ARTICLE 15. TERMINATION
15.1 Grounds for Termination. This Agreement may be terminated at any
time prior to Closing:
15.1.1 By the mutual written agreement of Seller and Buyer;
15.1.2 By Seller if Buyer fails or refuses to Close in breach of this
Agreement or if the conditions precedent to Seller's obligation to Close
are unmet at the time set for Closing;
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15.1.3 By Buyer if Seller fails or refuses to Close in breach of this
Agreement or if the conditions precedent to Buyer's obligation to Close are
unmet at the time set forth Closing;
15.1.4 By either Seller or Buyer pursuant to Article 7;
15.1.5 By either Seller or Buyer pursuant to Section 5.2.3(b)(iv).
15.1.6 By Seller if the Purchase Price would be adjusted downward by
ten percent (10%) or more or by Buyer if the Purchase Price would be
adjusted upward by ten percent (10%) in accordance with Article 4; or
15.17 By either party (provided the terminating party is not then in
breach of any provisions of this Agreement), if Closing shall not have
occurred within sixty (60) days following the originally scheduled Closing
Date.
15.2 Effect of Termination.
15.2.1 Except as provided in Section 15.2.2 below, if this Agreement
is terminated in accordance with Section 15.1, such termination shall be
without liability of either party or any Affiliate, officer, director, or
employee of such party, except for Seller's obligation (if applicable) to
return the Earnest Money Deposit, as provided in Article 3, the obligations
to arbitrate any dispute arising from such termination and the obligations
provided in Sections 15.3, 15.4, 15.5, and 17.3.
15.2.2 If this Agreement is terminated because of Buyer's failure or
refusal to Close in breach of this Agreement or because the conditions
precedent to Seller's obligation to Close provided in Section 14.1 are
unmet at the time set for Closing, Seller shall be entitled to retain the
Earnest Money Deposit as liquidated damages to reimburse Seller for its
out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, unless any of the conditions
precedent to Buyer's obligation to Close provided in Section 14.2 are also
unmet at the time set for Closing, in which case Seller shall return the
Earnest Money Deposit to Buyer.
15.3 Dispute over Right to Terminate. If there is a dispute between the
parties over either party's right to terminate this Agreement under Section
15.1, Closing shall not occur, as scheduled. The party which disputes the other
party's right to terminate may initiate arbitration proceedings in accordance
with Article 13 within thirty (30) Days after the date on which Closing was
scheduled to occur and, if arbitration is so initiated, the dispute will be
resolved through such arbitration proceeding. IF THE PARTY WHICH DISPUTES THE
TERMINATION RIGHT DOES NOT INITIATE AN ARBITRATION PROCEEDING TO RESOLVE THE
DISPUTE WITHIN THE TIME PERIOD SPECIFIED HEREINABOVE, SUCH PARTY SHALL BE DEEMED
TO HAVE WAIVED ITS RIGHT TO OBJECT TO SUCH TERMINATION.
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15.4 Return of Documents. If this Agreement is terminated, each party
shall return to the party which owns or is otherwise entitled thereto all books,
records, maps, files, papers and other property in such party's possession
relating to the transaction contemplated by this Agreement.
15.5 Confidentiality. Notwithstanding the termination of this Agreement
or any other provision of this Agreement to the contrary, the terms of the
Confidentiality Agreement executed by Seller and Buyer, dated March 16, 1999, as
amended by letter agreement dated May 24, 1999, shall remain in full force and
effect.
ARTICLE 16. THE CLOSING
16.1. Preliminary Closing Statement. At least five (5) Days prior to the
Closing Date, Seller shall provide Buyer with a preliminary Closing statement
setting forth the adjusted Purchase Price and wiring instructions designating
the account or accounts to which the adjusted Purchase Price is to be delivered
in accordance with Section 16.3.2. Within two (2) Business Days after receipt
of the preliminary Closing statement from Seller, Buyer shall furnish Seller
with Buyer's requested adjustments to such statement. Seller and Buyer shall
attempt in good faith to resolve any differences between them, but if the
parties are unable to agree, Seller's preliminary Closing statement shall be
used for Closing.
16.2 Obligations of Seller at Closing. At the Closing, Seller shall
deliver to Buyer, unless waived by Buyer, the following:
16.2.1 Documents substantially in the form of the Assignment and Bill
of Sale attached hereto as Exhibit C, conveying all of Seller's right,
title and interests in and to the Properties. The Assignment and Bill of
Sale shall be executed and acknowledged in five (5) multiple originals or
such greater number as agreed between the parties;
16.2.2 Evidence that all consents and approvals prerequisite to the
sale and conveyance of the Properties (except for consents and approvals of
governmental entities customarily obtained subsequent to the transfer of
title or with respect to Properties which have been withdrawn from the
transaction in accordance with the terms hereof) have been obtained, as
well as evidence of waiver or lapse of any unexercised preferential
purchase rights applicable to the Properties;
16.2.3 A Certificate substantially in the form of Exhibit D, executed
by an authorized officer of Seller, certifying as to the matters specified
in Section 14.2.1;
16.2.4 A Non-Foreign Affidavit substantially in the form of Exhibit
E, executed by an authorized officer of Seller; and
16.2.5 Such other instruments as are necessary to carry out Seller's
obligations under this Agreement.
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16.3 Obligations of Buyer at Closing. At the Closing, Buyer shall
deliver to Seller, unless waived by Seller, the following:
16.3.1 The Assignment and Bill of Sale referred to in Section 16.2.1,
executed and properly acknowledged;
16.3.2 The adjusted Purchase Price, less the Earnest Money Deposit,
by wire transfer in accordance with Article 3;
16.3.3 A Certificate substantially in the form of Exhibit D, executed
by an authorized representative of Buyer, certifying as to the matters
specified in Section 14.1.1.
16.3.4 Evidence of compliance with all requirements, if any, of the
Minerals Management Service and the states in which the Properties are
located for the posting of plugging or other applicable bonds relating to
the ownership or operation of the Properties; and
16.3.5 Such other instruments as are necessary to carry out Buyer's
obligations under this Agreement.
16.4 Site of Closing. Closing shall be held in Seller's offices in
Birmingham, Alabama or any other location mutually agreed in writing by Seller
and Buyer.
ARTICLE 17. MISCELLANEOUS
17.1 Notices. All notices and other communications required, permitted
or desired to be given hereunder must be in writing and sent by U.S. mail,
properly addressed as shown below, and with all postage and other charges fully
prepaid or by hand delivery or by facsimile transmission. Date of service by
mail and hand delivery is the date on which such notice is received by the
addressee and by facsimile is the date sent (as evidenced by fax machine
confirmation of receipt), or if such date is not on a Business Day, then on the
next date which is a Business Day. Each party may change its address by
notifying the other party in writing.
If to Seller Energen Resources MAQ, Inc.
by mail or hand delivery: 605 21st Street North
Birmingham, Alabama 35203
Attention: President
If to Seller Energen Resources MAQ, Inc.
by facsimile: Number: (205) 581-1858
Attention: President
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If to Buyer Bellwether Exploration Company
by mail or hand delivery: 1331 Lamar, Suite 1455
Houston, Texas 77010-3039
Attention: J. Darby Sere', President
If to Buyer Bellwether Exploration Company
by facsimile: Number: (713) 652-2916
Attention: J. Darby Sere', President
17.2 Conveyance Costs. Buyer shall be solely responsible for filing and
recording documents related to the transfer of the Properties from Seller to
Buyer and for all costs and fees associated therewith, including filing the
assignment of the Properties with appropriate federal, state and local
authorities as required by applicable Law. Promptly following Buyer's receipt
of the recorded documents, Buyer shall furnish Seller with all recording data
and evidence of all required filings.
17.3 Brokers' Fees. Neither party has retained any brokers, agents or
finders and none are affiliated with either party or authorized to act on behalf
of either party in this matter. EACH PARTY AGREES TO RELEASE, PROTECT,
INDEMNIFY, DEFEND AND HOLD THE OTHER HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS WITH RESPECT TO ANY COMMISSIONS, FINDERS' FEES OR OTHER REMUNERATION DUE
TO ANY BROKER, AGENT OR FINDER CLAIMING BY, THROUGH OR UNDER SUCH PARTY.
17.4 Further Assurances. From and after Closing, at the request of
Seller but without further consideration, Buyer will execute and deliver or use
reasonable efforts to cause to be executed and delivered such other instruments
of conveyance and take such other actions as Seller reasonably may request to
more effectively put Seller in possession of any property which was not intended
by the parties to be conveyed by Buyer. From and after Closing, at the request
of Buyer but without further consideration, Seller shall execute and deliver or
use reasonable efforts to cause to be executed and delivered such other
instruments of conveyance and take such other actions as Buyer reasonably may
request to more effectively put Buyer in possession of the Properties. If any
of the Properties are incorrectly described, the description shall be corrected
upon proof of the proper description.
17.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. UNLESS OTHERWISE
EXPRESSLY LIMITED HEREIN, ALL REPRESENTATIONS, WARRANTIES, INDEMNITIES,
COVENANTS AND AGREEMENTS CONTAINED IN THIS AGREEMENT, TO THE EXTENT NOT FULLY
PERFORMED OR WAIVED PRIOR TO CLOSING, SHALL SURVIVE THE CLOSING INDEFINITELY.
THE PARTIES HAVE MADE NO REPRESENTATIONS OR WARRANTIES EXCEPT THOSE EXPRESSLY
SET FORTH IN THIS AGREEMENT.
17.6 Amendments and Severability. No amendments or other changes to this
Agreement shall be effective or binding on either of the parties unless the same
shall be in writing and signed by both Seller and Buyer. The invalidity of any
one or more provisions of this Agreement shall not affect
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<PAGE>
the validity of this Agreement as a whole, and in case of any such invalidity,
this Agreement shall be construed as if the invalid provision had not been
included herein.
17.7 Successors and Assigns. This Agreement shall not be assigned,
either in whole or in part, without the prior express written consent of the
non-assigning party. Assignment of this Agreement by either party shall not
relieve the assigning party of liability hereunder in the event of non-
performance or breach of this Agreement by such party's assignee. The terms,
covenants and conditions contained in this Agreement shall be binding upon and
shall inure to the benefit of Seller and Buyer and their respective successors
and assigns, and such terms, covenants and conditions shall be covenants running
with the land and with each subsequent transfer or assignment of the Properties.
17.8 Headings. The titles and headings set forth in this Agreement have
been included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement.
17.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CHOICE OF LAW RULES WHICH
MAY DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. THIS PROVISION
SURVIVES TERMINATION OF THIS AGREEMENT.
17.10 No Partnership Created. It is not the purpose or intention of this
Agreement to create (and it shall not be construed as creating) a joint venture,
partnership or any type of association, and the parties are not authorized to
act as agent or principal for each other with respect to any matter related
hereto.
17.11 Public Announcements. Neither the Seller Group nor the Buyer Group
(as defined in Article 8) shall issue a public statement or press release with
respect to the transaction contemplated herein (including the price and other
terms) without the prior written consent of the other party, except as required
by Law or listing agreement with a national security exchange and then only
after prior consultation with the other party.
17.12 No Third Party Beneficiaries. Nothing contained in this Agreement
shall entitle anyone other than Seller or Buyer or their authorized successors
and assigns to any claim, cause of action, remedy or right of any kind
whatsoever.
17.13 DECEPTIVE TRADE PRACTICES. AS PARTIAL CONSIDERATION FOR THE PARTIES
AGREEING TO ENTER INTO THIS AGREEMENT, THE PARTIES EACH CAN AND DO EXPRESSLY
WAIVE THE PROVISIONS OF ALL CONSUMER PROTECTION LAWS OF THE STATE OF ALABAMA, OR
ANY OTHER STATE, APPLICABLE TO THIS TRANSACTION THAT MAY BE WAIVED BY THE
PARTIES; IT IS NOT THE INTENT OF THE PARTIES TO WAIVE AND THE PARTIES SHALL NOT
WAIVE ANY APPLICABLE LAW OR PROVISION THEREOF WHICH IS PROHIBITED BY LAW FROM
BEING WAIVED. EACH PARTY REPRESENTS TO THE OTHER THAT SUCH PARTY HAS HAD AN
ADEQUATE OPPORTUNITY TO REVIEW THE PRECEDING WAIVER PROVISION, INCLUDING THE
OPPORTUNITY TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND COMMENT, AND
UNDERSTANDS THE RIGHTS BEING WAIVED HEREIN.
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17.14 Tax Deferred Exchange Election. Either party may elect to structure
the conveyance of the Properties as part of an exchange under Article 1031 of
the Internal Revenue Code of 1986, as amended. The parties agree to execute all
documents, conveyances or other instruments necessary to effectuate an exchange.
17.15 NOT TO BE CONSTRUED AGAINST DRAFTER. THE PARTIES ACKNOWLEDGE THAT
THEY HAVE HAD AN ADEQUATE OPPORTUNITY TO REVIEW EACH AND EVERY PROVISION
CONTAINED IN THIS AGREEMENT AND TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW
AND COMMENT, INCLUDING EXPRESSLY BUT WITHOUT LIMITATION THE WAIVERS AND
INDEMNITIES IN ARTICLES 4, 6, 8, 9, AND 17. BASED ON SAID REVIEW AND
CONSULTATION, THE PARTIES AGREE WITH EACH AND EVERY TERM CONTAINED IN THIS
AGREEMENT. BASED ON THE FOREGOING, THE PARTIES AGREE THAT THE RULE OF
CONSTRUCTION THAT A CONTRACT BE CONSTRUED AGAINST THE DRAFTER, IF ANY, SHALL NOT
BE APPLIED IN THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT.
17.16 Entire Agreement. This Agreement supersedes all prior negotiations,
understandings, letters of intent and agreements (whether oral or written) and
any contemporaneous oral agreements between the parties relating to the
Properties and constitutes the entire understanding and agreement between the
parties with respect to the sale and purchase of the Properties.
17.17 CONSPICUOUSNESS OF PROVISIONS. THE PARTIES ACKNOWLEDGE THAT THE
PROVISIONS CONTAINED IN THIS AGREEMENT THAT ARE SET OUT IN "BOLD" SATISFY THE
REQUIREMENT OF THE EXPRESS NEGLIGENCE RULE AND ANY OTHER REQUIREMENT AT LAW OR
IN EQUITY THAT PROVISIONS CONTAINED IN A CONTRACT BE CONSPICUOUSLY MARKED OR
HIGHLIGHTED.
17.18 Execution in Counterparts. This Agreement may be executed in
counterparts, which shall when taken together constitute one valid and binding
agreement.
17.19 High Island Block 71. Notwithstanding any provisions herein to the
contrary, this Agreement may be partially assigned on a limited basis to a third
party identified by Buyer insofar only as to High Island Block 71 and the
Properties directly related thereto (the "HI 71 Properties") at Buyer's option,
upon written notice to Seller no later than three (3) Business Days prior the
Closing Date. In the event Buyer elects to assign its rights hereunder with
respect to the HI 71 Properties:
(i) Buyer shall provide to Seller all pertinent information necessary
for Seller to prepare the Assignment and Bill of Sale to be delivered to
and executed by the third party, which Assignment and Bill of Sale shall be
in the form attached hereto as Exhibit N;
(ii) Exhibit A of this Agreement shall be amended to delete the HI 71
Properties from the description of the Properties to which this Agreement
is subject and Buyer shall have no obligations to Seller with respect
thereto; and
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(iii) Closing with the third party and Seller shall occur
simultaneously with the Closing hereunder.
The parties have executed this Agreement on the day and year first set
forth above.
ENERGEN RESOURCES MAQ, INC.
By: /s/ James T. McManus, II
-----------------------------
James T. McManus, II
President
BELLWETHER EXPLORATION COMPANY
By: /s/ J. Darby Sere'
-----------------------------
J. Darby Sere'
President
Energen Resources Corporation hereby joins in the execution of this
Agreement for the sole purpose of evidencing its agreement to guarantee the
obligations of Seller hereunder in the event, and only in the event, that Seller
disposes of, in one or more transactions, fifty percent (50%) or more of its
assets (excluding the sale of the Properties to Buyer) during the nine (9) month
period following the Closing Date.
ENERGEN RESOURCES CORPORATION
By: /s/ James T. McManus, II
-----------------------------
James T. McManus, II
President
33
<PAGE>
EXHIBIT 10.16
SEPARATION AGREEMENT
It is hereby agreed by and between J. Darby Sere and his former employer,
Bellwether Exploration Company (hereinafter "Bellwether"), that Mr. Sere has
been released from his employment by Bellwether effective August 2, 1999
(hereinafter "Separation Date"), and that in order to resolve amicably all
matters concerning his employment and release, Mr. Sere and Bellwether, in
consideration of their mutual promises and other consideration itemized below,
hereafter enter into the following agreement:
1. Nothing stated in this Agreement, or stated or done in connection
herewith, shall constitute or indicate in any way any wrongdoing of any kind
either by Mr. Sere or Bellwether.
2. Bellwether agrees that upon execution by Mr. Sere and receipt by its
representative of this Agreement and the Release appended as Exhibit A and the
expiration of the seven (7) day revocation period provided for herein,
Bellwether will pay Mr. Sere the sum of One Million Ninety Six Thousand Two
Hundred and 00/100's Dollars ($1,096,200.00) which represents payment for three
times the sum of (1) Mr. Sere's current salary and (2) his last annual bonus.
Mr. Sere shall also be paid an amount equal to fifteen percent of his base
salary in lieu of outplacement services which is included in the $1,096,200.00
figure stated above. The payments made hereunder shall be less standard payroll
deductions for Federal Income Tax and FICA.
3. Mr. Sere shall also receive, upon the expiration of the seven (7) day
revocation period provided for herein, by reason of his execution of this
agreement the following:
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a. The immediate vesting of any of Mr. Sere's executive options to
purchase securities of Bellwether which were not vested by their own
terms on the date of termination and the extension of Mr. Sere's rights
to exercise all of his options to purchase securities of Bellwether for
a period equal to the lesser of (i) three years following the date of
termination or (ii) the remaining term of the applicable option. The
Compensation Committee of Bellwether shall execute minutes reflecting
such agreement as seen in the attached Exhibit 3(a).
b. Continued coverage, at Bellwether's cost, under Bellwether's medical,
dental and health benefits (but not life or disability insurance) for a
period of six (6) months from the date of termination.
c. The payment of $2,688.78 being the total of any of Mr. Sere's
unreimbursed expenses in the performance of his duties hereunder
through the date of termination.
d. Assignment of title to Mr. Sere's car, with Mr. Sere paying any
resulting transfer or registration fees. Mr. Sere will be liable for
any income taxes that may be due by reason of such sale or transfer, as
the case may be.
e. Bellwether hereby waives any recoupment rights against the split dollar
life insurance policy for which it currently pays premiums on behalf of
Mr. Sere. Mr. Sere shall be obligated to pay any further premiums on
such life insurance policy and any taxes that may be due by him by
reason of such assignment or
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<PAGE>
waiver. Bellwether shall execute whatever documents are necessary to
effect this agreement with the insurance company.
f. No later than September 3, 1999, Mr. Sere agrees to pay off in full an
advance on Mr. Sere's behalf under a line of credit in favor of
Bellwether, which advance is in the amount of $331,446.75 including
accrued interest as of July 31, 1999, with the execution of a non-
recourse loan from Bellwether to Mr. Sere in the amount of the advance
plus the accrued interest to the date of execution pursuant to the
terms set forth in the attached Exhibit 3(h). Such loan will be secured
by a security interest in a sufficient number of shares of Bellwether
common stock owned by Mr. Sere to fully collateralize the loan
(approximately 65,000 shares as of August 2, 1999). A draft of the
Stock Pledge Agreement is also attached as Exhibit 3(h).
4. No further payments or benefits of any kind (except those made pursuant
to Bellwether's deferred compensation plan) shall be due Mr. Sere by Bellwether
by reason of his employment or this agreement except those set forth above.
5. Mr. Sere acknowledges that during the course of his employment he has
had access to certain trade secrets of Bellwether and that such trade secrets
constitute valuable, highly confidential, special and unique property of
Bellwether, which Mr. Sere agrees not to disclose. These "trade secrets" are
drawings, specifications, computer programs, training manuals, engineering
studies, compilations of product research, marketing techniques, and files,
records and documents relating thereto. Also, the "trade secrets" include lists
of customers who utilize
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<PAGE>
Bellwether's technical services, and related customer information. However, such
customer lists do not include customers which Mr. Sere knew before he was
employed by Bellwether; neither do such customer lists include customers which
could readily be identified by someone outside the employ of Bellwether. These
"trade secrets" shall not include any information readily discernable from trade
or general circulation publications or otherwise existing or available in the
public domain. In this regard, it is expressly understood that the obligations
of paragraph 7 of the June 1, 1998 Employment Agreement with Mr. Sere shall
survive the termination of Mr. Sere's employment with the Bellwether and the
execution of the attached release.
6. Employees and directors of Bellwether shall refrain from making any
derogatory or disparaging remarks to any third party against Mr. Sere with
respect to his employment by Bellwether, his performance, his character, or any
such matters. Further, employees and directors of Bellwether shall refrain from
discussions among themselves using any such derogatory or disparaging remarks.
7. Mr. Sere shall refrain from making any derogatory or disparaging
remarks regarding his employment by Bellwether, or Bellwether's services,
management, or operations to any third party other than members of Mr. Sere's
immediate family.
8. Mr. Sere agrees that he will be reasonably available to consult and
otherwise cooperate with Bellwether after the Separation Date with respect to
matters of business for which Mr. Sere had any direct responsibility during his
employment by Bellwether. However, any such consulting or request for consulting
shall not interfere with Mr. Sere's endeavors after the Separation Date or with
his subsequent employment.
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<PAGE>
9. Mr. Sere acknowledges that he has been given a period of at least
forty-five (45) days within which to consider this Agreement and the Release to
be executed hereunder, and that these documents have been executed by him
voluntarily, with full knowledge of all relevent information and after ample
opportunity to consult with legal counsel. Mr. Sere is hereby advised to consult
with an attorney prior to entering this Agreement and the Release to be
executed hereunder. Mr. Sere and Bellwether further agree that Mr. Sere has a
period of seven (7) days following his execution of this Agreement and the
Release to be executed hereunder in which to revoke these documents by
delivering to Bellwether's undersigned representative written notice of his
revocation, and by returning the consideration conveyed herein, and that this
Agreement and the Release executed hereunder shall not become effective or
enforceable until such revocation period has expired.
10. This Agreement shall be binding on and inure to the benefit of Mr. Sere
and Bellwether as well as all of their heirs, executors, administrators,
officers, directors, employees, stockholders, successors and assigns, and all
subsidiaries, affiliates and representatives of any of the foregoing entities.
11. Bellwether and Mr. Sere agree that this Agreement and the Release shall
be construed under the laws of Texas and, if necessary, litigated in Houston,
Texas.
IN WITNESS HEREOF, the parties to this Agreement have executed this
instrument on the dates set forth below.
Date: 8/9/99 /s/ J. Darby Sere
------ -----------------------------
J. Darby Sere
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<PAGE>
Bellwether Exploration Company
Date: 9 Aug 99 By: /s/ Robert J. Bensh
-------- -----------------------------
(Name) Robert J. Bensh
(Title) Vice President, Capital Markets
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<PAGE>
EXHIBIT A
RELEASE
FOR VALUABLE CONSIDERATION PAID, receipt of which is hereby
acknowledged, J. Darby Sere, for himself, his heirs, executors, administrators,
and assigns, agrees to hereby release, acquit and forever discharge Bellwether
Exploration Company as well as each of its officers, directors, stockholders,
successors, assigns, divisions, subsidiaries, agents and employees (hereinafter
collectively "Bellwether"), of and from any and all obligations, claims,
counterclaims, third-party claims, debts, demands, covenants, contracts,
security agreements, promises, agreements, liabilities, controversies, costs,
expenses, attorneys' fees, actions, amended causes of action, or causes of
action whatsoever, whether known or unknown, suspected or unsuspected, he ever
had or now has or claims to have against Bellwether from the beginning of the
world to the day and date hereof, including specifically but not exclusively,
and without limiting the generality of the foregoing, any and all claims,
demands and causes of action, known or unknown, suspected or unsuspected,
arising out of any transaction, act or omission concerning his former employment
by Bellwether, and all claims of every kind which may arise under the federal,
state or local statutory or common law, including the federal Age
Discrimination in Employment Act; provided, however, that nothing contained
herein shall release Bellwether from the obligations spelled out in a Separation
Agreement between him and Bellwether of even date.
FOR VALUABLE CONSIDERATION GIVEN, receipt of which is hereby
acknowledged, Bellwether Exploration Company (hereinafter collectively
"Bellwether") do
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<PAGE>
hereby release, acquit, and forever discharge J. Darby Sere as well as his
heirs, executors, administrators, and assigns, of and from any and all
obligations, claims, counterclaims, third-party claims, debts, demands,
covenants, contracts, security agreements, promises, agreements, liabilities,
controversies, costs, expenses, attorneys' fees, actions, amended causes of
action, or causes of action whatsoever, whether known or unknown, suspected or
unsuspected, which Bellwether ever had or now has or claims to have against
J. Darby Sere from the beginning of the world to the day and date hereof,
including specifically but not exclusively, and without limiting the generality
of the foregoing, any and all claims, demands and causes of action, known or
unknown, suspected or unsuspected, arising out of any transaction, action or
omission concerning J. Darby Sere's former employment by Bellwether, and all
claims of every kind which may arise under any federal, state or local statutory
or common law; provided however, that nothing contained herein shall release J.
Darby Sere from the obligations spelled out in a Separation Agreement between
him and Bellwether of even date.
J. Darby Sere hereby acknowledges that he is executing this Release
pursuant to the terms of the Separation Agreement identified above, that certain
consideration provided to him pursuant to that Separation Agreement is in
addition to what he would have been entitled to receive in the absence of such
Agreement, that he has been advised to consult with an attorney in connection
with both the Separation Agreement and this Release, that he has had at least
forty-five (45) days in which to consider entering into the Separation Agreement
and providing this Release, and that he will have seven (7) days following the
execution of both the Separation
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<PAGE>
Agreement and this Release in which to revoke these documents by delivering his
written revocation to the person who executed the Separation Agreement on behalf
of Bellwether.
J. Darby Sere and Bellwether further hereby covenant and agree that this
Release shall be binding in all respects upon themselves, their heirs,
executors, administrators, assigns and transferees and all persons claiming
under them, and shall inure to the benefit of the officers, directors,
stockholders, assigns, divisions, subsidiaries, agents, employees, and
successors in interest of J. Darby Sere and Bellwether.
IN WITNESS WHEREOF, I have signed this Release this the 9th day of
August, 1999.
/s/ J. Darby Sere
-------------------------------------
J. Darby Sere
IN WITNESS WHEREOF, I have signed this Release on behalf of Bellwether
Exploration Company on this 9th day of August, 1999.
/s/ Robert J. Bensh
--------------------------------------
(Name) Robert J. Bensh
(Title) Vice President, Capital Markets
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EXHIBIT "3(a)"
BELLWETHER EXPLORATION COMPANY
Minutes of the Meeting of
The Compensation Committee
Of the Board of Directors
August 2, 1999
A meeting of the Compensation Committee ("Committee") of the Board of
Directors of Bellwether Exploration Company, a Delaware corporation ("Company")
was held on August 2, 1999 via telephone conference. Messrs. A.K. McLanahan,
Vincent H. Buckley and Dr. Jack Birks, constituting all of the members of the
Committee, were present at such meeting, after having waived notice of such
meeting.
The meeting was called to order. The Committee discussed the previous
grants of stock options to Mr. J. Darby Sere ("Mr. Sere") and Mr. William C.
Rankin ("Mr. Rankin") under the 1994 Stock Incentive Plan and the 1996 Stock
Incentive Plan, as the case may be, the dates and amounts of such grants being
set forth more fully on Exhibit "A". The plans provide, in part, that recipients
of such stock option grants must be in the continuous emloyment of the Company
for the grants to remain effective. The above individuals are leaving the
employment of the Company and in view of their valuable contributions to the
Company, it is the opinion of the Committee that their option grants should
continue, notwithstanding their departure from Company, for a period so
indicated on the attached Exhibit "A".
In furtherance thereof, upon motion duly made and seconded, the
following resolutions were unanimously adopted by the Committee:
RESOLVED, that the provisions of the 1994 and 1996 Stock Incentive Plans
and the grants made thereunder to Mr. Sere and Mr. Rankin, be waived as
to these provisions governing the termination of grants in the event
that a stock option recipient ceases working for the Company; and
FURTHER RESOLVED, that all stock options issued to Mr. Sere and Mr.
Rankin immediately vest on August 2, 1999 with a termination date so
indicated on Exhibit "A", and
<PAGE>
FURTHER RESOLVED, that the proper officers of the Company be, and each
of them hereby are, authorized and directed, for and on behalf of the
Company, to execute and deliver any and all documents and to take any
and all steps and do any and all things which they may deem necessary or
advisable in order to effectuate the purposes of the foregoing
resolutions.
IN WITNESS WHEREOF, the undersigned have executed these minutes as of
the date first written above.
/s/ Jack Birks
---------------------------
Dr. Jack Burks
/s/ Vincent H. Buckley
---------------------------
Vincent H. Buckley
---------------------------
A.K. McLanahan
<PAGE>
EXHIBIT "A"
- --------------------------------------------------------------------------------
EXP. DATE
NAME AMOUNT PLAN PRICE DATE GRANTED
- --------------------------------------------------------------------------------
J. DARBY SERE 120,000 1994 $ 5.6250 8/2/02 6/30/94
25,000 1994 $ 5.75 8/2/02 5/26/95
55,000 1996 $ 6.2500 8/2/02 9/16/96
23,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
54,000 1996 $ 6.25 8/2/02 10/5/98
- --------------------------------------------------------------------------------
WILLIAM C. RANKIN 30,000 1994 $ 3.344 8/2/01 3/26/99
24,000 1996 $ 6.25 8/2/01 10/5/98
9,400 1996 $10.6250 8/2/01 11/21/97
9,400 1996 $10.6250 8/2/01 11/21/97
9,400 1996 $10.6250 8/2/01 11/21/97
9,400 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 3(i)
(PART ONE)
NONRECOURSE PROMISSORY NOTE
$ __________ HOUSTON, TEXAS _______________, 1999
FOR VALUE RECEIVED, J. DARBY SERE ("Mr. Sere"), promises to pay to the
order of BELLWETHER EXPLORATION COMPANY (together with any subsequent holder of
this Note, "Bellwether"), at its offices at 1221 Lamar, Suite 1600, Houston,
Texas 77020-3039, the sum of ___________________________________________ DOLLARS
(or such lesser sum as shall then be outstanding hereunder), together with
interest on the unpaid principal balance from time to time outstanding at SEVEN
PERCENT (7%) per annum. All past-due principal and accrued interest thereon
shall, at the option of Bellwether, bear interest from maturity (stated or by
acceleration) until paid at the Highest Lawful Rate (as hereinafter defined).
1. Payments. The principal of this Note and all unpaid, accrued interest
hereon is payable in full on the third anniversary of this Note. If any payment
is due on a day which is not a Business Day, Mr. Sere shall be entitled to delay
such payment until the next Business Day, but interest shall continue to accrue
until the payment is in fact made. Each payment or prepayment hereon must be
paid at the address of Bellwether set forth above in lawful and freely
transferable money of the United States of America and in funds which are
available for immediate use by Bellwether at such office by noon (Houston time)
on the day due, without setoff or counterclaim. "BUSINESS DAY" means every day
on which banks in Texas are open for banking business.
2. Prepayments. Mr. Sere may prepay the principal of and accrued interest
on this Note from time to time at any time, in whole or in part, without premium
or penalty.
3. Security. This Note is secured by a Stock Pledge Agreement from Mr.
Sere to Bellwether dated ___________, 1999.
4. Order of Application. All payments and prepayments on this Note shall
be applied by Bellwether as follows: first, to accrued interest; and second, to
principal.
5. Default. The term "DEFAULT" means: (a) The failure or refusal of Mr.
Sere to make any payment hereunder when due or to comply with any provision
herein; (b) a default under any document relating to the security described in
Paragraph 3; (c) the discovery by Bellwether that any statement by Mr. Sere
herein or in connection herewith is false or misleading; or (d) Mr. Sere becomes
insolvent, fails to pay his debts generally as they become due or becomes the
subject of any proceeding under any debtor relief law. In the event of a
Default, Bellwether may (i) declare the entire unpaid balance of this Note, or
any part hereof, immediately due and payable, whereupon it shall be due and
payable (provided that, upon the occurrence of a Default under clause (c) above,
this Note shall automatically become due and payable without notice or other
action of any kind), (ii) offset against this Note any sum or sums owed by
Bellwether to Mr. Sere, and (iii) proceed to protect and enforce any other legal
or equitable right or remedy. No delay on the part of Bellwether in the exercise
of any power or right or single or partial exercise of any such power or right,
under this Note or any other instrument executed in connection
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<PAGE>
herewith, shall operate as a waiver thereof. Enforcement of any security for
this Note shall not constitute an election of remedies so as to preclude the
exercise of any other remedy.
6. Waiver. Mr. Sere and each other party ever liable for the payment of
any sum hereunder jointly and severally waive demand, presentment, protest,
notice of nonpayment, notice of intention to accelerate, notice of protest and
any and all lack of diligence or delay in collection or the filing of suit
hereon which may occur, and agree that their liability regarding this note shall
not be affected by any renewal, extension, indulgence or any release or change
in security, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes, regardless of the number thereof.
7. Attorneys' Fees and Costs. In this Note is placed in the hands of an
attorney for collection, or if this Note is collected in whole or in part
through legal proceedings of any nature. Subject to the Nonrecourse Clause in
Paragraph 13 below, Mr. Sere shall pay all costs of collection, including but
not limited to reasonable attorneys' fees incurred by Bellwether whether or not
suit is filed.
8. Notices. Any notice or demand given hereunder by Bellwether shall be
deemed to have been given and received (a) when actually received by Mr. Sere,
if delivered in person, or (b) if mailed to the address below (whether ever
received or not), two Business Days after deposit in the U.S. Mail, postage
prepaid.
9. Governing Law. This Note is intended to be performed in Texas and the
laws of Texas shall govern its validity, enforcement and interpretation.
Bellwether and Mr. Sere each hereby irrevocably submits to the nonexclusive
jurisdiction of the state and federal courts of the State of Texas and
irrevocably waives any objection to venue or claim of an inconvenient forum with
respect to the district courts of Harris County, Texas, or the U.S. District
Court for the Southern District of Texas (Houston Division) in any dispute
related to this Note, and irrevocably consents to the service of process out of
any of such courts by postage prepaid certified mail to its address below.
10. Headings. The headings herein are for convenience only and shall not be
deemed a part hereof.
11. Successors and Assigns. All agreements in this note shall bind each
party's successors and assigns (provided, however, that Mr. Sere may not,
without the prior consent of Bellwether, assign any rights, powers or
obligations under this note).
12. Maximum Interest Rate. Regardless of any provision contained herein or
in any document related hereto, Bellwether shall never be entitled to receive,
collect or apply as interest any amount in excess of the Highest Lawful Rate. In
the event Bellwether ever receives, collects or applies as interest any such
excess, it shall be deemed a partial prepayment of principal and treated
hereunder as such and, if the principal hereof is paid in full, any remaining
excess shall be refunded to Mr. Sere." HIGHEST LAWFUL RATE" means the maximum
rate of interest which Bellwether is allowed to contract for, charge, take,
reserve or receive under applicable law after taking into account, to the extent
required by applicable law, any and all relevant payments or charges hereunder.
Page 2 of 3
<PAGE>
13. Nonrecourse Clause. Notwithstanding anything to the contrary contained
herein or in the Stock Pledge Agreement or in any other instrument executed in
connection herewith or therewith, there shall be no personal liability on Mr.
Sere, or on his successors or assigns, to pay the indebtedness evidenced by this
Note. Bellwether shall only look to the Collateral under the Stock Pledge
Agreement to pay any principal and interest due under this Note, as well as any
costs of collection or attorneys fees.
14. Entirety and Amendments. This Note represents the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements by the parties. There are no
unwritten oral agreements between the parties. This note embodies the entire
written agreement between the parties, supersedes all prior written agreements
and understandings, if any, relating to the subject matter hereof, and may be
amended only by an instrument in writing executed jointly by Bellwether and Mr.
Sere.
Address:
3618 Robinhood -----------------------------------
Houston, Texas 77005 J. DARBY SERE
Page 3 of 3
<PAGE>
EXHIBIT 3(ii)
(Part Two)
STOCK PLEDGE AGREEMENT
THIS AGREEMENT is executed as of ___________, 1999, by J. Darby Sere
("Pledgor") for the benefit of BELLWETHER EXPLORATION COMPANY (together with
its successors and assigns, "Bellwether").
FOR VALUABLE CONSIDERATION, the receipt and adequacy of which are hereby
acknowledged, Pledgor agrees with Bellwether as follows:
1. Reference to Note. This agreement is being executed and delivered
pursuant to the terms and conditions of the $________ Nonrecourse Promissory
Note dated _______, 1999, made by Pledgor and payable to the order of Bellwether
(as the same may hereafter be renewed, extended, amended or supplemented, the
"Note").
2. Security Interest. In order to secure the full and complete payment
and performance of all indebtedness, liabilities and obligations owed by Pledgor
to Bellwether under the Note and all indebtedness, liabilities and obligations
of Pledgor arising under this agreement (the "Obligation") when due, Pledgor
hereby grants to Bellwether a security interest in, and pledges and assigns to
Bellwether, the following items and types of property (the "Collateral"): (a)
65,000 shares of Bellwether's common stock (the "Stock"), and (b) all cash and
noncash proceeds of the Stock.
3. Representations and Warranties. Pledgor represents and warrants to
Bellwether that:
(a) Pledgor's address is as specified opposite its signature below
and is where Pledgor is entitled to receive notices hereunder.
(b) The Stock is duly authorized, validly issued, fully paid and
non-assessable, and the transfer thereof is not subject to any restrictions
other than restrictions imposed by applicable securities and corporate laws.
(c) Pledgor owns the Stock free and clear of all liens.
4. Covenants. Pledgor shall:
(a) Promptly notify Bellwether of any change in any fact or
circumstances represented or warranted by Pledgor with respect to any of the
Collateral.
(b) Promptly notify Bellwether of any claim, action or proceeding
affecting the security interest granted and the pledge and assignment made under
Paragraph 2 (the "Security Interest") or title to all or any of the Collateral
and, at the request of Bellwether, appear in and defend, at Pledgor's expense,
any such action or proceeding.
(c) Not sell or otherwise dispose of the Collateral.
(d) Not create, incur or suffer to exist any other lien upon the
Collateral.
<PAGE>
(e) At Pledgor's expense and Bellwether's request, file or cause to
be filed such applications and take such other actions as Bellwether may request
to obtain the consent or approval of any tribunal to Bellwether's rights
hereunder, including, without limitation, the right to sell at the Collateral
upon a Default (as defined in the Note) without additional consent or approval
from such tribunal (and, because Pledgor agrees that Bellwether's remedies at
law for failure of Pledgor to comply with this provision would be inadequate and
that such failure would not be adequately compensable in damages, Pledgor agrees
that its covenants in this provision may be specifically enforced).
(f) From time to time, promptly execute and deliver to Bellwether
all such other assignments, certificates, supplemental documents and financing
statements, and do all other acts or things as Bellwether may reasonably
request in order to more fully create, evidence, perfect, continue and preserve
the priority of the Security Interest.
(g) Not relocate Pledgor's address unless prior thereto Pledgor (i)
gives Bellwether at least 30 days prior written notice of such relocation (such
notice to include, without limitation, the name of the county or parish and
state into which such relocation is to be made), and (ii) executes and delivers
all such additional documents and performs all additional acts as Bellwether may
request in its sole discretion in order to continue or maintain the existence
and priority of the Security Interest in such Collateral.
5. Default; Remedies. If a Default exists, Bellwether may, at its
election, exercise any and all rights available to a secured party under the
Uniform Commercial Code as enacted in Texas or any other applicable
jurisdiction, as amended at the time in question (the "UCC"), in addition to any
and all other rights afforded by the Note, at law, in equity, or otherwise,
including, without limitation, applying by appropriate judicial proceedings for
appointment of a receiver for all or part of the Collateral (and Pledgor hereby
consents to any such appointment).
(a) Notice. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be
made, shall be sent to Pledgor and to any other person entitled to notice under
the UCC; provided that if any of the Collateral threatens to decline speedily in
value or is of the type customarily sold on a recognized market, Bellwether may
sell or otherwise dispose of the Collateral without notification, advertisement,
or any other notice of any kind. It is agreed that notice sent or given not less
than five calendar days prior to the taking of the action to which the notice
relates is reasonable for the purposes of this subparagraph.
(b) Sales of Securities. In connection with the sale of the Stock,
Bellwether is authorized, but not obligated, to limit prospective purchasers to
the extent deemed necessary by Bellwether to render such sale exempt from the
registration requirements of the Securities Act of 1933, as amended, and any
applicable state securities laws, and no sale so made in good faith by
Bellwether shall be deemed not to be "commercially reasonable" because so made.
(c) Application of Proceeds. Bellwether shall apply the proceeds of
any sale or other disposition of the Collateral under this Paragraph 5 in the
following order: First, to the payment of all its expenses incurred in retaking,
holding and preparing any of the Collateral for sale(s) or other disposition, in
arranging for such sale(s) or other disposition, and in actually selling or
disposing of the same (all of which are part of the Obligation); second, toward
repayment of amounts expended by Bellwether under Paragraph 6; and third, toward
payment of the balance of the Obligation in such order and manner as Bellwether,
in its discretion, may deem advisable. Any surplus remaining shall be delivered
to Pledgor or as a court of competent
2
<PAGE>
jurisdiction may direct. Bellwether shall only look to the Collateral to pay any
principal and interest due under the Note, as well as any costs of collection or
attorneys' fees.
6. Other Rights of Bellwether.
(a) Performance. In the event Pledgor shall fail to perform any of
its obligations hereunder with respect to the Collateral, then Bellwether may,
at its option, but without being required to do so, take such action. Any sum
expended or paid by Bellwether under this subparagraph (including, without
limitation, court costs and attorneys' fees) shall bear interest from the dates
of expenditure or payment at the Highest Lawful Rate (as defined in the Note)
until paid and, together with such interest, shall be payable by Pledgor to
Bellwether upon demand and shall be part of the Obligation.
(b) Record Ownership of Securities. If a Default exists, Bellwether
may have the Stock registered in its name, or in the name of its nominee or
nominees.
(c) Voting of Securities. So long as no Default has occurred,
Pledgor shall be entitled to exercise all voting rights pertaining to the Stock.
If a Default exists, the right to vote the Stock shall be vested exclusively in
Bellwether. To this end, Pledgor irrevocably appoints Bellwether the proxy and
attorney-in-fact of Pledgor, with full power of substitution, to vote and to act
with respect to the Stock, subject to the understanding that such proxy may not
be exercised unless a Default exists. The proxy herein granted is coupled with
an interest, is irrevocable, and shall continue until the Obligation has been
paid and performed in full.
(d) Certain Proceeds. Any and all stock dividends or distributions
in property made on in respect of the Stock, and any proceeds of the Stock,
whether such dividends, distributions, or proceeds result from a subdivision,
combination or reclassification of the outstanding capital stock of Bellwether
or as a result of any merger, consolidation, acquisition or other exchange of
assets to which Bellwether may be a party, or otherwise, shall be a part of the
Collateral hereunder, shall, if received by Pledgor, be held in trust for the
benefit of Bellwether, and shall forthwith be delivered to Bellwether
(accompanied by proper instruments of assignment and/or stock and/or bond powers
executed by Pledgor in accordance with Bellwether's instructions) to be held
subject to the terms hereof. Any cash proceeds of Collateral which come into the
possession of Bellwether may, at Bellwether's option, be applied in whole or in
part to the Obligation (to the extent then due), be released in whole or in part
to or on the written instructions of Pledgor for any general or specific
purpose, or be retained in whole or in part by Bellwether as additional
Collateral.
7. Miscellaneous.
(a) Governing Law. This agreement is intended to be performed in
Texas and the laws of Texas shall govern its construction, validity, enforcement
and interpretation.
(b) Term. Upon full and final payment and performance of the
Obligation, this agreement shall thereafter terminate upon receipt by Bellwether
of Pledgor's written notice of such termination.
(c) Actions Not Releases. The Security Interest and Pledgor's
obligations shall not be affected by the occurrence of any one or more of the
following events: (i) The acceptance of any other security for the Obligation;
(ii) any release, surrender, exchange, subordination or loss of any security for
the Obligation; (iii) the modification of, amendment to, or waiver of compliance
with any terms of the Note; (iv) the
3
<PAGE>
insolvency, bankruptcy or lack of corporate or trust power of any party at any
time liable for the payment of any or all of the Obligation; (v) any renewal,
extension, or rearrangement of the payment of any or all of the Obligation or
any adjustment, indulgence, forbearance or compromise that may be granted or
given by Bellwether to Pledgor; (vi) any neglect, delay, omission, failure or
refusal of Bellwether to take or prosecute any action in connection with any
other instrument evidencing or securing the Obligation; (vii) the illegality,
invalidity or unenforceability of all or any part of the Obligation against any
party obligated with respect thereto by reason of the fact that the Obligation,
or the interest paid or payable with respect thereto, exceeds the amount
permitted by law, the act of creating the Obligation, or any part thereof, is
ultra vires, or the persons creating same acted in excess of their authority, or
for any other reason; or (viii) if any payment by any party obligated with
respect thereto is held to constitute a preference under applicable laws or for
any other reason Bellwether is required to refund such payment or pay the amount
thereof to someone else.
(d) Waivers. Pledgor waives (i) any right to require Bellwether to
proceed against any other person, to exhaust its rights in the Collateral, or to
pursue any other right which Bellwether may have; (ii) with respect to the
Obligation, presentment and demand for payment, protest, notice of protest and
nonpayment and notice of the intention to accelerate; and (iii) all rights of
marshaling.
(e) Financing Statement. Bellwether shall be entitled at any time
to file this agreement (or a copy) as a UCC financing statement, but the failure
of Bellwether to do so shall not impair the validity or enforceability of this
agreement.
(f) Amendments. This agreement may be amended only by an instrument
in writing executed jointly by Pledgor and Bellwether.
(g) Multiple Counterparts. This agreement has been executed in a
number of identical counterparts, each of which shall be deemed an original for
all purposes and all of which constitute, collectively, one agreement;
but, in making proof of this agreement, it shall not be necessary to produce or
account for more than one such counterpart.
(h) Parties Bound; Assignment. This agreement shall be binding on
each party's successors and assigns; provided that Pledgor may not, without the
prior written consent of Bellwether, assign any rights, duties, or obligations
hereunder.
EXECUTED as of the day and year first herein set forth.
ADDRESS:
3618 Robinhood _______________________________________
Houston, Texas 77005 J. DARBY SERE
4
<PAGE>
EXHIBIT 10.17
SEPARATION AGREEMENT
It is hereby agreed by and between William C. Rankin and his former
employer, Bellwether Exploration Company (hereinafter "Bellwether"), that Mr.
Rankin has been released from his employment by Bellwether effective August 2,
1999 (hereinafter "Separation Date"), and that in order to resolve amicably all
matters concerning his employment and release, Mr. Rankin and Bellwether, in
consideration of their mutual promises and other consideration itemized below,
hereafter enter into the following agreement:
1. Nothing stated in this Agreement, or stated or done in connection
herewith, shall constitute or indicate in any way any wrongdoing of any kind
either by Mr. Rankin or Bellwether.
2. Bellwether agrees that upon execution by Mr. Rankin and receipt by its
representative of this Agreement and the Release appended as Exhibit A and the
expiration of the seven (7) day revocation period provided for herein,
Bellwether will pay Mr. Rankin the sum of Four Hundred Eighty Six Thousand Five
Hundred Forty and 00/100's Dollars ($486,540) which represents payment for two
times the sum of (1) Mr. Rankin's current salary and (2) his last annual bonus.
Mr. Rankin shall also be paid an amount equal to fifteen percent of his base
salary in lieu of outplacement services which is included in the $486,540 figure
stated above. The payments made hereunder shall be less standard payroll
deductions for Federal Income Tax and FICA.
3. Mr. Rankin shall also receive, upon the expiration of the seven (7) day
revocation period provided for herein, by reason of his execution of this
agreement the following:
-1-
<PAGE>
a. The immediate vesting of any of Mr. Rankin's executive options to purchase
securities of Bellwether which were not vested by their own terms on the date
of termination and the extension of Mr. Rankin's rights to exercise all of
his options to purchase securities of Bellwether for a period equal to the
lesser of (i) two years following the date of termination or (ii) the
remaining term of the applicable option. The Compensation Committee of
Bellwether shall execute minutes reflecting such agreement as seen in the
attached Exhibit 3(a).
b. Continued coverage, at Bellwether's cost, under Bellwether's medical, dental
and health benefits (but not life or disability insurance) for a period of
six (6) months from the date of termination.
c. The payment of $335.17 being the total of any of Mr. Rankin's unreimbursed
expenses in the performance of his duties hereunder through the date of
termination.
d. Assignment of title to Mr. Rankin's car, with Mr. Rankin paying any resulting
transfer or registration fee. The pay-off on such automobile is currently
$30,127.42. Mr. Rankin will be liable for any income taxes that may be due by
reason of such sale or transfer, as the case may be.
e. As consideration for this agreement, Bellwether also agrees that Mr. Rankin
shall be assigned the computer that Mr. Rankin had been using during his
tenure with Bellwether.
-2-
<PAGE>
4. No further payments or benefits of any kind (except those made pursuant
to Bellwether's deferred compensation plan) shall be due Mr. Rankin by
Bellwether by reason of his employment or this agreement except those set forth
above.
5. Mr. Rankin acknowledges that during the course of his employment he has
had access to certain trade secrets of Bellwether and that such trade secrets
constitute valuable, highly confidential, special and unique property of
Bellwether, which Mr. Rankin agrees not to disclose. These "trade secrets" are
drawings, specifications, computer programs, training manuals, engineering
studies, compilations of product research, marketing techniques, and files,
records and documents relating thereto. Also, the "trade secrets" include lists
of customers who utilize Bellwether's technical services, and related customer
information. However, such customer lists do not include customers which Mr.
Rankin knew before he was employed by Bellwether; neither do such customer lists
include customers which could readily be identified by someone outside the
employ of Bellwether. These "trade secrets" shall not include any information
readily discernable from trade or general circulation publications or otherwise
existing or available in the public domain. In this regard, it is expressly
understood that the obligations of paragraph 7 of the June 1, 1998 Employment
Agreement with Mr. Rankin shall survive the termination of Mr. Rankin's
employment with Bellwether and the execution of the attached release.
6. Employees and directors of Bellwether shall refrain from making any
derogatory or disparaging remarks to any third party against Mr. Rankin with
respect to his employment by Bellwether, his performance, his character, or any
such matters. Further, employees and
-3-
<PAGE>
directors of Bellwether shall refrain from discussions among themselves using
any such derogatory or disparaging remarks.
7. Mr. Rankin shall refrain from making any derogatory or disparaging
remarks regarding his employment by Bellwether, or Bellwether's service,
management, or operations to any third party other than members of Mr. Rankin's
immediate family.
8. Mr. Rankin agrees that he will be reasonably available to consult and
otherwise cooperate with Bellwether after the Separation Date with respect to
matters of business for which Mr. Rankin had any direct responsibility during
his employment by Bellwether. However, any such consulting or request for
consulting shall not interfere with Mr. Rankin's endeavors after the Separation
Date or with his subsequent employment.
9. Mr. Rankin acknowledges that he has been given a period of at least
forty-five (45) days within which to consider this Agreement and the Release to
be executed hereunder, and that these documents have been executed by him
voluntarily, with full knowledge of all relevant information and after ample
opportunity to consult with legal counsel. Mr. Rankin is hereby advised to
consult with an attorney prior to entering this Agreement and the Release to be
executed hereunder. Mr. Rankin and Bellwether further agree that Mr. Rankin has
a period of seven (7) days following his execution of this Agreement and the
Release to be executed hereunder in which to revoke these documents by
delivering to Bellwether's undersigned representative written notice of his
revocation, and by returning the consideration conveyed herein, and that this
Agreement and the Release executed hereunder shall not become effective or
enforceable until such revocation period has expired.
-4-
<PAGE>
10. This Agreement shall be binding on and inure to the benefit of Mr.
Rankin and Bellwether as well as all of their heirs, executors, administrators,
officers, directors, employees, stockholders, successors and assigns, and all
subsidiaries, affiliates and representatives of any of the foregoing entities.
11. Bellwether and Mr. Rankin agree that this Agreement and the Release
shall be construed under the laws of Texas and, if necessary, litigated in
Houston, Texas.
IN WITNESS HEREOF, the parties to this Agreement have executed this
instrument on the dates set forth below.
Date: August 9, 1999 /s/ William C. Rankin
---------------------------------
William C. Rankin
Bellwether Exploration Company
Date: 9 August 1999 By: /s/ Robert J. Bensh
------------------------------
(Name) Robert J. Bensh
(Title) Vice President, Capital Markets
-5-
<PAGE>
EXHIBIT A
RELEASE
FOR VALUABLE CONSIDERATION PAID, receipt of which is hereby acknowledged,
William C. Rankin, for himself, his heirs, executors, administrators, and
assigns, agrees to hereby release, acquit and forever discharge Bellwether
Exploration Company as well as each of its officers, directors, stockholders,
successors, assigns, divisions, subsidiaries, agents and employees (hereinafter
collectively "Bellwether"), of and from any and all obligations, claims,
counterclaims, third-party claims, debts, demands, covenants, contracts,
security agreements, promises, agreements, liabilities, controversies, costs,
expenses, attorneys' fees, actions, amended cause of action, or causes of action
whatsoever, whether known or unknown, suspected or unsuspected, he ever had or
now has or claims to have against Bellwether from the beginning of the world to
the day and date hereof, including specifically but not exclusively, and without
limiting the generality of the foregoing, any and all claims, demands and causes
of action, known or unknown, suspected or unsuspected, arising out of any
transaction, act or omission concerning his former employment by Bellwether, and
all claims of every kind which may arise under any federal, state or local
statutory or common law, including the federal Age Discrimination in Employment
Act; provided, however, that nothing contained herein shall release Bellwether
from the obligations spelled out in a Separation Agreement between him and
Bellwether of even date.
FOR VALUABLE CONSIDERATION GIVEN, receipt of which is hereby acknowledged,
Bellwether Exploration Company (hereinafter collectively "Bellwether") do
-1-
<PAGE>
hereby release, acquit, and forever discharge William C. Rankin as well as his
heirs, executors, administrators, and assigns, of and from any and
all obligations, claims, counterclaims, third-party claims, debts, demands,
covenants, contracts, security agreements, promises, agreements, liabilities,
controversies, costs, expenses, attorneys' fees, actions, amended causes of
action, or causes of action whatsoever, whether known or unknown, suspected or
unsuspected, which Bellwether ever had or now has or claims to have against
William C. Rankin from the beginning of the world to the day and date hereof,
including specifically but not exclusively, and without limiting the generality
of the foregoing, any and all claims, demands and causes of action, known or
unknown, suspected or unsuspected, arising out of any transaction, action or
omission concerning William C. Rankin's former employment by Bellwether, and all
claims of every kind which may arise under any federal, state or local statutory
or common law; provided however, that nothing contained herein shall release
William C. Rankin from the obligations spelled out in a Separation Agreement
between him and Bellwether of even date.
William C. Rankin hereby acknowledges that he is executing this Release
pursuant to the terms of the Separation Agreement identified above, that certain
consideration provided to him pursuant to that Separation Agreement is in
addition to what he would have been entitled to receive in the absence of such
Agreement, that he has been advised to consult with an attorney in connection
with both the Separation Agreement and this Release, that he has had at least
forty-five (45) days in which to consider entering into the Separation Agreement
and providing this Release, and that he will have seven (7) days following the
execution of both the Separation
-2-
<PAGE>
Agreement and this Release in which to revoke these documents by delivering his
written revocation to the person who executed the Separation Agreement on behalf
of Bellwether.
William C. Rankin and Bellwether further hereby covenant and agree that
this Release shall be binding in all respects upon themselves, their heirs,
executors, administrators, assigns and transferees and all persons claiming
under them, and shall inure to the benefit of the officers, directors,
stockholders, assigns, divisions, subsidiaries, agents, employees, and
successors in interest of William C. Rankin and Bellwether.
IN WITNESS WHEREOF, I have signed this Release this the 9th day of August,
1999.
/s/ William C. Rankin
-----------------------------
William C. Rankin
IN WITNESS WHEREOF, I have signed this Release on behalf of Bellwether
Exploration Company on this 9th day of August, 1999.
/s/ Robert J. Bensh
---------------------------------------
(Name) Robert J. Bensh
(Title) Vice President, Capital Markets
-3-
<PAGE>
EXHIBIT "3(a)"
BELLWETHER EXPLORATION COMPANY
Minutes of the Meeting of
The Compensation Committee
Of the Board of Directors
August 2, 1999
A meeting of the Compensation Committee ("Committee") of the Board of
Directors of Bellwether Exploration Company, a Delaware corporation ("Company")
was held on August 2, 1999 via telephone conference. Messrs. A.K. McLanahan,
Vincent H. Buckley and Dr. Jack Birks, constituting all of the members of the
Committee, were present at such meeting, after having waived notice of such
meeting.
The meeting was called to order. The Committee discussed the previous
grants of stock options to Mr. J. Darby Sere ("Mr. Sere") and Mr. William C.
Rankin ("Mr. Rankin") under the 1994 Stock Incentive Plan and the 1996 Stock
Incentive Plan, as the case may be, the dates and amounts of such grants being
set forth more fully on Exhibit "A". The plans provide, in part, that recipients
of such stock option grants must be in the continuous employment of the Company
for the grants to remain effective. The above individuals are leaving the
employment of the Company and in view of their valuable contributions to the
Company, it is the opinion of the Committee that their option grants should
continue, notwithstanding their departure from the Company, for a period so
indicated on the attached Exhibit "A".
In furtherance thereof, upon motion duly made and seconded, the following
resolutions were unanimously adopted by the Committee.
RESOLVED, that the provisions of the 1994 and 1996 Stock Incentive Plans
and the grants made thereunder to Mr. Sere and Mr. Rankin, be waived as to
those provisions governing the termination of grants in the event that a
stock option recipient ceases working for the Company; and
FURTHER RESOLVED, that all stock options issued to Mr. Sere and Mr. Rankin
immediately vest on August 2, 1999 with a termination date so indicated on
Exhibit "A"; and
<PAGE>
FURTHER RESOLVED, that the proper officers of the Company be, and each of
them hereby are, authorized and directed, for and on behalf of the Company,
to execute and deliver any and all documents and to take any and all steps
and do any and all things which they may deem necessary or advisable in
order to effectuate the purposes of the foregoing resolutions.
IN WITNESS WHEREOF, the undersigned have executed these minutes as of the
date first written above.
/s/ Jack Birks
-------------------------------
Dr. Jack Birks
/s/ Vincent H. Buckley
-------------------------------
Vincent H. Buckley
-------------------------------
A. K. McLanahan
<PAGE>
EXHIBIT "A"
EXP. DATE
NAME AMOUNT PLAN PRICE DATE GRANTED
---- ------ ---- ----- ---- -------
J. DARBY SERE 120,000 1994 $ 5.6250 8/2/02 6/30/94
25,000 1994 $ 5.75 8/2/02 5/26/95
55,000 1996 $ 6.2500 8/2/02 9/16/96
23,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
8,000 1996 $12.3750 8/2/02 9/10/97
54,000 1996 $ 6.25 8/2/02 10/5/98
WILLIAM C. RANKIN 30,000 1994 $ 3.344 8/2/01 3/26/99
24,000 1996 $ 6.25 8/2/01 10/5/98
9,400 1996 $10.6250 8/2/01 11/21/97
9,400 1996 $10.6250 8/2/01 11/21/97
9,400 1996 $10.6250 8/2/01 11/21/97
9,400 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
15,600 1996 $10.6250 8/2/01 11/21/97
<PAGE>
BELLWETHER EXPLORATION COMPANY
EXHIBIT 21.1
SUBSIDIARIES OF BELLWETHER EXPLORATION COMPANY
State (Country) of
Incorporation
Snyder Gas Plant Venture Texas
West Monroe Gas Gathering Corporation Louisiana
NGL-Torch Gas Plant Venture Texas
Black Hawk Oil Company Delaware
Bellwether International, Inc. Delaware
Bellwether Cayman, Inc. The Cayman Islands
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 1,262 1,262
<SECURITIES> 0 0
<RECEIVABLES> 12,837 12,837
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,575 15,575
<PP&E> 331,446 331,446
<DEPRECIATION> (208,985) (208,985)
<TOTAL-ASSETS> 142,447 142,447
<CURRENT-LIABILITIES> 12,520 12,520
<BONDS> 100,000 100,000
0 0
0 0
<COMMON> 142 142
<OTHER-SE> 13,185 13,185
<TOTAL-LIABILITY-AND-EQUITY> 142,447 142,447
<SALES> 26,751 14,024
<TOTAL-REVENUES> 28,495 15,264
<CGS> 21,069 10,777
<TOTAL-COSTS> 29,656 15,141
<OTHER-EXPENSES> 2,868 1,474
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,719 2,890
<INCOME-PRETAX> (1,161) 123
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,161) 123
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,161) 123
<EPS-BASIC> (0.08) 0.01
<EPS-DILUTED> (0.08) 0.01
</TABLE>
