------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[root] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From...................... to.....................
Commission File Number 1-8287
RIO GRANDE, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 74-1973357
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10101 Reunion Place, Suite 210, San Antonio, Texas 78216-4156
(Address of Principal Executive Office) (Zip Code)
Issuer's Telephone Number Including Area Code: 210-308-8000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
[root] No .
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
At December 13, 1996 there were 5,552,760 shares of the registrant's common
stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
RIO GRANDE, INC. AND SUBSIDIARIES
Condensed Combined Balance Sheet
(Dollars in thousands)
(unaudited)
October 31,
1996
Assets
Current assets:
Cash and cash equivalents $ 501
Trade receivables 849
Prepaid expenses 12
Total current assets 1,362
Property and equipment, at cost 11,502
Less accumulated depreciation, depletion and amortization 3,471
Net property and equipment 8,031
Platform abandonment fund 1,002
Other assets, net 301
$10,696
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 480
Accrued expenses 212
Current installments of long-term debt 1,751
Total current liabilities 2,443
Accrued platform abandonment expense 984
Minority interest in combined limited partnership 103
Long-term debt, excluding current installments 5,590
Total liabilities 9,120
Shareholders' equity
Common stock 56
Additional paid in capital 1,029
Retained earnings 491
Total shareholders' equity 1,576
$10,696
See accompanying notes to condensed combined financial statements.
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<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Condensed Combined Statements of Operations
(Dollars in thousands)
(unaudited)
Three Months Nine Months
Ended Ended
October 31, October 31,
------------ --------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Oil and gas sales 1,340 777 3,733 2,706
----- ---- ----- ------
Costs and expenses:
Lease operating and other
production expense 683 472 1,830 1,458
Dry hole costs and lease
abandonments -0- 2 190 1
Depreciation, depletion and
amortization 316 332 857 1,009
Provisions for abandonment
expense (30) 45 60 135
General and administrative 280 329 935 978
----- ----- ----- ------
Total costs and expenses 1,249 1,180 3,872 3,581
----- ----- ----- ------
Earnings (Loss) from operations 91 (403) (139) (875)
----- ----- ----- ------
Other income (expenses):
Interest expense (222) (71) (489) (214)
Interest income 28 20 52 37
Gain on sale of assets 226 47 361 1,249
Other (net) 2 4 5 (7)
Minority interest in equity of
combined limited partnership (20) 41 (65) (168)
----- ----- ----- ------
Total other income (expense) 14 41 (136) 897
----- ----- ----- ------
Earnings (loss) before income taxes 105 (362) (275) 22
Income taxes 2 2 6 5
----- ----- ----- ------
Net earnings (loss) $ 103 (364) (281) 17
======= ======= ======== ======
Net earnings (loss) per common and
common equivalent share $ .02 (0.06) (0.05) 0.00
======= ======= ======== ======
Weighted average common and
common equivalent shares
outstanding 5,368,505 5,927,760 5,368,505 5,927,760
========= ========= ========= =========
See accompanying notes to condensed combined financial statements.
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<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
Condensed Combined Statements of Cash Flows
(Dollars in thousands)
(unaudited)
Nine Months
Ended October 31,
1996 1995
Cash flows from operating activities:
Earnings (loss) from continuing operations $ (281) 17
Adjustments to reconcile earnings from continuing
operations to net cash used in operating activities:
Depreciation and other amortization 136 52
Depletion of oil and gas producing properties 721 957
Provision for abandonment expense 60 135
Gain on sale of assets (361) (1,249)
Minority interest in equity of limited partnership 65 168
(Increase) decrease in trade receivables (212) 249
(Increase) decrease in prepaid expenses 2 20
Increase (decrease) in accounts payable and accrued
expenses (11) 170
Increase (decrease) in accrued platform abandonment
expense (115) (313)
-------- ----------
Net cash provided by (used in) continuing operating
activities 4 206
-------- ----------
Cash flows from investing activities:
Purchase of oil and gas producing properties (4,757) (512)
Purchase of other property and equipment (49) (33)
Deletions from (additions to) platform abandonment fund 33 59
Deletions from (additions to) other assets (198) (147)
Proceeds from sale of property and equipment 699 1,822
-------- ---------
Net cash provided by (used in) investing activities (4,272) 1,189
-------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 5,386 2,031
Repayment of long-term debt (1,729) (1,232)
Distributions to limited partners (132) (420)
-------- ---------
Net cash provided by (used in) financing activities 3,525 379
-------- ---------
Net increase (decrease) in cash and cash equivalents (743) 1,774
Cash and cash equivalents at beginning of period 1,244 195
-------- ---------
Cash and cash equivalents at end of period $ 501 1,969
======== =========
See accompanying notes to condensed combined financial statements.
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<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
RIO GRANDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
(1) Accounting Policies
The accounting policies of Rio Grande, Inc. and Subsidiaries as set
forth in the notes to the Company's audited financial statements in
the Form 10-KSB Report filed for the year ended January 31, 1996 are
incorporated herein by reference. Refer to those notes for additional
details of the Company's financial condition, results of operations
and cash flows. All material items included in those notes have not
changed except as a result of normal transactions in the interim, or
any items which are disclosed in this report.
The condensed combined financial statements include the accounts of
Rio Grande, Inc. (the "Company") and its subsidiaries and
majority-owned limited partnership as follows:
Ownership Ownership
Form of Interest Before Interest After
Name Organization February 1, 1996 February 1, 1996
---- ------------ ---------------- ----------------
Rio Grande Drilling Company Corporation 100% 100%
("Drilling")
Rio Grande Desert Oil Company Corporation 100% 100%
("RG-Desert")
Rio Grande Offshore, Ltd. Partnership 80% 100%
("Offshore")
Rio Grande GulfMex, Ltd. Partnership N/A 80%
("GulfMex")
Prior to February 1, 1996, Drilling's ownership interest in the oil
and gas properties acquired by Offshore was 80%. Robert A. Buschman
("Buschman"), H. Wayne Hightower and H. Wayne Hightower, Jr. (the
"Hightowers") owned the remaining 20% interest. As a result of the
Company's 80% ownership interest, Offshore's financial statements were
combined with the Company's financial statements prepared as of
January 31, 1996.
Effective February 1, 1996, Buschman and the Hightowers agreed to
restructure Offshore whereby the aggregate 20% minority limited
partnership interests of Buschman and the Hightowers would be
redeemed, and as a result of in kind distributions, Buschman and the
Hightowers became proportionate working interest owners of the onshore
oil and gas properties previously held by Offshore. All existing
interest in the oil and gas properties located offshore Louisiana held
by Offshore at January 31, 1996, were conveyed to GulfMex, a newly
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<PAGE>
formed Texas limited partnership, which has the same proportionate
ownership structure as that of Offshore prior to the restructuring.
Buschman and the Hightowers no longer are limited partners of Offshore
and are now 20% limited partners in GulfMex. Subsequent to January 31,
1996, Offshore is 100% indirectly owned by the Company and GulfMex is
80% indirectly owned by the Company which is reflected in the
condensed combined financial statements prepared subsequent to January
31, 1996. The minority interests of Buschman and the Hightowers, prior
to and after the restructure, are set forth separately in the balance
sheet and the statements of operations of the Company.
All intercompany balances and transactions have been eliminated in the
combined condensed financial statements.
In the opinion of management, the condensed combined financial
statements reflect all adjustments which are necessary for a fair
presentation of the financial position and results of operations.
Adjustments made for the nine months ended October 31, 1996 are
considered normal and recurring in nature.
The Company utilizes the successful efforts method of accounting for
its oil and gas properties. Under this method, the acquisition costs
of oil and gas properties acquired with proven reserves are
capitalized and amortized on the unit-of-production method as
produced. Development costs or exploratory costs are capitalized and
amortized on the unit-of-production method if proved reserves are
discovered, or expensed if the well is a dry hole.
Earnings per share computations are based on the weighted average
number of shares and dilutive common stock equivalents outstanding
during the respective periods. Fully dilutive earnings per share is
the same as earnings per common and common equivalent shares.
(2) Acquisition of Oil and Gas Properties
On March 11, 1996, Offshore acquired a 3.125% leasehold interest in a
non-operated producing federal oil and gas lease and platform ("Block
76") located offshore Louisiana for approximately $932,000. On July
30, 1996, Offshore acquired an additional leasehold interest of
1.041667% in Block 76 for $270,000. Effective with that purchase,
Offshore's total leasehold interest in Block 76 is equal to 4.16667%.
On March 26, 1996, Offshore acquired leasehold interests in three gas
wells located in Wheeler County, Texas for a net purchase price of
approximately $370,500. The total net proved reserves acquired by this
acquisition were 3,000 bbls oil and condensate and 868,000 mcf gas.
Drilling operates these gas wells.
On April 12, 1996, Offshore acquired various leasehold interests in 31
oil wells located in Mississippi and Louisiana ("Mississippi
Properties") for a net purchase price of approximately $2,800,000,
which includes 23 wells to be operated by Drilling. Due to the timing
of closing the acquisition, the March 1996 revenues and related lease
operating expenses have been recorded as an adjustment to the
acquisition price.
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<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
(3) Long-Term Debt
On March 8, 1996, the Company executed a loan agreement with Comerica
Bank - Texas ("Comerica") which provides a new senior credit facility
("Senior Credit Facility") in an aggregate principal amount of up to
$10,000,000, with an initial borrowing facility of $4,967,000 (the
"Borrowing Base"). The Senior Credit Facility was used to refinance
the Company's existing senior indebtedness of $1,575,000 and provide
$900,000 to purchase the 3.125% working interest in Block 76 on March
11, 1996.
On March 26, 1996, the Company acquired various leasehold interests in
three gas wells located in Wheeler County, Texas for a net purchase
price of approximately $370,500, of which approximately $320,500 was
financed with Comerica.
Comerica financed approximately $1,100,000 of the approximate
$2,800,000 acquisition price of the Mississippi Properties on April
12, 1996. Approximately, $300,000 was funded from working capital for
the closing on April 12, 1996. By agreement with the seller, the
remaining balance of approximately $1,405,000 was financed by a
seller's note ("Sellers Note") due with interest on August 30, 1996.
Under terms of the Senior Credit Facility, the Borrowing Base will be
redetermined by the lender each year on February 1, or sooner, if
requested by the Company. In August 1996, the Company requested
Comerica to increase the Borrowing Base to facilitate funding the
Sellers Note due on August 30, 1996. On August 30, 1996, Comerica and
the Company agreed to increase the Borrowing Base to $5,350,000. The
Borrowing Base is determined by the lender, in its sole discretion,
using procedures and standards customary for its petroleum industry
customers, and represents the amount of borrowings which in the
lender's opinion the Company's oil and gas properties will support. On
August 30, 1996, the Sellers Note of approximately $1,451,000 was paid
with $1,200,000 of additional financing from Comerica and $251,000 of
the Company's working capital. As of October 31, 1996, the Company's
outstanding balance under the Senior Credit Facility is $5,275,000.
Under the terms of the Senior Credit Facility, the initial monthly
reductions to the Borrowing Base of $82,000 commenced April 1, 1996
and continued to August 1, 1996. On August 30, 1996, Comerica adjusted
the monthly reductions to the Borrowing Base to $75,000 to commence
October 1, 1996 through February 1, 1997. Beginning March 1, 1997, the
Borrowing Base will be subject to monthly reductions of $110,000
through January 1, 1998. When the outstanding principal under the
Senior Credit Facility exceeds the Borrowing Base, the Company must
make principal payments to reduce the outstanding balance equal to or
less then the Borrowing Base. On February 1, 1998, which is the
maturity date of the Senior Credit Facility, the principal then
outstanding shall be due and payable. The interest rate to be charged
on the outstanding principal balance is based on Comerica's prime rate
plus 1%. All of the Company's interests (direct or indirect) in
existing oil and gas properties, miscellaneous assets, and future oil
and gas property acquisitions will serve as collateral for the credit
facility. The Senior Credit Facility contains various restrictions
including, but not limited to, restrictions on payments of dividends
or distributions other than those capital distributions to Buschman
and the Hightowers in GulfMex, maintenance of positive working
capital, and no change in the majority ownership or current President
of the Company.
Comerica's commitment to provide the Company a Senior Credit Facility
required that the Company obtain certain modifications and amendments
from the holders ("Holders") of the 11.50% Subordinated
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<PAGE>
Notes (the "Notes") dated September 27, 1995 before the Comerica loan
agreement could be concluded. Such consents and amendments were
approved by the Holders on March 8, 1996. The repayment terms of the
Notes were amended to provide for a final maturity on September 30,
2002 (instead of September 30, 2000) and the quarterly amortization of
principal over four years, commencing in December 1998, at annual
rates of 12.5%, 12.5%, 37.5% and 37.5% of the original principal
amount (instead of amortization of principal over three years,
commencing in December 1997, at annual rates of 12.5%, 37.5% and 50%
of the original principal amount).
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
1. Material Changes in Financial Condition.
The Company's financial condition for the nine months
ended October 31, 1996 has changed significantly from
the fiscal year ended January 31, 1996 as a result of
three major acquisitions of various oil and gas
properties, the restructuring of subordinated debt,
and the execution and the funding of a new loan
agreement with Comerica which increased the
outstanding debt of the Company as described herein.
2. Material Changes in Results of Operations.
Oil and Gas Production Segment
For the quarter and nine months ended October 31,
1996, revenues from oil and gas production were
approximately $1,340,000 and $3,733,000,
respectively, as compared to $777,000 and $2,706,000,
respectively, for the quarter and nine months ended
October 31, 1995. Production operating expenses for
the quarter and nine months ended October 31, 1996
were approximately $683,000 and $1,830,000,
respectively, as compared to the production operating
expenses of $472,000 and $1,458,000, respectively,
for the quarter and nine months ended October 31,
1995. The increase in revenues is due primarily to
additional revenues of approximately $1,223,000
earned as the result of the oil and gas properties
acquired in March and April 1996. The increase in
production operating expenses is due to the
additional properties acquired during the first
quarter of 1996 but was partially offset by reduced
production operating expenses on existing properties.
The Company utilizes the successful efforts method of
accounting for its oil and gas properties.
Amortization expenses for the quarter and nine months
ended October 31, 1996 based on the
unit-of-production method were approximately $270,000
and $721,000, respectively, for 498 and 1,354 MMCF
equivalent units of production. Amortization expenses
for the quarter and nine months ended October 31,
1995, were approximately $312,000 and $957,000,
respectively, for 407 and 1,374, MMCF equivalent
units of production.
Interest expense for the quarter and nine months
ended October 31, 1996 was approximately $222,000 and
$489,000, respectively. Interest expense for the
quarter and nine months ended October 31, 1995 was
approximately $71,000 and $214,000, respectively. For
the quarter and the nine months ended October 31,
1996, interest expense increased due to the addition
of bank debt of approximately $1,200,000 and
$3,775,000, respectively, which was used for the
acquisition of oil and gas properties, the $1,405,000
Sellers Note executed in April 1996, and the issuance
in September 1995 of approximately $2,000,000, 11.50%
subordinated notes to finance a development program
on certain oil and gas properties located in Texas.
The average interest rate incurred on senior debt
during the quarter and nine months ended October 31,
1996 was approximately 10.25% and 10.18%,
respectively.
<PAGE>
During the quarter and nine months ended October 31,
1996, Offshore sold various producing properties in
Montana and Texas with proceeds totaling $451,000 and
gain on sale of assets of $183,000.
For the nine months ended October 31, 1996,
distributions to limited partners of $132,000 reflect
only GulfMex's operations. For the nine months ended
October 31, 1995, distributions to limited partners
of $420,000 reflect Offshore's operations of offshore
and onshore properties held by the partnership before
the restructuring in February 1996.
Recent Operating Developments
Operations
The Company operates a number of wells in the KWB
Field in West Texas, in which Offshore has
approximately 80% of the working interest. The
Company initiated a pilot secondary recovery
waterflood project in that field by drilling a pilot
development well and converting surrounding
production wells to water injection wells. The
waterflood pilot test was initially delayed in
December 1995 but the water injection has been
proceeding since January 1996. While the water
injection wells are causing a build-up in reservoir
pressure, no material additional incremental oil
production has been experienced in the pilot
development well since the well was initially
drilled.
The Company expected that it would take from six
months to one year before any noticeable increase in
secondary recovery production, if any, would be
realized. If the waterflood pilot proves successful,
the projected number of additional development wells
drilled would be 29 with projected development costs
to the Company of approximately $5,800,000 and a
projected increase in reserves of 1,100,000 bbls of
oil equivalent. Should the waterflood pilot prove to
be uneconomical, the Company would likely abandon the
field. The Company anticipates that the sale of
salvageable equipment would exceed plugging and
abandonment expense for the existing production and
water injection wells. The Company has expended
approximately $303,000 to date for the KWB pilot
waterflood.
The Company attempted reworking three gas wells in
Wheeler County, Texas during 1996 by recompleting the
wells in the Granite Wash production intervals.
Although drilling logs and information gathered from
adjacent gas wells which produced in the same horizon
indicated good production potential, the Company
encountered unexpected conditions in the wellbore
which caused an incursion of water. The Company's
effort to remedy the water incursion in the targeted
production intervals proved unsuccessful. Two of the
gas wells are producing from the Granite Wash, but
the production is marginally economical. The Company
expended approximately $336,000 for the workover and
completion efforts of these wells, of which
approximately $134,000 was expensed as dry hole costs
in the current fiscal year.
On April 30, 1996, production from Block 76 was
suspended due to mechanical problems incurred with
the production equipment. In late June 1996, the
operator of Block 76 began a major workover to the
well which was successfully completed
<PAGE>
in mid-July 1996. The total cost for the workover was
budgeted at approximately $1.6 million, however the
actual workover cost incurred was approximately
$2,520,000 of which the Company's share was
approximately $84,000. Production from Block 76 has
been restored to the level of production prior to the
shut-in.
Liquidity and Capital Resources
In March 1996, the Company entered into a commitment
letter with a new lender to replace the Company's
then existing bank indebtedness of approximately
$1,575,000. The commitment letter required that the
Company obtain certain modifications and amendments
from the Holders before the new credit facility could
be concluded. Such consents and amendments were
approved by the Holders on March 8, 1996. As amended,
the Notes provide for a final maturity on September
30, 2002 (instead of September 30, 2000) and the
quarterly amortization of principal over four years,
commencing in December 1998, at annual rates of
12.5%, 12.5%, 37.5% and 37.5% of the original
principal amount (instead of amortization of
principal over three years, commencing in December
1997, at annual rates of 12.5%, 37.5% and 50% of the
original principal amount). In addition to other
provisions amended, the exercise price of the
warrants granted was reduced from $.40 per share to
$.20 per share.
The Company's new Senior Credit Facility provides for
up to $10,000,000 in borrowings, subject to
limitations on availability as a result of the
Borrowing Base determination. Under the Senior Credit
Facility, the initial borrowing base ("Borrowing
Base") was $4,967,000. The Borrowing Base will be
redetermined by the lender each year on February 1 or
sooner, if specially requested by the Company. The
Borrowing Base is an amount as determined by the
lender, at its sole discretion, using procedures and
standards customary for its petroleum industry
customers, as the amount which the Company's oil and
gas properties will support the principal balance
outstanding under the Senior Credit Facility. In
August 1996, the Company requested an increase of the
Borrowing Base. Effective August 30, 1996, the
Borrowing Base was increased to $5,350,000. Initial
proceeds from the Borrowing Base were used to
refinance the Company's existing senior indebtedness
of $1,575,000 on March 11, 1996 and provide $900,000
to purchase a 3.125% working interest in Block 76
located offshore Louisiana. The Block 76 acquisition
increased the Company's net proved gas reserves by
927,000 mcf. Block 76 consists of only one offshore
well and therefore presents a greater degree of risk
than the acquisition of multiple properties.
On March 26, 1996, Offshore acquired leasehold
interests in three gas wells located in Wheeler
County, Texas for a net purchase price of
approximately $370,500. Funds of $320,500 from the
Borrowing Base and working capital of $50,000 were
used by the Company to make the acquisition of these
wells. The total net proved reserves acquired by this
acquisition were 3,000 bbls oil and condensate and
868,000 mcf gas. Drilling operates these gas wells.
On April 12, 1996, Offshore acquired the Mississippi
Properties, which includes 23 wells operated by
Drilling, for an acquisition price of approximately
$2,800,000. The total net proved reserves acquired
were 725,000 bbls oil and condensate. At closing, the
Company funded half of the acquisition price with
approximately
<PAGE>
$1,100,000 from the Borrowing Base and approximately
$300,000 of working capital. By agreement with the
seller, the remaining half of the acquisition price
of approximately $1,405,000 was financed by the
Sellers Note payable with interest at prime which was
paid in full on August 30, 1996.
On July 31, 1996, Offshore acquired an additional
1.041667% working interest in Block 76 for $270,000
which was financed by Comerica. This additional
working interest increased the Company's net proved
gas reserves by approximately 300,000 mcf.
Under the terms of the Senior Credit Facility,
monthly reductions to the Borrowing Base of $82,000
commenced April 1, 1996 and continued through August
1, 1996. Beginning October 1, 1996 through February
1, 1997, the Borrowing Base is subject to monthly
reductions of $75,000. Beginning March 1, 1997, the
Borrowing Base will be subject to monthly reductions
of $110,000 through January 1, 1998. When the
outstanding principal under the Senior Credit
Facility exceeds the Borrowing Base, the Company must
make principal payments to reduce the outstanding
balance equal to or less then the Borrowing Base. On
February 1, 1998, which is the maturity date of the
Senior Credit Facility, the principal debt then
outstanding shall be due and payable. The interest
rate to be charged on the outstanding principal
balance is based on the lender's prime rate plus 1%.
All of the Company's interests (direct and indirect)
in existing oil and gas properties, miscellaneous
assets, and future oil and gas property acquisitions
serve as collateral for the Senior Credit Facility.
The Senior Credit Facility contains various
restrictions including, but not limited to,
restrictions on payments of dividends or
distributions other than capital distributions to
Buschman and the Hightowers in GulfMex, maintenance
of positive working capital, and no change in the
majority ownership or the President of the Company.
RECENT DEVELOPMENTS
Louisiana Acquisition. Offshore executed a purchase
and sale agreement on November 20, 1996 with a
Louisiana corporation for the acquisition of
producing oil and gas properties in the Righthand
Creek Field ("Righthand Creek") located in Allen
Parish, Louisiana. The effective date of the
Righthand Creek acquisition is November 1, 1996 with
the closing anticipated to occur on or about January
16, 1997, subject to customary due diligence by
Offshore. The Company has deposited $250,000 as
earnest money which is subject to forfeiture to the
sellers if the acquisition is not concluded on or
before January 16, 1997. The acquisition price for
Righthand Creek is approximately $15 million for
total proved producing reserves of approximately 2
million barrels of oil and 2 Bcf natural gas net to
Offshore's interest. Drilling will be the operator
for the seven wells currently producing from the
Wilcox formation.
The purchase and sale agreement provides that
Offshore will conduct certain drilling operations on
undeveloped leasehold acreage within twelve (12)
months of the closing date. Offshore must commence
the spud-in of two (2) wells within twelve months of
closing to test the Wilcox "B" Sand, however,
Offshore does have the option to re-enter an existing
well located on the undeveloped acreage which would
count as one well. In the event that Offshore fails
to drill either of the required wells to the Wilcox
"B" formation, the seller has the right to require
<PAGE>
Offshore to convey to the seller a working interest
in the unearned acreage.
In connection with Offshore's requirement to develop
the undeveloped leasehold acreage, the seller has the
option to obtain a working interest ranging from 10
to 20 percent in all wells completed effective upon
Offshore obtaining project payout. Project payout for
the wells completed by Offshore as defined by the
purchase and sale agreement would occur when Offshore
has received proceeds from the wells drilled equal to
all actual costs of drilling, completing,
re-completing, equipping, maintaining, producing and
operating the wells drilled. The sellers' option to
obtain such working interest would remain in effect
until the sellers have recovered proceeds from
production sales net of revocable costs and expenses
proportionate to their working interest in the wells
drilled. The working interests obtained by the
sellers as described above would revert back to
Offshore at such time that the sum of the net
proceeds received by the sellers equals $7 million.
In connection with the proposed Righthand Creek
acquisition, the Company has obtained a commitment
from Comerica to increase the Senior Credit Facility
from $10 million to $25 million which would provide
for an increase in the Borrowing Base up to
approximately $17 million. The $12 million increase
in Borrowing Base would be subject to a loan fee of
$75,000. The interest rate to be charged on the
outstanding principal balance would be based on the
lender's prime rate plus 1/2%. The commitment
provides for monthly reductions in the Borrowing Base
of approximately $330,000 effective April, 1997.
Comerica's commitment to increase the Senior Credit
Facility and Borrowing Base is contingent upon the
successful placement and funding of at least $10
million of additional equity in the Company.
Proposed Private Placement.
The Company has engaged Reid Securities Corporation
("Reid") as its exclusive agent to assist the Company
in effectuating the sales of equity in the Company by
means of private placement to institutional
investors. The Company will pay Reid a fee equal to 2
1/2% of the aggregate proceeds received by the
Company through any such private placement.
Recently the Company entered into a nonbinding letter
of intent with an unrelated third party (the
"Investor") introduced to the Company by Reid
providing for the purchase by the Investor of an
aggregate of $10 million in newly issued preferred
stock of the Company. The preferred stock would be
issued in two $5 million series, one of which would
pay a cumulative dividend of 15% per annum and one of
which would pay a cumulative cash or in-kind dividend
of 14% and be convertible into common stock
representing approximately 24% of the Company's
outstanding common stock on a fully diluted basis,
assuming exercise of all currently outstanding
warrants and options. One series of the preferred
stock would be mandatorily redeemable by the Company
upon the occurrence of certain events, and the entire
issuance would be redeemable in certain circumstances
at the option of the Investor. In addition, the
preferred stock would have the right to elect
one-third of the Company's directors. The proposed
transaction is subject to a satisfactory due
diligence review, negotiation and execution of
<PAGE>
mutually satisfactory definitive documentation,
approval of the final terms by the Company's Board of
Directors and the Investor, consummation of the
Righthand Creek acquisition, and other customary
conditions. The Company expects to use the proceeds
of the preferred stock transaction to provide a
portion of the acquisition price of Righthand Creek
and to reduce indebtedness, including prepayment of
the Company's $2 million 11.5% Subordinated Notes due
2002.
Expected Closings. Management expects the Righthand
Creek acquisition, the Comerica restructuring and the
preferred stock transaction to be consummated
contemporaneously in early January. In the event the
preferred stock transaction is not consummated, the
Company would owe certain breakup fees to the
Investor which could aggregate up to $100,000. The
Company would promptly seek alternative sources of
equity or debt financing in order to consummate the
Righthand Creek acquisition and effectuate the
Comerica restructuring. While management believes the
currently proposed transactions will be successfully
concluded, no assurance can be given that the
preferred stock transaction will be successfully
concluded or that if it is not successfully
concluded, alternative debt or equity financing to
permit consummation of the Righthand Creek
acquisition will be available.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the accompanying Index to Exhibits on page
E-1 are filed as part of this Form 10-QSB. The Company will
furnish a copy of any exhibit to a requesting shareholder upon
payment of a fee of $.25 per page.
(b) Reports on Form 8-K
None.
-13-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIO GRANDE, INC.
Date: December 13, 1996 By: /s/ Guy R. Buschman
Guy R. Buschman, President
Date: December 13, 1996 By: /s/ Gary Scheele
Gary Scheele, Secretary and Treasurer
(principal financial officer)
-15-
<PAGE>
INDEX TO EXHIBITS
The following exhibits are numbered in accordance with Item 601 of
Regulation S-B:
10(i) Engagement letter between Reid Investment Corporation and Rio Grande,
Inc. dated August 28, 1996 as exclusive agent to sell equity in Rio
Grande, Inc.
10(j) Purchase and Sale Agreement between Brechtel Energy Corporation, et
al. and Rio Grande Offshore, Ltd. dated November 20, 1996 for the
acquisition of oil and gas properties located in the Righthand Creek
Field, Allen Parish, Louisiana.
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<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK.
E-2
<PAGE>
R E I D
S E C U R I T I E S
August 28, 1996
RIO GRANDE, INC.
10101 Reunion Place, Suite 210
San Antonio, TX 78216-4156
Attention: Guy Bob Buschman President
Gentlemen:
In connection with the proposed issue and sale (by means of a private placement
to institutional investors) by Rio Grande, Inc. (the "Company") of approximately
$10 to $15 million of subordinated debt, preferred stock or any other security
issued by the Company (the "Securities"), the Company and Reid Securities
Corporation ("Reid") agree:
1. (a) Prior to the sale of the Securities to any prospective purchaser
("Offeree"), the authorized employees of the Company shall: (i) furnish or make
available to each Offeree and any person advising such Offeree all relevant
information pertaining to the Company and the Securities and the terms and
conditions of the offering, and (ii) give each Offeree and any person advising
such Offeree the opportunity to ask questions and receive answers concerning the
Company and the Securities and the terms and conditions of the offering.
(b) To the best of the Company's knowledge all written information or oral
information provided to Offerees or to Reid by authorized employees of the
Company will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make such information not misleading.
(c) The Company covenants that it shall promptly advise Reid if, because of the
occurrence of any event or condition, the passing of time or otherwise, written
information or oral communications of the Company and its employees to Offerees
which relate to the offer and sale of the Securities contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements, in light of the circumstances under which they were made, not
misleading, and the written information (and attendant oral communications)
shall be amended in form and substance satisfactory to Reid so that after giving
effect to such amendment, the written information (and attendant oral
communications) will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements, in the light of the
circumstances under which they were made, not misleading.
Reid Securities Corporation
5956 Sherry Lane * Suite 190l *Dallas, Texas 75225 *
214/739-8900 * Fax 214/739-5420
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<PAGE>
Rio Grande, Inc.
August 28, 1996
Page 2
2. The Company hereby appoints Reid as its exclusive agent to effect sales of
the Securities on a best efforts basis during the period commencing on the date
of this engagement letter and ending December 31, 1996 (the 'Offering Period"),
which may be mutually extended by written agreement of the parties hereto.
Subject to the terms and conditions herein set forth, Reid accepts such
appointment and shall use its best efforts to find purchasers for all of the
Securities. Reid's agency hereunder is coupled with an interest and is not
terminable by the Company without Reid's permission; such agency shall continue
until the termination of the Offering Period, except that if subscriptions for
all of the Securities are received prior to the termination of the Offering
Period, Reid's agency shall terminate at the date of the last sale of the
Securities. In the event the offering of the Securities is commenced and
subscriptions for the Securities are not received by the end of the Offering
Period, Reid's agency and this Agreement shall terminate without further
obligation of either Reid or the Company to the other except as provided in this
paragraph 2 and in paragraphs 4, 6 and 7. The Company shall have the right to
reject any and all proposed purchasers of the Securities for any reason the
Company deems reasonable. Notwithstanding the foregoing, in the event that Reid
contacts an Offeree and introduces the Offeree to the Company and its employees
and the Offeree purchases the Securities from the Company within 1 year after
the expiration of the Offering Period, Reid shall be entitled to the same sales
commission provided for in paragraph 5 hereof with respect to such purchase
which would have been due had the purchase occurred during the Offering Period.
3. (a) The Company shall not, directly or indirectly (except through Reid),
offer or sell, or attempt to offer or sell, or solicit any offer to buy the
Securities. As used in this Agreement the terms "offer" and "sale" shall have
the meanings specified in Section 2(3) of the Securities Act of 1933.
(b) The Company and Reid shall approve in advance, and if requested by the
Company, shall have its counsel review in advance: (i) every form of letter,
memorandum, circular, notice or other written information provided to the
Offerees; and (ii) each person to whom each written information is to be
addressed or delivered. Neither Reid nor the Company shall offer any Securities
for sale to, or solicit any offer to purchase any Securities from, any person
that has not previously been approved for such purpose by both Reid and the
Company. The Company and Reid shall promptly review all written information
submitted by the other for approval, and they shall use their respective best
efforts promptly to prepare all written information reasonably required in
connection with the offer and sale of the Securities.
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<PAGE>
Rio Grande, Inc.
August 28, 1996
Page 3
4. The Company will reimburse Reid on a monthly basis as incurred by Reid and
billed to the Company for all costs and other expenses relating to Reid's
offering of the Securities, including without limitation all direct expenses for
travel and all other reasonable and necessary costs and expenses associated with
the offering and sale of the Securities. In the event the Securities are not
sold, the Company shall reimburse Reid for the costs and expenses incurred by it
as described in the foregoing sentence.
5. As compensation for its services the Company shall pay to Reid a cash fee
equal to 2 1/2% of the aggregate proceeds received by the Company from the sale
of the Securities. Such fee shall be contingent upon the consummation of a
sale(s) and payable to Reid promptly following the closing thereof. In the event
that the transactions contemplated by this agreement are not consummated by the
end of the Offering Period, the Company shall pay Reid a cash fee of $25,000.
6. In addition to the amounts which the Company has herein agreed to pay to
Reid, the Company shall indemnify and hold Reid (and its directors, officers and
employees) harmless against any losses, claims, damages or liabilities to which
Reid may become subject in connection with the transactions contemplated hereby
and shall reimburse Reid or such person for any legal or other expenses
reasonably incurred in connection with investigating, settling or defending any
action or claim in connection therewith; provided however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability is found in a final judgment of a court of competent
jurisdiction to have resulted from a breach of Reid's obligations to the Company
in connection with the performance by Reid of the services pursuant hereto or
from Reid's gross negligence or willful misfeasance in performing such services.
7. The indemnity agreement contained in paragraph 6 shall remain operative and
in full force and effect regardless of any termination of this Agreement or of
any investigation made by or on behalf of the Company or Reid, and shall survive
the delivery of and payment for the Securities for a period of one year.
8. This Agreement is made solely for the benefit of Reid, the Company and their
respective successors and permitted assigns, and no other person shall acquire
or have any right by virtue of this Agreement, and the term 'successors and
permitted assigns" as used herein shall not include any purchasers of the
Securities.
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<PAGE>
Rio Grande, Inc.
August 28, 1996
Page 4
If the foregoing is in accordance with your understanding, kindly confirm
your acceptance and agreement by signing and returning the enclosed duplicate of
this letter, and it will thereupon constitute a binding agreement between us.
Very truly yours,
REID SECURITIES CORPORATION
James P. Benson
Managing Director
ACCEPTED AND AGREED TO
AS OF AUGUST 28, 1996:
RIO GRANDE, INC.
By:
Guy Bob Buschman
President
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<PAGE>
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
BRECHTEL ENERGY CORPORATION
AGENT AND ATTORNEY-IN-FACT
SELLER
AND
RIO GRANDE OFFSHORE, LTD.
BUYER
DATED NOVEMBER , 1996
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<PAGE>
EXHIBITS
EXHIBIT "A" List of Principals represented by Brechtel Energy Corporation
EXHIBIT "B" Description of Leases, Wells and Agreements
I. Oil and Gas Leases
II. Assignments
III. Wells, Working Interest, Net Revenue Interest
IV. Facilities
V. Agreements Contracts and Rights of Way VI. Gas Purchase
Contract
VII. Crude Oil Purchase Contract
EXHIBIT "B-1" Buyer's Allocation of Closing Purchase Price
EXHIBIT "C" Assignment, Bill of Sale and Conveyance (Developed Assets)
EXHIBIT "C-1" Assignment, Bill of Sale and Conveyance (Undeveloped Assets)
EXHIBIT "D" Escrow Agreement
EXHIBIT "E" Liquid Hydrocarbon Inventory
EXHIBIT "F" Plat of Existing Pipeline
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<PAGE>
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, dated November , 1996 by and between BRECHTEL ENERGY
CORPORATION, a Louisiana corporation, 19331 North 12th Street, Covington,
Louisiana 70433, herein acting for itself and as Agent and Attorney-in-Fact (by
authority of that certain Irrevocable Power of Attorney dated November , 1996)
for, and on behalf of, those working-interest owners identified on Exhibit "A,"
attached hereto and made part hereof for all purposes, hereinafter collectively
referred to as "Seller" and RIO GRANDE OFFSHORE, LTD., a Texas limited
partnership, 10101 Reunion Place, Suite 210, San Antonio, Texas 78216,
hereinafter referred to as "Buyer."
WITNESSETH:
That Seller desires to sell to Buyer and Buyer desires to purchase from
Seller, on the terms set forth in this Purchase and Sale Agreement (the
"Agreement"), all of Seller's right, title and interest in and to those certain
oil and gas working interests and associated assets identified in the exhibits
attached hereto and made part hereof and sometimes referred to herein as the
"Developed Assets" and the "Undeveloped Assets," as hereinafter defined, or,
collectively, the "Assets." The term "Seller" shall collectively mean all of the
owners listed on Exhibit "A" and represented by Brechtel Energy Corporation, and
the term "each Seller" shall refer to each of such owners, individually.
Therefore, in consideration of the mutual promises contained herein, the
benefits to be derived by each party hereunder as well as other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Buyer and Seller agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.01 Purchase and Sale of Assets. Subject to the terms and conditions
of this Agreement, Seller offers and agrees to sell, and Buyer
offers and agrees to purchase, as of the Effective Date
hereinbelow defined, save and except the "Assets Excluded" as set
forth in Article 1.02, supra, all of Seller's right, title and
interest in the following assets, to-wit:
A. the Developed Assets, being those assets of the nature and
character hereinbelow described (excluding those overriding
royalty interests listed in Exhibit "B") in Paragraph C(a)
through (g), inclusive,
(a) insofar as such leasehold working interests, existing
wells and associated equipment are situated within the
surface boundaries of that certain oil and gas unit
designated as the U WX RD SU created by Louisiana
Office of Conservation Order No. 1041-C-6 and
represented by that certain unit survey dated April 4,
1996 prepared by C. L. Jack Stelly & Associates, Inc.,
inclusive of all depths and formations in and under
such lands (except where leasehold depth limitations
are indicated in Exhibit "B"),
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<PAGE>
LESS AND EXCEPT the "Exception Tract," being that
certain tract of land comprised of the following unit
tracts or portions thereof, as depicted on said unit
survey plat:
Unit Tract 1: insofar as said tract is situated
west of a projection, due North, of the East
boundary line of Unit Tract 2, until such
projected line meets the northern surface boundary
line of said U WX RD SU;
Unit Tract 2: the N 1/2
Unit Tract 4: all
(b) and further including, as a Developed Asset, that
certain Brechtel Energy Corporation (formerly, Ballard
Exploration Company, Inc.) No. 1 Ragley Well (Serial
No. 188683) located in Section 29, T5S,R7W, Allen
Parish, Louisiana along with all downhole and surface
equipment associated therewith but limited to the
currently existing wellbore and any well that may be
completed, deepened or sidetracked from said existing
wellbore (the "Ballard Well"); and
B. the Undeveloped Assets, being those assets of the nature and
character hereinbelow described (excluding any overriding
royalty interest listed in Exhibit "B") in Paragraph C(a)
through (g), inclusive,
(a) insofar as such leasehold working interests cover lands
situated outside the surface boundaries of said U WX RD
SU plus
(b) the Exception Tract, above described, and
(c) all wells and equipment located on lands within the
surface boundaries of that certain oil and gas unit
designated as the U WX RD SU created by Louisiana
Office of Conservation Order No.1041-C, less and except
the said Ballard Well, described above as a Developed
Asset;
C. considered together the Developed Assets and Undeveloped
Assets are herein referred to as the "Assets," which,
subject to the above limitations and exceptions, shall
include:
(a) the "Leases," as hereinbelow defined, including the
working interests and net revenue interests described
in Exhibit "B" and, with respect to said leases, the
oil and/or gas wells located thereon described in said
Exhibit "B" (the "Wells") along with all other right,
title and interest of Seller in and to said Wells and
in and to the associated leasehold;
(b) Except to the extent as may be limited by the leasehold
rights set forth above, all of Seller's rights,
privileges, benefits and powers conferred upon Seller,
as the holder of any Lease, with respect to the use and
occupation of the surface of, as well as the subsurface
depths under the lands covered by such Lease that may
be necessary or useful to the possession and enjoyment
of such Lease; except to the extent as may be limited
by the leasehold rights set forth above, all of
Seller's rights in any pools or units which include all
or any part of any Lease or any Well (the "Units"),
including Seller's right, title and interest in
production from any Unit, regardless of whether such
Unit production is derived from wells located on or off
a Lease and Seller's right, title and interest in any
wells within any such unit;
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<PAGE>
(c) To the extent assignable, all of Seller's right, title
and interest in and to surface use agreements,
authorizations, permits and similar rights and
interests applicable to, or used or useful in
connection with, any or all of the Wells, Leases, Lands
and Units;
(d) To the extent assignable, all of Seller's right, title
and interest in and to permits, servitudes, easements,
rights-of-way, orders, lease agreements, royalty
agreements, assignments, gas purchase and sale
contracts, oil purchase and sale agreements, farmin and
farmout agreements, transportation and marketing
agreements, operating agreements, unit agreements,
processing agreements, options, facilities or equipment
leases and other contracts, agreements and rights used,
or held for use, in connection with the ownership or
operation of the Assets, or with the production or
treatment of hydrocarbons from the Assets, including,
without limitation, the easements and other contracts
described in Exhibit "B," attached hereto, or the sale
or disposal of water, hydrocarbons or associated
substances from the Assets but excluding any such
contracts, agreements and rights where transfer of same
is limited by third party agreement or operation of
law;
(e) All of Seller's right, title and interest in and to all
equipment, machinery, fixtures and other real, personal
and mixed property situated on the Leases and used in
the operation of the Assets including, without
limitation, wells, salt water disposal wells, well
equipment, casing, rods, tanks, boilers, buildings,
tubing, pumps, motors, fixtures, machinery, inventory,
separators, dehydrators, compressors, treaters, power
lines, field processing facilities, flowlines,
gathering lines, transmission lines and all other
pipelines ("Equipment");
(f) All of Seller's right, title and interest (excluding
such interest attributable to any overriding royalty
interest) in and to oil, condensate, natural gas in
whatever form and natural gas liquids produced after
the Effective Date, including "line fill" and inventory
below the pipeline connection in tanks, attributable to
the Wells, the Leases, Lands and Units; and
(g) Originals, or clean and legible copies of, all of the
files, records, information and data respecting the
Assets in Seller's possession including, without
limitation, title records, abstracts, title opinions,
title certificates, computer records, production
records, severance tax records, geological and
geophysical data and all other information relating
directly to the ownership or operation of the Assets
but exclusive of (i) any such records, data or
information where transfer of same is prohibited by
third party agreements or applicable law, (ii) the work
product of Seller's legal counsel and (iii) records
relating to the Sale and Closing under this Agreement.
1.02 Assets Excluded. The Assets do not include the following:
(a) Accounts receivable and payable associated with the Assets and
relating to operations conducted or occurring prior to the
Effective Date.
(b) Liquid hydrocarbon inventory in storage tanks above the pipeline
connection as of 7:00 a.m. on the Effective Date, as set forth in
Exhibit "E."
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<PAGE>
ARTICLE II.
PURCHASE PRICE
2.01 Purchase Price.
(a) As cash consideration for the sale of the interest in the
Developed Assets, subject to adjustments as provided for in
Article 2.06, supra, Buyer shall pay to Seller at Closing, as
hereinafter defined in Article IX, the total sum of Fifteen
Million and No/100 ($15,000,000.00) Dollars (U.S.) (the
"Closing Purchase Price");
(b) As consideration for the sale of the Undeveloped Assets, Buyer
shall drill the wells and, as applicable, distribute such
proceeds as are attributable to the reversionary working
interest in favor of Seller as hereinbelow defined in
Paragraph 2.03, such wells to be drilled in the manner and in
accordance with the prescribed schedule set forth therein.
All cash payments required under (a), above, shall be made by wire
transfer at Closing pursuant to Seller's instructions.
2.02 Performance Deposit
(a) Upon execution of this Purchase and Sale Agreement (the
"Agreement"):
Buyer will pay to Seller, by wire transfer, into an
Escrow Account established by Buyer and Seller in the
Gulf South Bank and Trust, Gretna, Louisiana, the
amount of (i) Two Hundred Fifty Thousand and No/100
($250,000.00) Dollars; and (ii) two (2%) percent of
such amount, or $5,000.00, representing the required
escrow portion of the broker's commission due Burks Oil
and Gas Properties, Inc. representing, collectively, a
Performance Deposit which shall be, subject only to the
specific exceptions set out in subparagraph (b), below,
non-refundable and shall be paid to Seller by the
Escrow Agent, as hereinafter provided, in the event
that Closing (as defined in Article 9.01, supra) does
not occur.
(b) Exceptions to Non-Refundability of Performance Deposit. The
Performance Deposit shall not be refunded to Buyer in the
event that Closing fails to occur, unless the failure to
Close is as a result of one or more of the following
occurrences:
(1) As a result of the failure of Seller to Close the
transaction contemplated hereunder.
(2) As a result of termination of this Agreement under
Article X.
In effecting the refund of the Performance Deposit pursuant
to this Article 2.01(b), Seller shall advise the Escrow
Agent, in writing, to refund the deposit to Buyer.
2.03 Undeveloped Assets.
(a) Prescribed Wells and Reversionary Interest. In consideration
for the purchase of the Undeveloped Assets and in addition
to its payment of the Closing Purchase Price, described
above, for the Developed Assets, Buyer shall conduct certain
drilling operations and make certain elections available to
Seller contingent upon payout of such operations as
hereinafter specified. It is understood and agreed that
Buyer's obligation to commence actual
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<PAGE>
drilling operations (i.e., "spudding-in") of the following
"Prescribed Wells" and prosecute the drilling thereof with
all reasonable care and diligence are, together, material
and moving consideration in favor of Seller without which
consideration Seller would not have entered into this
Agreement to sell the Undeveloped Assets.
(b) Schedule and Manner of Drilling of Prescribed Wells. Within
the twelve (12) month period following Closing, Seller shall
commence the drilling ("spudding-in") of two (2) wells and
drill such wells with all due care and diligence to a depth
sufficient to test the Wilcox "B" Sand, as such sand is
found in other wells producing within the said U WX RD SU.
In the event that Buyer experiences mechanical or equipment
failures or unforseen downhole conditions or encounters
heaving shale or other impenetrable formation which preclude
or make further operations unjustified, Seller may cease
such operations and still satisfy the requirement of this
provision by commencing the drilling ("spudding-in") on a
substitute well within ninety (90) days and continuing the
drilling thereof in same manner required of the original
well or wells, and, in like manner, continue the prosecution
of such wells or substitutes therefor until the prescribed
drilling obligation has been satisfied.
In lieu of the requirement to drill one of the two wells, as
specified above, Buyer shall have the option to re-enter and
attempt the testing of the Wilcox "B" Sand, as found between
the depths of 11,032 feet and 11,102 feet on the electric
log in the existing Magnolia-Ragley No. 1 Well located in
Section 29, T5S,R7W, Allen Parish, Louisiana. If attempted,
such operation shall be commenced within said twelve (12)
month period and conducted by Buyer with all due care and
diligence to test the Wilcox "B" Sand as found in the said
well or a sidetrack thereof. In the event that due to
mechanical or equipment failures or adverse downhole
conditions which make the re-entry operation or a sidetrack
operation unjustified and the objective of testing the
Wilcox "B" Sand is not met, Buyer may cease such operation
and still satisfy the drilling requirement of this provision
by commencing drilling operations ("spudding-in") on another
well within ninety (90) days of such cessation of operations
and continuing such operations in the same manner required
hereinabove. For purposes of this provision, commencement of
re-entry operations shall mean that point in time when a rig
capable of conducting such re-entry operation is moved on
the location of said Magnolia- Ragley No. 1 Well and such
re-entry operation is prosecuted with all due care and
diligence.
(c) In the event Buyer fails to drill the two prescribed wells,
as set forth in subparagraph (b) above, then as its sole and
exclusive remedy for such failure, each Seller shall have
the right to obtain reassignment of its proportionate
working interest in the "Unearned Acreage," being all of the
Undeveloped Assets assigned to Buyer, save and except the
acreage assigned to any drilling or proration unit for a
well drilled or recompleted by Buyer. If at the end of such
12 month period for drilling the prescribed wells, the Buyer
has not spudded-in such two wells or if Buyer fails to drill
either of such wells or substitute wells to the required
depth, then each Seller shall have the option to provide
written notice to Buyer to reconvey to such Seller its
proportionate undivided interest in all of the Unearned
Acreage. Such written notice must be received by Buyer
within 545 days after the date of this Agreement or within
100 days after Buyer ceases the continuous drilling
operations set forth in subparagraph (b), above, whichever
is later, or such right to a reassignment shall be waived
and be of no further force and effect. Within 30 days of
receiving notice, Buyer shall deliver to each Seller who
properly and timely requests a reassignment, an executed,
recordable Assignment reassigning such Seller's
proportionate working interest in the Unearned Acreage.
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<PAGE>
(d) In the event any lease within the Undeveloped Assets is due
to expire due to the failure of Buyer to drill wells and
extend the primary term thereof and if Buyer does not choose
to pay delay rentals or to extend or renew such leases or
obtain new leases on such acreage, then Buyer shall notify
Seller accordingly at least sixty (60) days prior to the
date such delay rental is due or such lease is scheduled to
expire. If Seller requests in writing that Buyer reassign
such lease, Buyer shall promptly reassign to Seller all of
Buyer's right, title and interest in such lease. In the
event Buyer elects to extend or renew any expiring lease
within the Undeveloped Assets or obtains a new lease
covering the same lands within twelve (12) months after the
date such lease expires, the rights of Seller under this
Paragraph 2.03 shall continue in effect for such extension,
renewal or new lease.
(e) Seller's Option to Assume Interest. Each Seller, as
identified on Exhibit "A," attached hereto, shall have the
same separate and independent option to assume each such
Seller's proportionate share of an undivided
(i) twenty (20%) working interest in all wells drilled or
recompleted on the Undeveloped Assets exclusive of the
Ballard Well, included above as a Developed Asset, and
further exclusive of that portion of the Undeveloped
Assets located within the surface boundaries of the U
WX RB SUA created by Louisiana Office of Conservation
Order No. 1041-C; and,
(ii) ten (10%) percent working interest in all wells drilled
or recompleted on the Undeveloped Assets situated
within the surface boundaries of said U WX RB SUA,
excluding said Ballard Well; provided, however, in the
event that said U WX RB SUA is revised or, if
terminated, replaced by a new unit of a configuration
that, by unit survey, would include within its surface
boundaries additional acreage which is not subject to
the terms of any farmout described in Exhibit "B," such
additional included acreage shall, for the purposes of
this Agreement, be deemed Undeveloped Assets and,
accordingly, Seller's working interest as to such
included acreage shall be twenty (20%) percent.
such option to become effective upon "Project Payout" and to
continue in effect until each such electing Seller has
received such Seller's proportionate share of the 7MM
Payout, defined below, attributable to such working interest
as set forth below. The "Project Payout" shall occur when
Buyer has received from the proceeds of production from the
wells on the Undeveloped Acreage, a sum equal to all of
Buyer's Recoverable Costs and Expenses incurred prior to
date Project Payout first occurs. Buyer shall provide each
Seller with quarterly statements showing the status of
Project Payout, and upon attaining Project Payout, Buyer
shall promptly provide each Seller with written notification
thereof, via certified mail, and each Seller shall have
thirty (30) days after receipt of such written notification
within which to notify Buyer of such Seller's election to
assume such proportionate share of an undivided twenty (20%)
working interest in such wells. Failure of a Seller to
notify Buyer of such election shall constitute an election
not be assume such Seller's proportionate share of said
working interest. Recoverable Costs and Expenses shall
include all actual costs of drilling, completing,
re-completing, equipping, maintaining, connecting, producing
and operating the wells located on the Undeveloped Assets,
specifically including the actual costs to Buyer of
conducting and interpreting a 3-D seismic reasonably
necessary to evaluate the Assets, should Buyer conduct such
seismic survey, as well as all ad valorem taxes burdening
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the working interests and all severance taxes, production
taxes, royalties and overriding royalties, in existence on
the date of Closing and described on said Exhibit "B" which
burden or are chargeable to such interests or the production
of proceeds therefrom. Operating costs shall be determined
as set forth in that certain currently applicable Joint
Operating Agreement ("JOA"), dated January 20, 1993 by and
between Brechtel Energy Corporation, Operator, and Team
America, et al, Non-Operator; provided, however, that at
Closing Rio Grande Drilling Company shall become Operator
under such JOA, and Buyer shall be included as an additional
party. However, with respect to this Article 2.03(e), no
non-consent penalties shall be included in the Recoverable
Costs and Expenses. After the occurrence of Project Payout,
the each party's proportionate undivided working interest
shall be subject to such JOA, including the non-consent
penalties on a well by well basis. Each electing Seller's
proportionate share of such 20% working interest shall
automatically revert to Buyer on the date when such electing
Seller has recovered from the proceeds of production sales
derived from the subject wells (net of revocable costs and
expenses paid by such Seller after Project Payout) of such
Seller's proportionate share of the sum of Seven Million
Dollars ($7,000,000.00) (the "7MM Payout"). If any electing
Seller should make a non-consent election for any operation
under the JOA, neither the proceeds nor the costs and
expenses associated with the applicable non-consent penalty
shall be applied toward the 7MM Payout for such Seller's
interest.
f. Prescribed Wells - Additional Covenants. With respect to any
well drilled pursuant to the provisions of this Paragraph
2.03, the Buyer and Seller further agree that:
(a) Should Buyer sell any or all of its interest in the
Assets prior to the occurrence of the 7MM Payout, the
provisions of this Paragraph 2.03 shall become an
obligation running with the land and shall remain an
obligation of, and encumbrance upon, the interests of
each subsequent Assignee. Until such 7MM Payout occurs,
Rio Grande Drilling Company, or an affiliate thereof,
shall remain as Operator of the Undeveloped Assets;
provided, however, that another company may be
substituted as Operator, with Seller's written consent,
which shall not be unreasonably withheld. Should Buyer
sell any or all of its interest in the Assets after the
occurrence of Project Payout, Buyer agrees to use
its best efforts to gain for Seller the option of
Seller to sell its interest in the Assets in
conjunction with Buyer's sale.
(b) With respect to any well drilled pursuant to the
provisions of this Article 2.03 prior to Project
Payout, as to which Buyer elects not to set production
casing, the Operator shall provide each Seller with
notice of such election, as provided in the JOA, and
each Seller shall have a period of forty-eight (48)
hours after receipt of such written notification within
which to elect to make a completion attempt on such
well at those electing Sellers' sole cost, risk and
expense pursuant to the provisions of Article VI.6 of
the JOA, as modified by this subparagraph. Likewise, if
Seller's completion attempt is unsuccessful, Seller
shall also plug and abandon such well at Seller's sole
cost, risk and expense. If Seller's completion attempt
results in a well capable of producing in commercial
quantities, Seller shall be entitled to receive all
proceeds derived from the sale of all production from
said well until Seller has recovered, out of such
proceeds, three hundred (300%) percent of all of
Seller's costs and expenses of drilling, completing,
equipping and operating said well to point of "payout."
At payout, Buyer shall have the right to assume a fifty
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(50%)percent working interest in such well and
thereafter all costs and benefits attributable to the
working interest in such well shall be shared: Seller,
fifty (50%) percent and Buyer fifty (50%) percent, and
all subsequent operations on such well shall be
governed by the JOA. Any proceeds received from the
sale of production derived from any well operated by
Seller under this article shall not act to reduce the
additional consideration due Seller after Project
Payout; provided however, (i) each Seller's right of
election following Project Payout shall be applicable
to the Buyer's fifty (50%) percent reversionary
interest in any well completed by Seller pursuant to
this article; (ii) Buyer's actual costs paid in
connection with Buyer's working interest in such well
shall be included in the calculation of Project Payout;
and (iii) the proceeds derived from the sale of
production attributable to that portion of Buyer's
working interest in such well which is acquired by
Seller after Project Payout occurs (up to 10% of 8/8ths
thereof) shall be included in the calculation of the
7MM Payout.
2.04 Escrow Account. In order to establish the escrow account referred to
in Article 2.02 above, concurrently with the execution of this
Agreement, Buyer and Seller shall enter into an Escrow Agreement in
substantially the form attached hereto as Exhibit "D" but including,
among its other terms and conditions, the following procedures for
instructing the Escrow Agent to distribute the escrow funds:
(a) In the event Closing does occur, the Escrow Agent shall be
authorized to immediately transfer all Escrow Funds, less escrow
expenses but plus all interest accruing thereon, from the Escrow
Account into an account designated, in writing, by Seller. The
Escrow Agent's authority shall be represented by written
instructions conveyed to Escrow Agent by facsimile transmission
from Buyer on Closing date.
(b) In the event Closing does not occur and such failure to Close is
not as a result of any of the exceptions to non-refundability set
out in 2.01(b), infra, Buyer shall instruct Escrow Agent, in
writing by facsimile transmission, to immediately pay to an
account designated by Brechtel Energy Corporation, as Agent, the
Performance Deposit provided in Article 2.01(a) plus all interest
accrued thereon.
(c) In the event that Closing does not occur and such failure to
close is a result of the occurrence of any one or more of the
exceptions to non-refundability set forth in subparagraph (b),
Seller shall promptly instruct the Escrow Agent to immediately
pay the Escrow Fund to Buyer, plus all interest accruing thereto.
(d) In the event of the occurrence of either of the circumstances
described in subparagraphs (b) and (c) and the party required to
provide notice to the Escrow Agent fails to do so, the party
entitled to the distribution of funds from the Escrow Account may
provide the Escrow Agent with a sworn affidavit attesting to the
particular circumstances whereupon the Escrow Agent, after the
expiration of five (5) days written notice given to the other
party, shall promptly release the escrow funds to the attesting
party.
2.05 Allocation of Closing Purchase Price. Prior to execution of this
Agreement, Buyer shall provide to Seller, for Seller's approval, an
allocation of the Closing Purchase Price among individual or separate
Wells and/or Units described in Exhibit "B." The "Allocated Value" for
any singular Developed Asset shall be that portion of the Purchase
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Price allocated to such singular Developed Asset identified on Exhibit
"B-1", increased or decreased in the manner described herein. Any
adjustments to the Closing Purchase Price, other than those
adjustments provided for in Article V, Title Matters, shall be applied
on a pro rata basis to the Allocated Value for all Developed Assets.
After such adjustments are made, any adjustments to the Closing
Purchase Price made pursuant to Article V shall be applied to the
Allocated Value for the particular Developed Asset(s) affected.
2.06 Closing Purchase Price Adjustments. The Closing Purchase Price shall
be adjusted in the following manner:
(a) The Closing Purchase Price shall be adjusted upward as follows:
(1) the value of all oil in storage above the pipeline
connection as of the Effective Date and not previously sold
by Seller, as set forth in Exhibit "E," which is
attributable to the interest conveyed to Buyer in the
Assets;
(2) with respect to the interest in the Assets conveyed to
Buyer, the amount of all expenditures (capital or other),
rentals and other charges, pro-rata ad valorem, property,
production, excise, severance and similar taxes (but not
including income taxes, federal or state) based upon, or
measured by, the ownership of the Assets or the production
of hydrocarbons or the receipt of proceeds therefrom, paid
by, or on behalf of, Seller in connection with the operation
of the Assets, in accordance with generally accepted
accounting principles and the JOA and attributable to the
period after the Effective Date until Closing, expressly
including, without limitation, all of the lease operating
expenses relating to the Assets;
(3) with respect to the interest in the Assets conveyed to
Buyer, an amount equal to all prepaid expenses attributable
to the Assets that are paid by, or on behalf of, Seller that
are, in accordance with generally accepted accounting
principles and the JOA, attributable to the period after the
Effective Date, including, without limitation, prepaid
utility charges and prepaid ad valorem, property,
production, severance and similar taxes based upon, or
measured by, the ownership of the Assets or the production
of hydrocarbons or the receipt of proceeds therefrom; and
(4) with respect to the interest in the Assets conveyed to
Buyer, by the value of each one-percent (or fraction
thereof) of increase in net revenue interest ("NRI") above
that set forth in Exhibit "B," attached hereto, such value
to be calculated by dividing the applicable Allocated Value
by the NRI set forth in said Exhibit "B" and multiplying the
result thereof by the increase in NRI.
(b) With respect to the interest in the Assets conveyed to Buyer, the
Closing Purchase Price shall be adjusted downward as follows:
(1) the aggregate amount of proceeds received by Seller
from the sale of oil, gas and other minerals produced
from the Leases, Units and Wells or otherwise in any
way attributable to the Assets between the Effective
Date and Closing (using actual sales, not Seller's
entitlement, where such sales are greater than or less
than Seller's entitlement);
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(2) the aggregate amount of royalty payments payable to
third parties but held in suspense by Seller as of
Closing;
(3) the amount of all payments made as provided for in
Article 2.02(a)(i), infra; and
(4) by the value of each one-percent (or fraction thereof)
of decrease in net revenue interest ("NRI") above that
set forth in Exhibit "B," attached hereto, such value
to be calculated by dividing the applicable Allocated
Value of a well by the NRI set forth in said Exhibit
"B" for such well and multiplying the result thereof by
the decrease in NRI.
The adjustment described in Article 2.06(a)(2)and (3) shall serve
to satisfy up to the amount of the adjustment, Buyer's obligation
to pay operating expenses of the Assets for the period between
the Effective Date and Closing, and Buyer shall not be separately
obligated to pay the various payees for such expenses. Similarly,
the adjustments described in Article 2.06(a)(1) shall serve to
provide Buyer, up to the amount of the adjustment, with the value
of the oil, gas and other minerals and the proceeds and products
from the Assets to which Buyer is entitled between the Effective
Date and Closing, and Buyer shall not have any separate rights to
receive the production, proceeds and products affected.
Buyer and Seller shall execute and deliver a settlement
statement, prepared in accordance with this Agreement and
generally accepted accounting principles and JOA (the
"Preliminary Settlement Statement"), prepared by Seller that
shall set forth the Preliminary Purchase Price and each
adjustment and the calculation of such adjustment used to
determine such amount. Seller shall provide Buyer with the
Preliminary Settlement Statement not less than three (3) days
prior to Closing for Buyer's review and approval. The term
"Preliminary Purchase Price" shall mean the Purchase Price,
adjusted as approved by the parties and as provided in Article
2.06, using for such adjustments actual costs, except where
unavailable, whereupon Seller will use estimates of such costs.
The Preliminary Settlement Statement shall also contain wire
transfer instructions concerning the delivery of the Preliminary
Purchase Price at Closing.
2.07 Revenues. To the extent, and only to the extent, or in the proportion
of the percentage interest in the Assets conveyed to Buyer, all
proceeds from production, accounts receivable, income and other
revenues with respect to the Assets which are attributable, under
generally accepted accounting principles and JOA, to the period prior
to the Effective Date shall belong to Seller, and those which are
attributable, under generally accepted accounting principles and JOA,
to the period commencing with the Effective Date shall belong to the
Buyer.
2.08 Effective Date. The Effective Date of the Sale of the Assets described
in Article 1.01 shall be November 1, 1996 as of 7:00 a.m., local time.
ARTICLE III.
TAXES
3.01 Payment of Taxes. Any taxes or fees (other than Seller's federal,
state or local income taxes) associated with this sale will be borne
by Buyer. Seller shall be liable and responsible for any and all taxes
of
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whatsoever kind or nature arising or accruing prior to the Effective
Date. Buyer shall be responsible for the payment of any and all taxes
relating to the Assets from and after the Effective Date.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.01 Seller's Representations and Warranties. Seller represents and
warrants (references to Seller in this Article IV shall include each
Seller whether as corporation, limited liability company or as an
individual to the full extent that a Representation and Warranty is
applicable) in accordance with the legal status of each such Seller
identified in Exhibit "A":
(a) Legal Status and Authority:
(1) Each Seller which is not an individual is a corporation or
limited liability company duly organized and validly
existing, in good standing, under the laws of Seller's state
of incorporation or organization. Seller has the power and
authority to own its property and to carry on its business
as now conducted and to enter into and to carry out the
terms of this Agreement.
(2) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate or, as the
case may be, membership action on behalf of sellers, and no
seller is subject to any Charter, by-law, lien or
encumbrance of any kind, agreement, instrument, order or
decree of any court or governmental body (other than any
governmental approval required) which would prevent
consummation of the transactions contemplated by this
Agreement.
(3) Seller shall warrant title to and forever defend all and
singular the Assets conveyed to Buyer, its successors and
assigns, against every person whomsoever lawfully claiming
the Assets or any part thereof, by, through or under Seller,
but not otherwise.
(4) Seller is not a party to, or in any way obligated under, nor
does Seller have any knowledge of, any contract or
outstanding claim for the payment of any broker's or
finder's fee which Seller is obligated to pay in connection
with the origin, negotiation, execution, or performance of
this Agreement for which Buyer could be held responsible.
(5) The consummation of this transaction will not violate or
cause a default under (i) any bylaw or other provision of
any Seller's corporate or limited liability company
governing documents; (ii) any material provision of any
material contract or agreement or of any bank loan,
indenture or credit agreement to which any Seller is a
party; (iii) any law, ordinance, rule or regulation of any
governmental authority; or (iv) any applicable order, writ,
judgment or decree of any court or other competent authority
and will not result in the creation of any lien, charge or
encumbrance on any of the Assets.
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(6) Except for routine change of operator filings, no
authorization, consent or approval of, or filing with, any
governmental authority is required to be obtained or made by
Seller for the execution and delivery by Seller of this
Agreement and the consummation by Seller of the transaction
contemplated hereunder. No authorization, consent or
approval of any non-governmental third party is required to
be obtained by Seller for the execution and delivery of this
Agreement or the consummation by Seller of the transaction
contemplated hereunder, except such prior written consents
as are required from the Lessors under the Oil and Gas
Leases described in Exhibit "B," attached hereto. The
transaction contemplated is not subject to any prior
preferential right or option to purchase in favor of any
third party.
(7) This Agreement has been duly executed and delivered by
Seller, and all documents and instruments required hereunder
to be executed and delivered by Seller at Closing will be
duly executed and delivered by Seller. This Agreement and
all such documents and instruments constitute legal, valid
and binding obligations of Seller enforceable in accordance
with their terms, subject, however, to the effects of
bankruptcy, insolvency, reorganization and other similar
laws affecting creditors' rights generally.
(8) Brechtel Energy Corporation is authorized to act for all
Sellers for which it will be delivering title and executing
this binding agreement.
(b) Information and Data Regarding Assets.
(1) Seller is not obligated by virtue of a prepayment
arrangement, make-up right under a production sales contract
containing a "take or pay" or similar provision, production
payment or any other arrangement, to deliver hydrocarbons,
or proceeds from the sale thereof, attributable to the
Assets at some future time without then or thereafter
receiving the full contract price therefor.
(2) No person or entity has any call upon, option to purchase or
similar right to obtain production from the Assets other
than pursuant to renewal rights or automatic renewal
provisions contained in existing production sales contracts.
(3) There are no agreements or arrangements relating to the
Assets with Seller or any affiliate or subsidiary of Seller
that will be binding on Buyer or the Assets after Closing.
(4) All taxes imposed or assessed with respect to or measured by
or charged against or attributable to the Assets or the
hydrocarbons produced therefrom have been, or will be, duly
and timely paid.
(5) To the best of Seller's knowledge, the Assets have been
operated by Seller in accordance with all rules and
regulations of all governmental authorities having or
asserting jurisdiction relating to the ownership and
operation of the Assets, including the production of
hydrocarbons attributable thereto, and are not presently
subject to reduced allowables or other penalties due to
overproduction or otherwise.
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(6) No fire, explosion, accident, earthquake, act of public
enemy or other casualty (regardless of whether covered by
insurance) adversely affecting any material portion of the
Assets, or the operation thereof, or adversely affecting the
ability of Seller to perform its obligations under this
Agreement, or the Exhibits hereto has occurred during
Seller's use and ownership of the Assets.
(7) To the best of Seller's knowledge, Seller has obtained all
permits, licenses and other authorizations which are
presently required under federal, state and local laws with
respect to pollution or protection of the environment
relating to the Assets, including laws relating to actual or
threatened emissions, discharges or releases of pollutants,
raw materials, products, contaminants or hazardous or toxic
materials, surface water, ground water or land or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
pollutants, contaminants or hazardous or toxic materials or
wastes, except to the extent the failure to obtain or file
such permits, licenses and other authorizations would not
result in, or reasonably be expected to result in, any
material liability or loss to Buyer or the Assets.
(8) To the best of Seller's knowledge, all leases and leaseholds
to be transferred to Buyer hereunder and which are listed in
Exhibit "B" are in full force and effect, according to their
respective terms.
(9) To the best of Seller's knowledge, there exist no contracts
or agreements regarding, or orders directed to, the Assets
or forming a part thereof, other than those described and
listed on Exhibit "B," hereto.
(10) Seller has not created nor to the best of Seller's knowledge
does there presently exist, under any contract or by
operation of law, any liens, mortgages, encumbrances or
other burdens in or on the Assets, except that certain
Mortgage Collateral Assignment, Security Agreement and
Financing Statement dated January 29, 1996 by and between
Seller, RHC Associates, L.L.C., as Mortgagor, and First
National Bank of Commerce, Mortgagee, which encumbrance will
be canceled in full at Closing.
(11) Since the Effective Date, Seller has received no notice of
any proposed or contemplated modifications of any existing
drilling or production unit or units or the establishment of
new drilling or production units affecting the Assets or
amendments to or modifications or revisions of the unit
order or orders establishing same which would have an
adverse impact upon the Assets to be conveyed pursuant to
this Agreement.
(12) To the best of Seller's knowledge, Seller is not in material
breach as to the Assets and any wells thereon or any laws,
regulations, rules, decrees or orders.
(13) Seller has paid, or will pay, all bills, debts, expenses or
charges relating to the Assets as of the Closing in the
normal course of its business operations.
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(14) For the purposes of the by, through and under warranty,
Seller represents that it has not created any overriding
royalty interest, production payments or carved out other
mineral interests affecting the interest in the Leases nor
has it alienated, conveyed or transferred an interest in the
Leases, except those certain assignments of overriding
royalty described in Exhibit "B."
(15) All proceeds of production attributable to the Assets are
currently being paid directly to Seller or its authorized
agents without the furnishing of indemnity, other than the
customary warranty contained in the division orders,
transfer orders or gas sale contracts that have been
furnished to Buyer and no portion of such proceeds are being
held in suspense.
(16) To the best of Seller's knowledge, Seller has made available
for examination all applicable written agreements,
correspondence, reports, required safety plans, compliance
statements or other documents of which Seller is aware that
materially affect the Assets, including, but not limited to,
applicable operating agreements, joint venture agreements,
tax partnership agreements, product purchase and sale
agreements, farmout agreements and "area of mutual interest"
agreements, and all such agreements are (i) listed on
Exhibit "B," hereto and (ii) legal, valid, binding,
subsisting and in full force and effect.
(17) To the best of Seller's knowledge, none of the operations of
Seller relating to the Assets are now subject to federal or
state investigation directed toward evaluating whether any
remedial action involving a material expenditure is needed
to respond to a release or discharge of any toxic or
hazardous waste or substance into the environment, and
Seller has no material contingent liability in connection
with any release or discharge of any toxic or hazardous
waste or substance into the environment from Seller's
Assets.
(18) For the purposes of the by, through and under warranty,
Seller represents that Seller's working interest and net
revenue interest in each of the Leases are as reflected on
Exhibit "B" hereto. Seller has received no notice of any
claim adverse to Seller's title.
(19) All material environmental, health and OSHA files, reports
and audits in Seller's possession, or available to Seller,
have been made available to Buyer for review.
(20) There are no outstanding unpaid AFE's respecting work
conducted upon the Assets for which Buyer could be held
responsible.
(c) Litigation. There is no action, administrative proceeding,
lawsuit or governmental inquiry relating to the Assets pending
or, to the Seller's knowledge, threatened.
(d) Equipment and Personal Property. All equipment and personal
property currently used on the Assets have been maintained in an
operable state of repair consistent with the customary standards
in the industry, except for such failures to maintain as would
not, individually or in the aggregate, have a Material Adverse
Effect. SELLER HEREBY EXPRESSLY DISCLAIMS ANY WARRANTY, WHETHER
EXPRESS OR IMPLIED, AND
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WHETHER BY COMMON LAW, STATUTE OR OTHERWISE AS TO OPERATING
CONDITION, MERCHANTABILITY, FITNESS FOR ANY PURPOSES, CONDITION
OR OTHERWISE, CONCERNING ANY OF THE ASSETS, EXCEPT AS TO THE
SPECIAL AND LIMITED WARRANTY TITLE RESPECTING THE REAL PROPERTY.
ALL WELLS, PERSONAL PROPERTY, MACHINERY, EQUIPMENT AND FACILITIES
THEREIN, THEREON AND APPURTENANT THERETO SHALL BE CONVEYED BY
SELLER AND ACCEPTED BY BUYER PRECISELY AND ONLY "AS IS, WHERE IS,
AND WITH ALL FAULTS AND WITHOUT WARRANTY." SELLER DOES NOT
WARRANT THE ASSETS TO BE FREE FROM REDHIBITORY DEFECTS, LATENT OR
APPARENT, AND BUYER SPECIFICALLY WAIVES ANY CLAIM FOR A REDUCTION
OR ADJUSTMENT IN THE PURCHASE PRICE BASED UPON REDHIBITION OR
QUANTI MENORIS OR ACTION OF EVICTION ON ACCOUNT OF CONDITION OR
MERCHANTABILITY OF THE ASSETS.
4.02 Buyer's Representations and Warranties. Buyer represents and warrants:
(a) Legal Status and Authority:
(1) Buyer is a Texas limited partnership and Rio Grande Drilling
Company, the General Partner, is a Texas corporation duly
organized and validly existing, in good standing, under the
laws of the State of Texas and has the power and authority
to own its property and to carry on its business, as now
conducted, and to enter into and to carry out the terms of
this Agreement.
(2) Except for a bank waiver required by Buyer's lender, the
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary action on behalf of
Buyer, and Buyer is not subject to any charter, bylaw, lien
or encumbrance of any kind, agreement, instrument, order or
decree of any court or governmental body which would prevent
consummation of the actions contemplated by this Agreement.
(3) Buyer is not a party to, or in any way obligated under, nor
does Buyer have any knowledge of any contract or outstanding
claim for the payment of any broker's or finder's fee in
connection with the origin, negotiation, execution or
performance of this Agreement for which Seller could be held
responsible.
(4) Buyer shall comply with all applicable laws, ordinances,
rules and regulations and shall promptly obtain and maintain
all permits required by public authorities in connection
with the Assets purchased, except when such failure to
comply or obtain shall not have a material adverse effect.
(b) Condition of the Assets:
(1) Buyer has made, or arranged for others to make, an
inspection of the Assets. Buyer is solely responsible for
conducting its own due diligence and inspection of the
Assets. Buyer has also had the full right and opportunity to
ask questions of Seller, its employees, agents and
representatives, and Buyer has assumed full responsibility
for any conclusions or analyses relating to the Assets and
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Buyer's decision to purchase same. Buyer accepts all
personal or tangible property described in Article 1.01(f)
in "as is, where is and with all faults" condition, with an
express acceptance and understanding of the representations
and disclaimers contained herein, subject to Article 4.01.
(2) Buyer acknowledges that the Assets have been used for oil
and gas drilling and producing operations, related oil field
operation and possibly the storage and disposal of waste
materials incidental to, or occurring in connection with,
such operations and that physical changes in the land and/or
water bottoms may have occurred as a result of such uses and
that, with respect to the physical condition of the Assets,
Buyer has entered into this Agreement on the basis of
Buyer's own investigation and due diligence of the physical
condition of the Assets, including environmental conditions
and accepts the Assets inclusive of any adverse
environmental condition presently existing, whether known or
unknown.
(3) Buyer represents that it is not otherwise prevented from
having the Assets transferred to Buyer, and its General
Partner is properly authorized to operate said Assets and
duly qualified to do business in the state where the Assets
are located.
(4) Buyer represents that it has inspected the Assets, the
public records and Seller's files for all purposes,
including, without limitation, for the purpose of detecting
the presence and concentration of naturally-occurring
radioactive materials ("NORM") and asbestos and has
satisfied itself as to the physical condition and potential
environmental condition of the Assets, both surface and
sub-surface. Buyer acknowledges that no representations have
been made by Seller regarding environmental conditions or
physical conditions of the Assets, past or present.
(5) Buyer is engaged in the business of exploring for or
producing oil and gas or other valuable minerals as an
ongoing business, and Buyer is a sophisticated buyer,
knowledgeable in the evaluation and acquisition of oil and
gas properties. Furthermore, Buyer has been informed that
the solicitations of offers and the sale of the Assets by
Seller have not been registered with any securities
commission, state or federal, and Buyer hereby specifically
agrees that neither Buyer nor its directors, shareholders,
employees, representatives or agents shall initiate any
proceeding based upon the assertion or claim that the sale
contemplated hereunder is the sale of a security.
(6) Buyer is acquiring the Assets for its own benefit and
account and not with the intent of selling such Assets in a
manner that would be subject to regulation under federal or
state securities laws.
ARTICLE V
TITLE MATTERS
5.01 After the date of this Agreement and until Closing, Seller shall make
all records and documents in Seller's possession affecting Seller's
title to the Assets available to Buyer and/or its representatives at
Seller's office, or such other place as deemed appropriate by Seller,
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during normal business hours for examination by Buyer. Seller shall
not be obligated to perform any additional title work, and any
additional abstracts and title opinions will not be made current by
Seller.
NO WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE INFORMATION
SO SUPPLIED, EXCEPT THAT ANY SUCH DOCUMENTS PROVIDED BY SELLER
ARE TRUE AND CORRECT COPIES OF MATERIALS PROVIDED OR MADE
AVAILABLE. BUYER AGREES THAT ANY CONCLUSIONS DRAWN THEREFROM
SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT.
5.02 Title Defect Defined. The term "Title Defect", as used herein, shall
mean any encumbrance, defect in or objection to Seller's title to the
Assets which, alone or in combination with other defects, would
unreasonably interfere with Buyer's enjoyment of the Assets to the
extent that Buyer would not have the same degree of enjoyment of the
Assets as did Seller immediately prior to Closing or which impairs
Seller's special and limited warranty of title or which results in a
reduction of the NRI or WI decimals set forth on Exhibit "B."
5.03 Notice of and Remedies for Title Defect.
(a) Upon discovery of a Title Defect, Buyer shall promptly notify
Seller in writing of the nature of the Title Defect, shall
furnish Seller with Buyer's basis for the assertion of such Title
Defect and data in support thereof and shall furnish Seller with
the proposed reduction in the Purchase Price attributable to such
Title Defect, and, in the event that the Buyer's estimate of the
effects of such Title Defect(s) would cause a reduction in the
Purchase Price in an amount in excess of twenty (20%) percent,
advise Seller, subject to Seller's right to cure such defect(s)
prior to Closing, of Buyer's decision to terminate this Agreement
in accordance with the provisions of Article 10.01(b) of this
Agreement.
(b) Upon receipt of such notice, Seller, at its discretion, shall
have the right to choose one of the following options:
(1) to cure the Title Defect at Seller's expense prior to
Closing thereby eliminating the need for a reduction in
Purchase Price; or
(2) to reduce the Purchase Price by an amount mutually agreed
upon; or
(3) exclude the affected Asset(s) from the sale and reduce the
Purchase Price by an amount equal to the value of the
excluded Asset(s) as set forth on Exhibit "B."
(c) Any Title Defect which is not disclosed to Seller by Buyer on or
before December 31, 1996 shall conclusively be deemed waived by
Buyer for all purposes.
5.04 If a Title Defect is based upon Buyer's notice that Seller owns a
lesser interest or the notice is from Seller to the effect that Seller
owns a greater interest than that shown on Exhibit "B," then the
Purchase Price shall be reduced or increased, as appropriate, based
upon the amount allocated to the affected Asset on Exhibit "B"
attached hereto. In the event of a Title Defect which Seller, after
notification as hereinbelow provided, elects not to cure prior to
Closing, or cannot cure prior to Closing, and which would cause the
reduction of the Purchase Price by more than twenty (20%) percent,
then either Seller or Buyer may
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terminate this Agreement without any liability whatsoever to the
other, and the Performance Deposit, as provided for in Article 2.02
shall be refunded to Buyer in accordance with the Escrow Agreement.
VI.
ENVIRONMENTAL CONDITIONS
6.01 Buyer's Access to Assets. Buyer and its employees and representatives
shall, subject to any necessary third party approvals, and at Buyer's
sole risk and expense, be given access to all facilities, properties,
personnel, books, records and other pertinent information within the
possession of Seller relating to the operation of the Assets. Buyer's
investigation shall be conducted in a manner that minimizes any
interference with the normal operation of the Assets. Buyer may
photocopy information that it reviews at Buyer's expense. Buyer
further and specifically waives any cause of action against Seller,
its directors, shareholders, employees, representatives and agents
based upon a claim for damages, losses, costs, expenses (including,
attorneys' fees and court costs) arising out of, resulting from or on
account of, Buyer's investigation of the environmental condition of
the Assets prior to Closing. Neither Buyer nor agents, representatives
or consultants of Buyer shall conduct any environmental testing or
sampling on, or with respect to, the Assets prior to Closing, without
the prior written consent of Seller. Any information obtained by Buyer
under this Article 6.01 shall remain confidential and shall not be
disclosed, except to Seller and Buyer's agents, partners and
consultants, without Seller's prior written consent, unless required
pursuant to order of a court or governmental agency exercising proper
jurisdiction over the Assets and the environmental matters relating
thereto.
6.02 Notice of and Remedies for Material Adverse Environmental
Condition(s). Upon discovery of a Material Adverse Environmental
Condition(s) (being a condition which (1) is required to be remediated
under applicable environmental laws in effect on the Effective Date
and (2) the cost to remediate said condition to lawfully acceptable
levels together with the cost to remediate all such conditions will
cost in total in excess of ten (10%) percent of the Purchase Price for
the Buyer's share of such remediation costs and (3) said condition, or
the severity thereof, was not previously known, or made known, to the
Buyer prior to execution of this Agreement), Buyer shall immediately
notify Seller in writing of the nature of such condition and shall
furnish Seller with Buyer's basis for the assertion of same along with
data in support thereof. In the event the Buyer has properly notified
Seller of one or more environmental conditions which, alone or
together, constitute a Material Adverse Environmental Condition,
Seller shall select one of the following options at its sole
discretion:
(i) agree to remedy the Material Adverse Environmental Condition(s)
at its own expense prior to Closing or as soon as thereafter
practicable; or
(ii) reduce the Purchase Price by an amount mutually agreed upon; or
(iii)exclude the affected Assets from the sale and reduce the Purchase
Price by an amount equal to the value of the Assets as shown on
Exhibit "B-1"; or
(iv) Seller may indemnify Buyer for the Material Adverse Environmental
Condition, and the Purchase Price shall not be reduced; or
(v) Seller may terminate this Agreement; provided that
notwithstanding the foregoing, in the event that Buyer's share of
the cost of remediating a Material Adverse Environmental
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Condition will exceed twenty (20%) percent of the Purchase Price,
Buyer shall have the option to terminate this Agreement without
further liability, and the Performance Deposit shall be refunded.
Any Material Adverse Environmental Condition which is not
disclosed by Buyer to Seller on or before December 31, 1996 shall
conclusively be deemed waived by Buyer for all purposes.
Notification to Seller by Buyer of the presence in the wellbore
of naturally occurring radioactive material ("NORM") or asbestos
shall not be cause to invoke any of the remedies set forth in
this Article 6.02.
6.03 BUYER'S RELEASE AND INDEMNITY. BUYER HEREBY RELEASES SELLER, ITS
OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, REPRESENTATIVES AND
AGENTS FROM ANY AND ALL LIABILITY AND RESPONSIBILITY AND AGREES TO
INDEMNIFY, DEFEND AND HOLD SELLER, ITS OFFICERS, DIRECTORS,
SHAREHOLDERS, EMPLOYEES, REPRESENTATIVES AND AGENTS HARMLESS FROM ANY
AND ALL CLAIMS, CAUSES OF ACTION, FINES, EXPENSES, COSTS, LOSSES AND
LIABILITIES WHATSOEVER IN CONNECTION WITH THE ENVIRONMENTAL CONDITION
OF THE ASSETS, KNOWN OR UNKNOWN, INCLUDING, SUCH AS MAY ARISE UNDER
APPLICABLE FEDERAL, STATE AND LOCAL LAW, INCLUDING, WITHOUT
LIMITATION, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND
LIABILITY ACT OF 1980, 42 U.S.C., SECTION 9601, ET SEQ., AS AMENDED,
("CERCLA"), THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, AS
AMENDED, THE CLEAN AIR ACT, 42 U.S.C., SECTION 7401, ET SEQ., AS
AMENDED, THE FEDERAL WATER POLLUTION ACT OF 1990, 33 U.S.C., SECTION
1251, ET. SEQ., AS AMENDED, AND THE OIL POLLUTION ACT OF 1990, 33
U.S.C., SECTION 2701, ET SEQ., AS AMENDED, (COLLECTIVELY THE "LAWS")
WHEN SUCH CONDITION IS CAUSED BY EVENTS OR OPERATIONS OR ACTIVITIES
OCCURRING AFTER THE EFFECTIVE DATE AND, FURTHER, FOLLOWING THE
EXPIRATION OF A PERIOD OF TWO (2) YEARS AFTER THE EFFECTIVE DATE,
BUYER'S INDEMNIFICATION AND RELEASE OF SELLER SHALL EXTEND TO ALL
CLAIMS, CAUSES OF ACTION, FINES, EXPENSES, COSTS, LOSSES AND
LIABILITIES WITHOUT REGARD AS TO WHETHER SUCH CONDITION IS CAUSED BY
EVENTS OR OPERATIONS OCCURRING PRIOR TO OR AFTER THE EFFECTIVE DATE.
FOR A PERIOD OF TWO (2) YEARS AFTER THE EFFECTIVE DATE, SELLER AGREES
TO INDEMNIFY, DEFEND AND HOLD BUYER, ITS OFFICERS, DIRECTORS,
SHAREHOLDERS, EMPLOYEES, REPRESENTATIVES AND AGENTS HARMLESS FROM ANY
AND ALL CLAIMS, CAUSES OF ACTION, FINES, EXPENSES, COSTS, LOSSES AND
LIABILITIES WHATSOEVER IN CONNECTION WITH THE ENVIRONMENTAL CONDITION
OF THE ASSETS, INCLUDING SUCH AS MAY ARISE UNDER THE LAWS WHEN SUCH
CONDITION WAS CAUSED OR CREATED BY EVENTS OR OPERATIONS OR ACTIVITIES
OCCURRING PRIOR TO THE EFFECTIVE DATE.
ARTICLE VII.
ADDITIONAL AGREEMENTS
7.01 Seller's Disclaimer. Except as otherwise set forth in this Agreement,
Seller disclaims all liability or responsibility for any statement,
information or data made or communicated (orally or in writing) to
Buyer, its affiliates, or any stockholder, officer, director,
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employee, agent, advisor or representative of either (including, but
not limited to, any opinion, information or advice which may have been
provided to any such party by any representative of Seller or any
other party), wherever or however made. Seller makes no representation
or warranty as to (i) the amounts, value, quality, or deliverability
of hydrocarbons from the Assets, (ii) any geological, geophysical or
other interpretations with respect to the Assets and (iii) any
economic forecasts, in each case whether contained in any material
furnished to Buyer by Seller, its officers, directors, employees,
agents, advisors, representatives or otherwise. Buyer expressly
acknowledges and accepts Seller's disclaimer.
7.02 Operations Prior to Closing. After the date of this Agreement and
prior to Closing, Seller shall use and maintain the Assets (including
the continuance of insurance coverage) in substantially the same
manner in which they have been used and maintained prior to this
Agreement. Unless Seller and Buyer otherwise agree, Seller shall not
enter into any agreement or transaction in relation to the Assets,
excepting those with unaffiliated third parties which (i) individually
involve a fair market value of less than Fifteen Thousand ($15,000)
Dollars and (ii) are entered into in the ordinary course of business
in a manner consistent with prudent oil field practices and JOA;
provided, however, if in the sole judgment of the Seller such
conditions occur with respect to the Assets which would constitute an
imminent hazard to property or person or jeopardize the productive
status of the Assets, Seller shall act as a reasonable operator and
take such action as is reasonably necessary and make such expenditures
as are required without the necessity of securing Buyer's prior
consent. Buyer shall bear the cost of all expenditures permitted under
the preceding sentence in connection with the operation of the field
between the date of this Agreement and Closing. In the event that an
expenditure for purposes other than that incurred in normal day-to-day
operations is proposed or contemplated, Seller shall submit such
proposal to Buyer for written concurrence, absent which Seller shall
not make such expenditures. Buyer will assume the risk of, and release
Seller from, any consequences which arise as a result of Buyer's
failure or refusal to approve and pay such expenditure. Unless Buyer
and Seller otherwise agree, Seller shall not sell, encumber, dispose
of or materially alter the Assets (other than the use of supplies and
consumables) or remove any improvements, equipment or property which
comprise the Assets (other than the use of supplies and consumables),
with the exception of individual assets (i) involving a fair market
value of less than Two Thousand ($2,000.00) Dollars and (ii) sold or
transferred to unaffiliated third parties or consumed in the ordinary
course of business, except the sale of oil and/or gas production in
the ordinary course of business.
7.03 Assumption of Liabilities and Indemnification. Buyer expressly assumes
all costs, expenses, obligations and liabilities associated with the
Assets after the Effective Date, including, but by no means limited
to, the proper and lawful plug and abandonment and reabandonment of
all wells and facilities on lands covered by the Leases or pooled
therewith, closure of all pits, removal of all flowlines, pipelines,
shell pads and pilings, whether now or hereafter, located on the lands
to be transferred hereunder in accordance with all requirements under
law, including, but not limited to, the rules, regulations and
requirements of any governmental authority having jurisdiction
thereof, specifically including the Department of Conservation, State
of Louisiana and in accordance with all obligations, express or
implied, in any agreement (including the applicable leases) which
Buyer is required to assume hereunder or hereby, whether or not any
such obligations arise prior to or after the Effective Date. BUYER
SHALL INDEMNIFY AND DEFEND SELLER, ITS OFFICERS, DIRECTORS,
SHAREHOLDERS, AGENTS, REPRESENTATIVES AND EMPLOYEES AGAINST ANY AND
ALL SUCH LOSSES, CLAIMS, SUITS, CONTROVERSIES, LIABILITIES AND
EXPENSES, ARISING OUT OF, OR IN CONNECTION WITH, OBLIGATIONS ASSUMED
UNDER THIS PARAGRAPH, INCLUDING, WITHOUT LIMITATION, THE PLUGGING AND
ABANDONING AND REABANDONING OF ANY WELLS, REMOVAL OR MODIFICATION OF
FACILITIES, INCLUDING, BUT NOT LIMITED TO, FLOWLINES AND PIPELINES,
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CLOSURE OF PITS AND RESTORATION OF SURFACE, REGARDLESS OF WHETHER THE
OBLIGATION TO PLUG AND ABANDON AND REABANDON, REMOVE, MODIFY, CLOSE OR
RESTORE AROSE PRIOR TO, OR SUBSEQUENT TO, THE EFFECTIVE DATE, AND SUCH
INDEMNIFICATION SHALL EXTEND TO AND INCLUDE CLAIMS OR CAUSES OF ACTION
BASED UPON THE NEGLIGENCE OR STRICT LIABILITY OF SELLER, ITS
DIRECTORS, SHAREHOLDERS, EMPLOYEES, REPRESENTATIVES OR AGENTS. THE
SALE WILL BE MADE EXPRESSLY SUBJECT TO THE TERMS OF ALL EXISTING
OPERATING AGREEMENTS, UNIT AGREEMENTS, FARMOUT AGREEMENTS, LEASES,
SUBLEASES AND ASSIGNMENTS AS WELL AS ANY AND ALL OTHER AGREEMENTS,
WHETHER RECORDED OR UNRECORDED, AFFECTING THE ASSETS.
Buyer further agrees to release and to defend and hold Seller,
its officers, directors, shareholders, representatives, employees
and agents harmless from and against any and all damages, losses,
expenses (including, but not limited to, court costs, attorneys'
fees, consultant fees and investigative costs and fees), and
other costs and liabilities arising as a result of claims,
demands and all other causes of action (excluding such claims,
demands or causes of action made by Seller's employees, agents,
contractors or representatives) whether arising out of an event
or omission occurring subsequent to the Effective Date and
without regard as to whether such claims arise out of the
operation of the Assets by Seller or a third party and without
regard as to whether such claims are asserted by a third party
(including a governmental agency) for death, injury, damage to
property or, further, without regard as to whether such claim is
based upon the negligence or the strict liability of Seller, its
officers, directors, representatives, employees or agents.
7.04 Use of and Access to Certain Facilities. Certain production, gathering
and storage facilities presently existing which serve that portion of
the Assets described as Righthand Creek Field in Exhibit "B," attached
hereto, may be necessary or useful in performing similar services for
production derived from East Righthand Creek Prospect. Therefore,
Seller shall reserve the right to use such facilities as capacity may
permit and/or erect new facilities and/or construct an additional
pipeline traversing the Leases to the extent Seller shall have, or
shall obtain, the third party easements, surface leases or rights of
way entitling Seller to use the surface of such lands for these
purposes. The Seller shall expressly reserve the right of access and
use of that certain gas pipeline situated in Sections 30 and 31,
T5S,R7W and in Sections 6 and 7, T6S,R7W, Allen Parish, Louisiana to
the extent necessary and to the extent capacity is available, to
service production derived from East Righthand Creek Prospect. The
location of said gas pipeline is depicted on Exhibit "H" attached
hereto. In connection with Seller's use of the facilities as herein
provided, Buyer and Seller agree to enter into a mutually agreeable
facilities use agreement containing, among other customary terms and
conditions, provisions which call for Seller to bear its proportionate
share of the actual costs of operation and the actual costs of
adapting the facilities for Seller's usage, if necessary.
7.05 Requested Data. Seller hereby agrees to provide true and accurate
copies of any data or information in Seller's possession which is
requested by Buyer.
ARTICLE VIII.
CONDITIONS PRECEDENT TO CLOSING
8.01 Seller's Conditions Precedent. The obligations of Seller to consummate
the transaction contemplated by this Agreement are subject to each of
the following conditions:
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(a) Buyer shall have performed and complied with all terms of this
Agreement required to be performed by or complied with by Buyer
prior to Closing.
(b) No action or proceeding by any third party or by or before any
governmental authority shall have been instituted or threatened
(and not subsequently dismissed, settled or otherwise terminated)
which might restrain, prohibit or invalidate any of the
transactions contemplated by this agreement, other than an action
or proceeding instituted or threatened by Seller or any of its
affiliates.
(c) Buyer's Representations and Warranties set forth herein are true
and correct in all material respects at the time of Closing as
though made on Closing Date.
(d) The Purchase Price has not been reduced in an amount in excess of
twenty (20%) as a result of a portion of Seller's title having
been found to suffer from Title Defects or Material Adverse
Environment Condition(s), as hereinabove defined, unless Seller
otherwise elects.
8.02 Buyer's Conditions Precedent. The obligation of Buyer to consummate
the transactions contemplated by this Agreement is subject to each of
the following conditions precedent:
(a) Seller shall have performed and complied with all terms of this
Agreement required to be performed by, or complied with, by
Seller prior to Closing.
(b) Seller's Representations and Warranties set forth herein are true
and correct in all material respects at the time of Closing, as
though made on the Closing date.
(c) No action or proceeding by any third party or by or before any
governmental authority shall have been instituted or threatened
(and not subsequently dismissed, settled or otherwise terminated)
which might restrain, prohibit or invalidate any of the
transactions contemplated by this agreement, other than an action
or proceeding instituted or threatened by Buyer or any of its
affiliates.
(d) Seller shall have performed and complied with all terms of this
Agreement required to be performed by, or complied with, by Buyer
prior to Closing.
(e) The Purchase Price has not been reduced in an amount in excess of
twenty (20%) as a result of a portion of Seller's title having
been found to suffer from Title Defects or Material Adverse
Environment Condition(s), as hereinabove defined, unless Buyer
otherwise elects.
ARTICLE IX.
CLOSING
9.01 Time and Place of Closing. The sale and purchase of the Assets
pursuant to this Agreement (the "Closing") shall be consummated and
completed in New Orleans, Louisiana at a site selected by Seller on or
before January 16, 1997.
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9.02 Closing Obligations. At the Closing, the following events shall occur,
each being a condition precedent to the others and each being deemed
to have occurred simultaneously with the others:
(a) Seller shall execute, acknowledge and deliver to Buyer:
(1) for Buyer's execution, the Assignment, Bill of Sale and
Conveyance in substantially the form of Exhibit "C" and
"C-1," attached hereto, conveying to Buyer the Developed
Assets and the Undeveloped Assets, respectively; and
(2) title, curative documents and other materials Seller may
have elected to deliver pursuant to Article 5.03.
(b) Buyer shall deliver to Seller the Closing Purchase Price, minus
the Performance Deposit, by direct bank or wire transfer in
immediately available federal funds as provided in the
Preliminary Settlement Statement. Buyer shall also deliver to the
Escrow Agent written notification to pay the Performance Deposit
to Seller and to Burks Oil & Gas Properties, Inc., as provided
for in the Escrow Agreement.
(c) Seller shall deliver to Buyer exclusive possession of the Assets,
including all monies held in suspense and for account of third
parties.
(d) Seller and Buyer shall execute, acknowledge and deliver transfer
orders or letters-in-lieu thereof directing all purchasers of
production to make payment to Buyer of proceeds attributable to
production from the Assets conveyed to Buyer along with written
notification of changes of operator as required by the State
Office of Conservation.
(e) Seller shall deliver to Buyer a fully executed, recordable
release of the lien encumbering Seller's interests held by the
First National Bank of Commerce, New Orleans, Louisiana and any
other material liens encumbering any of Seller's interests.
(f) Seller and Buyer shall deliver copies of all such documents
deemed reasonably necessary by the other to evidence each party's
authority to enter into and execute all agreements required
hereunder to satisfy the Closing Obligations, including, without
limitation, powers of attorney, limited partnership
authorizations, corporate resolutions, by-laws and such similar
documents evidencing the parties authority such as the other
party may reasonably request.
(g) Buyer and Seller shall execute and deliver such other documents
as may be necessary to consummate the transactions contemplated
hereby, including, forms transferring all permits related to the
Assets.
(h) Seller and Buyer shall deliver, upon request by the other, a
certificate dated as of the Closing Date, signed by an authorized
representative of the requested party, certifying that the
representations and warranties were true and complete when made,
and shall be true and complete on, and as of, Closing as though
such representations and warranties were made at, and as of, such
date.
(h) Buyer shall pay all brokerage fees and commissions owed to Burks
Oil & Gas Properties, Inc.
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9.03 Final Settlement. As soon as practicable after the Closing but no
later than June 1, 1997, Seller shall prepare and deliver to Buyer in
accordance with this Agreement and generally accepted accounting
principles, a statement (the "Final Settlement Statement") setting
forth each adjustment or payment that was not finally determined as of
Closing and showing the calculation of such adjustments. Within
fifteen (15) days after receipt of the Final Settlement Statement,
Buyer shall deliver to Seller a written report containing any changes
that Buyer proposes be made to the Final Settlement Statement. The
parties shall undertake to agree with respect to the amounts due
pursuant to such post-closing adjustment no later than fifteen (15)
days after Seller has received Buyer's proposed changes. The date upon
which such agreement is reached or upon which the Final Purchase Price
is established, shall be called the "Final Settlement Date". If the
parties cannot agree to the adjustment of the Final Purchase Price,
then either Buyer or Seller may submit such disputed adjustments to
the New Orleans office of the accounting firm of KPMG Peat Marwick,
L.L.P., and the determination made as to such disputed adjustments by
such accounting firm shall be final and binding upon Buyer and Seller.
The fees charged by such accounting firm shall be paid by the
non-prevailing party. If (i) the Final Purchase Price is more than the
Preliminary Purchase Price, Buyer shall pay by wire transfer the
amount of such difference to Seller or to Seller's account (as
designated by Seller) or (ii) the Final Purchase Price is less than
the Preliminary Purchase Price, Seller shall pay in immediately
available funds the amount of such difference to Buyer or to Buyer's
account (as designated by Buyer). Payment by Buyer or Seller shall be
made within five (5) days after the Final Settlement Date.
Within one (1) year of Closing, either party may, at its own expense,
audit the other party's books, accounts and records relating to
production, sales proceeds, operating expenses and taxes paid which
may have been adjusted due to this transaction. Such audit shall be
conducted following reasonable advance written notice to the party to
be audited and shall be conducted during regular business hours and at
minimum inconvenience to the audited party.
In addition, with respect to consideration to be paid to Seller,
post-Closing, Seller may, at its own expense audit Buyer's books
relating to production, sales proceeds, operating expenses and taxes
paid which impact such post-Closing consideration, such right to audit
shall continue until all contingent monies have been paid.
ARTICLE X.
TERMINATION
10.01Termination. This Agreement and the transaction contemplated hereby
may be terminated in the following instances:
(a) By Seller, under Article V, Article VI, or if any of the
conditions set forth in Article 8.01 (Seller's Conditions
Precedent to Closing) are not satisfied in all material respects
or waived at the time of Closing.
(b) By Buyer, under Article V or VI or if any of the conditions set
forth in Article 8.02 (Buyer's Conditions Precedent to Closing)
are not satisfied in all material respects or waived at the time
of Closing.
(c) At any time by the mutual written agreement of Seller and Buyer.
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10.02Effect of Termination. In the event that the Closing does not occur as
a result of automatic termination or any party hereto exercising its
rights to terminate pursuant to Article 10.01, then this Agreement
shall be null and void and, except as expressly provided herein, no
party shall have any rights or obligations under this Agreement,
except for the payment of the Performance Deposit to Buyer out of the
Escrow Account. Nothing herein shall relieve any party from liability
for any willful or negligent failure to perform or observe in any
material respect any agreement or covenant herein. In the event the
termination of this Agreement results from the willful or negligent
failure of any party to perform in any material respect any agreement
or covenant herein, then the other party shall be entitled to all
remedies available in law or in equity and shall be entitled to
recover court costs and reasonable attorneys' fees in addition to any
other relief to which such party may be entitled.
ARTICLE XI
MISCELLANEOUS
11.01Exhibits. The Exhibits referred to in this Agreement are hereby
incorporated in this Agreement by reference and constitute a part of
this Agreement. Each party to this Agreement has received a complete
set of Exhibits as of the execution of this Agreement.
11.02Expenses. Except as otherwise specifically provided, all fees, costs
and expenses incurred by Buyer or Seller in negotiating this Agreement
shall be paid by the party incurring the same, including, without
limitation, legal and accounting fees, costs and expenses.
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11.03Notices. All notices and communications required or permitted under
this Agreement shall be in writing, and any communication or delivery
hereunder shall be deemed to have been duly made when personally
delivered to the individual indicated below, or if mailed or by
facsimile transmission, when received by the party charged with such
notice and addressed as follows:
If to Buyer:
Rio Grande Drilling Company
10101 Reunion Place, Suite 210,
San Antonio, Texas 78216
Attention: Guy Bob Buschman, President
Telephone: (210) 308-8000
Fax: (210) 308-8111
With a copy to:
Barron W. Dowling
Cox & Smith, Incorporated
112 East Pecan Street, Suite 1800
San Antonio, Texas 78205-1521
Telephone: (210) 554-5309
Fax: (210) 226-8395
If to Seller:
Brechtel Energy Corporation
19331 North 12th Street
Covington, Louisiana, 70433
Telephone: (504) 892-9779
Fax: (504) 892-0266
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With a copy to
Michael C. McKeogh, Esq.
601 Poydras Street, Suite 2421
New Orleans, Louisiana 70130
Telephone: (504) 524-3996
Fax: (504) 524-3019
Any party may, by written notice so delivered to the other parties,
change the address or individual to which delivery shall thereafter be
made.
11.04Amendments. This Agreement may not be amended nor any rights hereunder
waived, except by an instrument in writing signed by the party to be
charged with such amendment or waiver and delivered by such party to
the party claiming the benefit of such amendment or waiver.
11.05Assignment. Neither party may assign all or any portion of its rights
or delegate all or any portion of its duties hereunder, unless it
continues to remain liable for the performance of the obligations
hereunder and obtains the prior written consent of the other party,
which consent shall not be unreasonably withheld.
11.06Announcements. Seller and Buyer shall consult with each other with
regard to all press releases and other announcements issued after the
date of this Agreement and prior to the Closing concerning this
Agreement or the transactions contemplated hereby and, except as may
be required by applicable laws or the applicable rules and regulations
of any governmental agency or stock exchange, neither Buyer nor Seller
shall issue any such press release or other publicity without the
prior written consent of the other party.
11.07Conditions. The inclusion in this Agreement of conditions to Seller's
and Buyer's obligations at the Closing shall not, in and of itself,
constitute a covenant of either Seller or Buyer to satisfy the
conditions of the other party's obligations at Closing.
11.08Headings. The headings of the articles and sections of this Agreement
are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.
11.09Counterparts. This Agreement may be executed by Buyer and Seller in
any number of counterparts, each of which shall be deemed an original
instrument, but all of which, together, shall constitute but one and
the same instrument.
11.10References. References made in this Agreement, including use of a
pronoun, shall be deemed to include where applicable, masculine,
feminine, singular or plural, individuals, partnerships or
corporations. As used in this Agreement, "person" shall mean any
natural person, corporation, partnership, trust, estate or other
entity.
11.11Governing Law. This Agreement and the transactions contemplated hereby
shall be construed in accordance with, and governed by, the laws of
the State of Louisiana.
11.12Entire Agreement. This Agreement (including the Exhibits attached
hereto) constitutes the entire understanding among the parties with
respect to the subject matter hereof, superseding all negotiations,
prior discussions and prior agreements and understandings relating to
such subject matter.
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<PAGE>
11.13Parties in Interest. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto (including Buyer and each
Seller), and their respective successors and permitted assigns, and
nothing contained in this Agreement, expressed or implied, is intended
to confer upon any other person or entity any benefits, rights or
remedies, expressly excluding any benefits recognized and acknowledged
in favor of Burks Oil and Gas Properties, Inc. in the provisions of
Article 11.18.
11.14Survival. The liability of Buyer and Seller under each of their
respective representations, warranties, covenants and indemnities
shall survive Closing and execution and delivery of the Assignment
contemplated hereby. After Closing, any claim that Seller is liable
for any breach of any representation, warranty or covenant hereunder,
by either Buyer or a third party, must be made in writing and
delivered to Seller within one year after Closing.
11.15Arbitration. All disputes arising out of, or in connection with, this
Agreement or any determination required to be made by Buyer and Seller
as to which the parties cannot reach an agreement shall be settled by
arbitration in New Orleans, Louisiana. Any matter to be submitted to
arbitration shall be determined by a panel of three (3) arbitrators,
unless otherwise agreed by the parties. Each arbitrator shall be a
person experienced in the oil and gas industry and shall be appointed
(a) by mutual agreement of Buyer and Seller, or
(b) failing such agreement, within sixty (60) days of the request for
arbitration, each party shall appoint one arbitrator, and the
third arbitrator shall be appointed by the other two arbitrators,
or, if they cannot agree, by a judge serving of the United States
District Court, Eastern District of Louisiana, Fifth Circuit.
In the event of the failure or refusal of the parties to appoint
the arbitrator(s) within 120 days of the request for arbitration,
the arbitrator shall be selected in accordance with reasonable
rules established by the arbitrators. The arbitration shall be
conducted in accordance with reasonable rules established by the
arbitrators. Any award by the arbitrators shall be final, binding
and non-appealable, and judgment may be entered thereon in any
court of competent jurisdiction.
11.16NORM. It is expressly recognized that the water bottoms and land
masses comprising the Assets, along with surface facilities and
production equipment located thereon, having been used in connection
with oil and gas production activities, may contain naturally
occurring radioactive materials (NORM) as a result of these
operations. Accordingly, lands, water bottoms, surface facilities and
production equipment transferred herein are transferred with the
restriction that they will be used only in connection with oil and gas
producing activities associated with these leases and will not be
subsequently transferred for unrestricted use, unless the
concentrations of NORM associated therewith are below the levels
specified as allowable for unrestricted transfer by the applicable
regulations or laws of the state and/or federal agencies having
regulatory jurisdiction there over. Buyer further agrees to include
the provisions of this clause in any subsequent sale or assignment of
any interest in the Assets herein transferred.
11.17Seller's Option to Make "Like-Kind" Exchange. At any time prior to
Closing, Seller, or any one or more of them, may elect by written
notice to Buyer to receive all or a portion of the Purchase Price
through an escrow agent designated by Seller pursuant to an escrow
agreement to be established for purposes of effecting a tax free,
like-kind exchange under Section 1031 of the Internal Revenue Code of
1986, as amended. Buyer agrees to cooperate with all reasonable
requests of Seller in order to establish and create
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<PAGE>
sufficient documentation to support such federal tax treatment by
Seller, provided that Buyer shall have no obligation to incur or pay
any cost or expense in such connection, and provided, further, that
Buyer shall have no obligation to acquire any properties (other than
the Assets) in connection, with such exchange or to execute any
agreements or other documents or to undertake any other action whereby
Buyer might incur or assume any indebtedness or other liability in
connection with such exchange.
If Seller appoints an Intermediary pursuant to this paragraph, it may
transfer the Assets to the Intermediary, and at Closing, the
Intermediary shall transfer the Assets to the Buyer and receive
consideration payable at Closing from Buyer, all pursuant to this
Agreement. The payment by Buyer of such consideration to the
Intermediary shall be treated as satisfaction of Buyer's obligations
under the Agreement to the same extent as if such payment had been
made directly to Seller. Seller agrees that the transfer of the Assets
to the Intermediary shall expressly be subject to this Agreement and
that Seller shall remain liable for performance under this Agreement
and all documents to be delivered at Closing to the same extent as if
it had not appointed an Intermediary. If Seller appoints an
Intermediary, Buyer shall not be obligated to pay any additional
costs, or incur any additional obligations, in the acquisition of the
Assets, and Seller shall indemnify and hold Buyer and its affiliates
harmless from and against all claims, expenses, losses and liabilities
resulting from the Intermediary's participating in the purchase.
11.18Broker's Commission. Buyer shall pay in full by wire transfer, in
immediately available funds, all commissions due at Closing to Burks
Oil and Gas Properties, Inc. or to its designees, such payment to be
made in the same manner as, and concurrently with, any and all
payments made to Seller.
11.19Further Assurances. After Closing, each party hereto, at the request
of the other, shall from time to time without additional consideration
execute and deliver such further agreements and instruments of
conveyance and take such other action as the other party hereto may
reasonably request in order to convey and deliver the Assets to Buyer
and to otherwise accomplish the transactions contemplated by the
Agreement.
11.20No Punitive Damages. Under no circumstances shall either Party be
liable to the other for any indirect, consequential, unforseen,
exemplary or punitive damages of any nature.
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<PAGE>
EXECUTED on the day, month and year first above mentioned.
SELLER: BUYER:
BRECHTEL ENERGY CORPORATION RIO GRANDE OFFSHORE,
INDIVIDUALLY AND AS AGENT LTD.
AND ATTORNEY-IN-FACT
BY: RIO GRANDE DRILLING
COMPANY, GENERAL PARTNER
By: By:
PETER P. BRECHTEL, JR. GUY BOB BUSCHMAN
PRESIDENT PRESIDENT
Signature Page to that certain Purchase and Sale Agreement dated , 1996 by
and ----------------- ----- between Brechtel Energy Corporation and Rio
Grande Offshore, Ltd.
<PAGE>
EXHIBIT "A" (Page 1 of 2)
RIGHTHAND CREEK FIELD
Attached to and made a part of that certain Purchase and Sale Agreement
dated the ____ day of ________, 1996 by and
between Rio Grande, Inc., as Buyer, and Brechtel Energy
Corporation, as Seller
PARTIES TO THIS AGREEMENT
BRECHTEL ENERGY CORPORATION Office: 504/892-9779
19331 North 12th Street Fax: 504/892-0266
Covington, Louisiana 70433
RHC ASSOCIATES, L.L.C. Office: 504/892-9779
19331 North 12th Street Fax: 504-892-0266
Covington, Louisiana 70433
AFP EXPLORATION, INC. Office: 504/892-9779
19331 North 12th Street Fax: 504/892-0266
Covington, Louisiana 70433
ATC PROPERTIES, L.L.C. Office: 504/892-9779
19331 North 12th Street Fax: 504/892-0266
Covington, Louisiana 70433
COASTAL ENERGY CORPORATION Office: 504/362-5340
Post Office Box 1670 Fax: 504/368-7879
Gretna, Louisiana 70053
MUD MOTORS, INC. Office: 504/362-5340
Post Office Box 1670 Fax: 504/368-7879
Gretna, Louisiana 70053
MILLER, PATRICK & ROWE, INC. Office: 504/362-5340
2439 Manhattan Boulevard, Suite 205 Fax: 504/368-7879
Harvey, Louisiana 70053
SUSAN BRAGG BRECHTEL Office: 504/892-9779
130 East Ruelle Fax: 504/892-0266
Mandeville, Louisiana 70448
<PAGE>
EXHIBIT "A"
(Page 2 of 2)
RICHARD J. THIBODEAUX Office: 504/831-7800
Post Office Box 6738 Fax: 504/832-3660
Metairie, Louisiana 70009
DONALD H. BURKS Office: 713/580-4590
14300 Cornerstone Village Drive, Suite 515 Fax: 713/537-2121
Houston, Texas 77014-1251
MARY CHASSAIGNAC BURKS Office: 713/580-4590
15318 Poplar Grove Drive Fax: 713/537-2121
Houston, Texas 77006
REVEILLE RESOURCES, INC. Office: 504/525-3611
601 Poydras Street, Suite 2421 Fax: 504/524-3019
New Orleans, Louisiana 70130
CIG EXPLORATION, INC. Office: 504/892-9779
5321 Janice Avenue Fax: 504/892-0266
Kenner, Louisiana 70065
DOUBLE H ENTERPRISES, INC. Office: 504/362-5340
Post Office Box 1670 Fax: 504/368-7879
Gretna, Louisiana 70053
<PAGE>
EXHIBIT "A"
Attached to, and made part of, that certain
Escrow Agreement dated November , 1996 by and
between
Gulf South Bank and Trust Company, Escrow Agent, and
Brechtel Energy Corporation, etal.
DISTRIBUTION OF ESCROW FUNDS
Prior to or on March 1, 1997
1. Escrow Agent shall disburse the Escrow Fund plus all interest accrued
thereto, less the Escrow Agent's fee and reasonable expenses, to the
following parties, if and only if, so directed by Rio Grande Offshore,
Ltd. as represented by its General Partner, Rio Grande Drilling
Company:
Brechtel Energy Corporation $250,000.00 plus interest
attributable thereto.
Burks Oil & Gas Properties, Inc. $5,000.00 plus interest
attributable thereto.
2. Escrow Agent shall disburse the Escrow Fund plus all interest accrued
thereto, less the Escrow Agent's fee and reasonable expenses, to Rio
Grande Offshore, Ltd., if and only if, so directed by Brechtel Energy
Corporation and Burks Oil & Gas Properties, Inc.
3. If the party necessary to give directions to the Escrow Agent fails to
do so, the party claiming the distribution of the Escrow Fund may
provide Escrow Agent with an affidavit claiming such party's right to
such distribution including in such affidavit a statement to the
effect that the claiming party had given the other party five (5) days
prior written notice that the claiming party was preparing to file
such affidavit. In the absence of a written objection delivered to
Escrow Agent by the other party within such five (5) day notice
period, Escrow Agent shall distribute the Escrow Fund to the attesting
party in the manner described in Paragraphs 1 and 2, above, as the
case may be.
<PAGE>
EXHIBIT "B"
Attached to and made a part of that certain Purchase and Sale
Agreement dated the _____ day of, 1996 by and
between Rio Grande, Inc., as Buyer, and Brechtel Energy
Corporation, as Seller
Brechtel Energy Corporation - Cavenham Well No. 1
Current
Producing
Serial No. Interval WI NRI ORRI
215326 U WX RD SU 1.00 .729122769 .036081846
[11,044-11,064']
Brechtel Energy Corporation - Cavenham Well No. 2
Current
Producing
Serial No. Interval WI NRI ORRI
216728 U WX RD SU 1.00 .729122769 .036081846
[11,032-11,052']
Brechtel Energy Corporation - Cavenham Well No. 3
Current
Producing
Serial No. Interval WI NRI ORRI
217938 U WX RD SU 1.00 .729122769 .036081846
[11,179-11,190']
Brechtel Energy Corporation - W. G. Ragley Lumber Company Well No. 1
Current
Producing
Serial No. Interval WI NRI ORRI
217828 U WX RD SU 1.00 .729122769 .036081846
[11,140-11,160']
<PAGE>
Brechtel Energy Corporation - Powell Lumber Company Well No. 1
Current
Producing
Serial No. Interval WI NRI ORRI
218645 U WX RD SU 1.00 .729122769 .036081846
[11,055-11,081']
Brechtel Energy Corporation - Crosby Land & Resources Well No. 1
Current
Producing
Serial No. Interval WI NRI ORRI
218713 U WX RD SU 1.00 .729122769 .036081846
[11,091-11,106']
Brechtel Energy Corporation - Crosby Land and Resources Well No. 1D
Current
Producing
Serial No. Interval WI NRI ORRI
219086 U WX RD SU 1.00 .729122769 .036081846
[11,021-11,037']
Brechtel Energy Corporation - W. G. Ragley Lumber Company Well No. 2
Current
Producing
Serial No. Interval WI NRI ORRI
188683 U WX RD SU 1.00 .692700926 .01 BPO
[11,140-11,150'] .954348457 .613160451 .03 APO-I
[11,104-11,110'] .876146180 .590014942 .03 APO-II
APO-I
Tracts 3 & 5: Mobile has an option to convert its 5% of 99% ORRI to a
12.5% of 99% ORRI. IP retains 25% of 1% ORRI BPO with no
conversion rights.
<PAGE>
Tract 6: Kenai reserved an ORRI equal to the difference between 26.5%
and the total burdens affecting this tract with an option to
convert the ORRI to a 35% WI-APO, proportionate to its ownership
in the tract equity.
Kaiser(Sceptre) reserved an ORRI equal to the difference between
26.5% and the total burdens affecting this tract with an option
to convert the ORRI to a 25% WI- APO proportionate to its
ownership in the tract equity.
APO-II
Tracts 3 & 5: Mobil has an option to convert its 5% of 99% ORRI to a 30%
WI-APO. IP retains its 25% of 1% ORRI with no conversion rights.
Tract 6: Same assumptions made as shown in APO-I above, with all
parties converting their ORRI to their proportionate working
interest position.
FACILITIES:
1. Brechtel-Righthand Creek Facility No. 1 -Cavenham Well No. 1
2. Brechtel-Righthand Creek Facility No. 2 -Cavenham Well No. 2
-Crosby Well No. 1 & 1D
3. Brechtel-Righthand Creek Facility No. 3 -Cavenham Well No. 3
-Ragley Well No. 1
4. Brechtel-Righthand Creek Facility No. 4 -Powell Well No. 1
5. Brechtel-Righthand Creek Facility No. 5 -Ragley Well No. 2
6. Brechtel-Righthand Creek Gas Compressor Station No. 1
<PAGE>
EXHIBIT "B-1"
Attached to, and made part of, that certain
Purchase and Sale Agreement dated November ,
1996 by and
between Brechtel Energy Corporation, Seller, and Rio
Grande Offshore, Ltd., Buyer.
PURCHASE
WORKING NET REVENUE ALLOCATION
LEASE NAME INTEREST INTEREST PRICE
Cavenham No. 1 100% 72.912 1,917,137
Cavenham No. 2 100% 72.912 2,152,041
Cavenham No. 3 100% 72.912 375,457
Ragley Lumber Co. No.1 100% 72.912 1,212,894
Powell Lumber Co. No.1 100% 72.912 4,622,756
Crosby Land & Resources No. 1 100% 72.912 375,257
Crosby Land & Resources No. 1-D 100% 72.912 4,347,458
----------
15,000,000
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<PAGE>
DEVELOPED ASSETS
EXHIBIT "C"
Attached to, and made part of, that certain
Purchase and Sale Agreement dated November ,
1996 by and
between Brechtel Energy Corporation, Seller, and Rio
Grande Offshore, Ltd., Buyer.
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
STATE OF LOUISIANA
PARISHES OF ALLEN AND BEAUREGARD
This Assignment, Bill of Sale and Conveyance ("Assignment"), effective as
of November 1, 1996 at 7:00 a.m. C.S.T. (the "Effective Date") from BRECHTEL
ENERGY CORPORATION, 19331 North 12th Street, Covington, Louisiana, 70433, as
Agent and Attorney-In-Fact for, and on behalf of, those parties to that certain
Irrevocable Power of Attorney, attached hereto as Exhibit "A" and made part
hereof for all purposes, ("Assignor") to RIO GRANDE OFFSHORE, LTD. a Texas
limited partnership, herein represented by its General Partner, Rio Grande
Drilling Company, 10101 Reunion Place, Union Square, Suite 210, San Antonio,
Texas 78216-4156 ("Assignee").
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<PAGE>
1. Conveyance of Assets
For, and in consideration of, the sum of One Thousand and No/100
Dollars ($1,000.00) and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor, does hereby ASSIGN,
BARGAIN, SELL, TRANSFER, SET-OVER, GRANT, CONVEY AND DELIVER unto Assignee,
effective as of the Effective Date, saving and excepting the "Assets Excluded,"
as defined in the Purchase and Sale Agreement hereinafter described, as well as
any and all overriding royalty interests listed in Exhibit "B", all Assignor's
right, title and interest, subject to the limitations and restrictions
hereinbelow set forth, in the following, to-wit (the "Assets"):
(a) the "Leases," as hereinbelow defined, including the working
interests and net revenue interests described in Exhibit "B" and,
with respect to said leases, the oil and/or gas wells located
thereon described in Exhibit "B" (the "Wells") along with all
other right, title and interest of Seller in and to said Wells
and in and to the associated leasehold;
(b) Except to the extent as may be limited by the leasehold rights
set forth above, all of Seller's rights, privileges, benefits and
powers conferred upon Seller, as the holder of any Lease, with
respect to the use and occupation of the surface of, as well as
the subsurface depths under the lands covered by such Lease that
may be necessary or useful to the possession and enjoyment of
such Lease; except to the extent as may be limited by the
leasehold rights set forth above, all of Seller's rights in any
pools or units which include all or any part of any Lease or any
Well (the "Units"), including Seller's right, title and interest
in production from any Unit, regardless of whether such Unit
production is derived from wells located on or off a Lease and
Seller's right, title and interest in any wells within any such
unit;
(c) To the extent assignable, all of Seller's right, title and
interest in and to surface use agreements, authorizations,
permits and similar rights and interests applicable to, or used
or useful in connection with, any or all of the Wells, Leases,
Lands and Units;
E-5
<PAGE>
(d) To the extent assignable, all of Seller's right, title and
interest in and to permits, servitudes, easements, rights-of-way,
orders, lease agreements, royalty agreements, assignments, gas
purchase and sale contracts, oil purchase and sale agreements,
farmin and farmout agreements, transportation and marketing
agreements, operating agreements, unit agreements, processing
agreements, options, facilities or equipment leases and other
contracts, agreements and rights used, or held for use, in
connection with the ownership or operation of the Assets, or with
the production or treatment of hydrocarbons from the Assets,
including, without limitation, the easements and other contracts
described in Exhibit "B," attached hereto, or the sale or
disposal of water, hydrocarbons or associated substances from the
Assets but excluding any such contracts, agreements and rights
where transfer of same is limited by third party agreement or
operation of law;
(e) All of Seller's right, title and interest in and to all
equipment, machinery, fixtures and other real, personal and mixed
property situated on the Leases and used in the operation of the
Assets including, without limitation, wells, salt water disposal
wells, well equipment, casing, rods, tanks, boilers, buildings,
tubing, pumps, motors, fixtures, machinery, inventory,
separators, dehydrators, compressors, treaters, power lines,
field processing facilities, flowlines, gathering lines,
transmission lines and all other pipelines ("Equipment");
(f) All of Seller's right, title and interest (excluding such
interest attributable to any overriding royalty interest) in and
to oil, condensate, natural gas in whatever form and natural gas
liquids produced after the Effective Date, including "line fill"
and inventory below the pipeline connection in tanks,
attributable to the Wells, the Leases, Lands and Units; and
(g) Originals, or clean and legible copies of, all of the files,
records, information and data respecting the Assets in Seller's
possession including, without limitation, title records,
abstracts, title opinions, title certificates, computer records,
production records, severance tax records, geological and
geophysical data and all other information relating directly to
E-6
<PAGE>
the ownership or operation of the Assets but exclusive of (i) any
such records, data or information where transfer of same is
prohibited by third party agreements or applicable law, (ii) the
work product of Seller's legal counsel and (iii) records relating
to the Sale and Closing under this Agreement.
but INSOFAR AND ONLY INSOFAR as such Assets are situated within the surface
boundaries of that certain oil and/or gas unit designated as the U WX RD SU,
created by Louisiana Office of Conservation Order No. 1041- C-6, dated effective
July 9, 1996, as represented by that certain unit survey plat attached to said
Order recorded July 25, 1996 in Conveyance Book 361, at pages 69 through 74,
under File No. 382663 of the Public Records of Allen Parish, Louisiana, LESS AND
EXCEPT that certain tract of land, as more particularly described on Exhibit
"B," attached hereto and made part hereof for all purposes, comprised of the
following three (3) unit tracts, or portions thereof:
Unit Tract 1: but only insofar as such tract is situated West of a
projection, due North, of the East boundary line of Unit Tract 2,
until such projected line meets the northern surface boundary line of
said U WX RD SU.
Unit Tract 2: the North one-half (N 1/2)
Unit Tract 4: All
AND SUCH ASSETS FURTHER INCLUDING that certain Brechtel Energy Corporation
(formerly, Ballard Exploration Company, Inc.) No. 1 Ragley Well located in
Section 29, T5S,R7W, Allen Parish, Louisiana (Serial No. 188683) along with all
downhole and surface equipment associated therewith, TO HAVE AND TO HOLD the
Assets unto Assignee, its successors and assigns forever; provided, however,
this Assignment is made expressly subject to the following terms and conditions:
2.
Purchase and Sale Agreement
This Assignment is made and delivered pursuant to the provisions of that
certain Purchase and Sale Agreement (the "Purchase Agreement") dated November ,
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<PAGE>
1996 by and between Assignor and Assignee, a copy of which is available at the
offices of Assignor at the address set forth above. The warranties,
representations and covenants contained in the Purchase Agreement shall survive
the execution and delivery of this Assignment for the applicable time periods
set forth in, and in accordance with, the provisions of the Purchase Agreement.
3.
Limitations and Warranties
3.1 Assignor warrants title and shall forever defend all and singular the
Assets conveyed to Assignee, its successors and assigns, against every
person whomsoever lawfully claiming the Assets or any part thereof,
by, through or under Assignor but not otherwise.
3.2 The equipment and personal property (both surface and downhole) is
assigned to Assignee "AS IS, WHERE IS AND WITH ALL FAULTS", and
Assignor expressly disclaims any warranty or representation of any
kind or character, whether express or implied, and whether by common
law, statute or otherwise as to operating condition, merchantability,
fitness for any purpose or purposes, condition or otherwise. Assignor
does not warrant the equipment or personal property to be free from
redhibitory vices or defects.
3.3 To the extent transferable, Assignee shall be and is hereby subrogated
to all warranties of title (other than that of Assignor) heretofore
given or made to Assignor or its predecessors in title with respect to
the Assets.
4.
Assumed Liabilities
By Assignee's acceptance of this Assignment, Assignee assumes the following
liabilities, responsibilities and obligations respecting the Assets as of the
Effective Date:
4.1 All obligations and liabilities arising from, or in connection with,
the ownership and operation of the Assets as of, and subsequent to,
the Effective Date, including but by no means limited to:
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<PAGE>
a. the proper and lawful reclamation and plugging and abandoning of
all wells and facilities presently existing, or in the future
drilled, on acreage covered by the Leases or pooled therewith,
removal of all flowlines, pipelines, shell pads and pilings,
whether now or hereafter located on acreage covered by the
Leases, or pooled therewith; and
b. the payment and performance of all liabilities and obligations
arising from, or in connection with, any federal, state or local
law, rule, order, regulation or permit applicable to any waste
material or hazardous substance on, in or included within the
Assets or the presence, disposal, release or threatened release
of such waste material or hazardous substances from the Assets
and, in connection with such assumed liability, Assignee hereby
expressly accepts the Assets in their present condition as of the
Effective Date and assumes any and all liabilities and
obligations with respect to any matter that may arise out of such
condition, including, but not limited to, environmental claims
for losses or damages (including, without limitation, the
presence of naturally occurring radioactive material).
4.2 As of, and subsequent to, the Effective Date, all liabilities,
responsibilities and obligations arising from, under and in connection
with, all agreements and contracts whether recorded or unrecorded and
whether specified herein or in Exhibit "B," attached hereto,
including, without limitation, all Leases, Subleases, Operating
Agreements, Unit Agreements, Farmout Agreements and Assignments.
5.
Indemnification
5.1 Effective from and after the Effective Date, Assignee shall indemnify,
defend and hold harmless Assignor, its officers, directors, agents,
representatives and employees from and against any and all losses,
claims, suits, controversies, liabilities and expenses arising
directly or indirectly out of Assignee's ownership and use of the
Assets and, further, after the expiration of two (2) years from the
date hereof, Assignee shall indemnify, defend and hold harmless
E-9
<PAGE>
Assignor, its officers, directors, agents, representatives and
employees from and against any and all losses, claims, suits,
controversies, liabilities and expenses without regard to whether such
arise from an incident or condition occurring prior to, or after, the
Effective Date.
5.2 For a period of two (2) years only from the date hereof, Assignor
shall indemnify, defend and hold harmless Assignee, its officers,
directors, agents, representatives and employees from and against any
and all losses, claims, suits, controversies, liabilities, and
expenses arising directly or indirectly out of Assignor's ownership
and use of the Assets prior to the Effective Date.
6.
Additional Provisions
6.1 Successors and Assigns All of the provisions hereof shall inure to the
benefit of, and be binding upon, the parties hereto and their
respective heirs, successors and assigns.
6.2 No Third-Party Beneficiaries Subject to the provisions of Article 4.2
hereof, nothing contained in this Agreement is intended or shall be
construed to confer any right or benefit upon any third party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment this
day of January, 1997 but is effective as of the Effective Date.
WITNESSES: ASSIGNOR:
BRECHTEL ENERGY CORPORATION, AGENT AND
ATTORNEY-IN-FACT
By:
PETER P. BRECHTEL, JR., PRESIDENT
WITNESSES: ASSIGNEE:
RIO GRANDE OFFSHORE, LTD.
BY: RIO GRANDE DRILLING
COMPANY, GENERAL PARTNER
By:
GUY BOB BUSCHMAN, PRESIDENT
Signature page to that certain Assignment, Bill of Sale and Conveyance dated
January , 1997 by and between Brechtel Energy Corporation, Assignor, and Rio
Grande Offshore, Ltd., Assignee, conveying Assignor's interests in East
Righthand Creek Field, Allen and Beauregard Parishes, Louisiana.
E-11
<PAGE>
UNDEVELOPED ASSETS
EXHIBIT "C-1"
Attached to, and made part of, that certain
Purchase and Sale Agreement dated November ,
1996 by and
between Brechtel Energy Corporation, Seller, and Rio
Grande Offshore, Ltd., Buyer.
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
STATE OF LOUISIANA
PARISHES OF ALLEN AND BEAUREGARD
This Assignment, Bill of Sale and Conveyance ("Assignment"), effective as
of November 1, 1996 at 7:00 a.m. C.S.T. (the "Effective Date") from BRECHTEL
ENERGY CORPORATION, 19331 North 12th Street, Covington, Louisiana, 70433, as
Agent and Attorney-In-Fact for, and on behalf of, those parties to that certain
Irrevocable Power of Attorney, attached hereto as Exhibit "A" and made part
hereof for all purposes, ("Assignor") to RIO GRANDE OFFSHORE, LTD., a Texas
limited partnership, herein represented by its General Partner, Rio Grande
Drilling Company, 10101 Reunion Place, Union Square, Suite 210, San Antonio,
Texas 78216-4156 ("Assignee").
1.
Conveyance of Assets
For, and in consideration of, the sum of One Thousand and No/100 Dollars
($1,000.00) and other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Assignor, does hereby ASSIGN, BARGAIN, SELL,
TRANSFER, SET-OVER, GRANT, CONVEY AND DELIVER unto Assignee, effective as of the
Effective Date, saving and excepting the "Assets Excluded," as defined in the
Purchase and Sale Agreement hereinafter described, as well as any and all
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overriding royalty interests listed on Exhibit "B," all Assignor's right, title
and interest, subject to the limitations and restrictions hereinbelow set forth,
in the following, to-wit (the "Assets"):
(a) the "Leases," as hereinbelow defined, including the working interests
and net revenue interests described in Exhibit "B" and, with respect
to said leases, the oil and/or gas wells located thereon described in
Exhibit "B" (the "Wells") along with all other right, title and
interest of Seller in and to said Wells and in and to the associated
leasehold;
(b) Except to the extent as may be limited by the leasehold rights set
forth above, all of Seller's rights, privileges, benefits and powers
conferred upon Seller, as the holder of any Lease, with respect to the
use and occupation of the surface of, as well as the subsurface depths
under the lands covered by such Lease that may be necessary or useful
to the possession and enjoyment of such Lease; except to the extent as
may be limited by the leasehold rights set forth above, all of
Seller's rights in any pools or units which include all or any part of
any Lease or any Well (the "Units"), including Seller's right, title
and interest in production from any Unit, regardless of whether such
Unit production is derived from wells located on or off a Lease and
Seller's right, title and interest in any wells within any such unit;
(c) To the extent assignable, all of Seller's right, title and interest in
and to surface use agreements, authorizations, permits and similar
rights and interests applicable to, or used or useful in connection
with, any or all of the Wells, Leases, Lands and Units;
(d) To the extent assignable, all of Seller's right, title and interest in
and to permits, servitudes, easements, rights-of-way, orders, lease
agreements, royalty agreements, assignments, gas purchase and sale
contracts, oil purchase and sale agreements, farmin and farmout
agreements, transportation and marketing agreements, operating
agreements, unit agreements, processing agreements, options,
facilities or equipment leases and other contracts, agreements and
rights used, or held for use, in connection with the ownership or
operation of the Assets, or with the production or treatment of
hydrocarbons from the Assets, including, without limitation, the
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easements and other contracts described in Exhibit "B," attached
hereto, or the sale or disposal of water, hydrocarbons or associated
substances from the Assets but excluding any such contracts,
agreements and rights where transfer of same is limited by third party
agreement or operation of law;
(e) All of Seller's right, title and interest in and to all equipment,
machinery, fixtures and other real, personal and mixed property
situated on the Leases and used in the operation of the Assets
including, without limitation, wells, salt water disposal wells, well
equipment, casing, rods, tanks, boilers, buildings, tubing, pumps,
motors, fixtures, machinery, inventory, separators, dehydrators,
compressors, treaters, power lines, field processing facilities,
flowlines, gathering lines, transmission lines and all other pipelines
("Equipment");
(f) All of Seller's right, title and interest (excluding such interest
attributable to any overriding royalty interest) in and to oil,
condensate, natural gas in whatever form and natural gas liquids
produced after the Effective Date, including "line fill" and inventory
below the pipeline connection in tanks, attributable to the Wells, the
Leases, Lands and Units; and
(g) Originals, or clean and legible copies of, all of the files, records,
information and data respecting the Assets in Seller's possession
including, without limitation, title records, abstracts, title
opinions, title certificates, computer records, production records,
severance tax records, geological and geophysical data and all other
information relating directly to the ownership or operation of the
Assets but exclusive of (i) any such records, data or information
where transfer of same is prohibited by third party agreements or
applicable law, (ii) the work product of Seller's legal counsel and
(iii) records relating to the Sale and Closing under this Agreement.
but INSOFAR AND ONLY INSOFAR as such Assets are situated outside the
surface boundaries of that certain oil and/or gas unit designated as the U
WX RD SU, created by Louisiana Office of Conservation Order No. 1041- C-6,
dated effective July 9, 1996, as represented by that certain unit survey
plat attached to said Order recorded July 25, 1996 in Conveyance Book 361,
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at pages 69 through 74, under File No. 382663 of the Public Records of
Allen Parish, Louisiana, LESS AND EXCEPT that certain Brechtel Energy
Corporation (formerly, Ballard Exploration Company, Inc.) No. I Ragley Well
located in Section 29, T5S,R7W, Allen Parish, Louisiana (Serial No. 188683)
along with all downhole and surface equipment associated therewith,
BUT SUCH ASSETS FURTHER INCLUDING, that certain tract of land, as more
particularly described on Exhibit "B," attached hereto and made part hereof
for all purposes, comprised of the following three (3) unit tracts, or
portions thereof:
Unit Tract 1: but only insofar as such tract is situated West of a
projection, due North, of the East boundary line of Unit Tract 2, until
such projected line meets the northern surface boundary line of said U WX
RD SU.
Unit Tract 2: the North one-half (N 1/2)
Unit Tract 4:
All TO HAVE AND TO HOLD the Assets unto Assignee, its successors and
assigns forever; provided, however, this Assignment is made expressly subject to
the following terms and conditions:
2.
Purchase and Sale Agreement
This Assignment is made and delivered pursuant to the provisions
(including, without limitation, those certain provisions respecting Seller's
option to assume a working interest in the Assets upon the occurrence of Project
Payout as therein defined) of that certain Purchase and Sale Agreement (the
"Purchase Agreement") dated November , 1996 by and between Assignor and
Assignee, a copy of which is available at the offices of Assignor at the address
set forth above. The warranties, representations and covenants contained in the
Purchase Agreement shall survive the execution and delivery of this Assignment
for the applicable time periods set forth in, and in accordance with, the
provisions of the Purchase Agreement.
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3.
Limitations and Warranties
3.1 Assignor warrants title and shall forever defend all and singular the
Assets conveyed to Assignee, its successors and assigns, against every
person whomsoever lawfully claiming the Assets or any part thereof,
by, through or under Assignor but not otherwise.
3.2 The equipment and personal property (both surface and downhole) is
assigned to Assignee "AS IS, WHERE IS AND WITH ALL FAULTS", and
Assignor expressly disclaims any warranty or representation of any
kind or character, whether express or implied, and whether by common
law, statute or otherwise as to operating condition, merchantability,
fitness for any purpose or purposes, condition or otherwise. Assignor
does not warrant the equipment or personal property to be free from
redhibitory vices or defects.
3.3 To the extent transferable, Assignee shall be and is hereby subrogated
to all warranties of title (other than that of Assignor) heretofore
given or made to Assignor or its predecessors in title with respect to
the Assets.
4.
Assumed Liabilities
By Assignee's acceptance of this Assignment, Assignee assumes the following
liabilities, responsibilities and obligations respecting the Assets as of the
Effective Date:
4.1 All obligations and liabilities arising from, or in connection with,
the ownership and operation of the Assets as of, and subsequent to,
the Effective Date, including but by no means limited to:
a. the proper and lawful reclamation and plugging and abandoning of
all wells and facilities presently existing, or in the future
drilled, on acreage covered by the Leases or pooled therewith,
removal of all flowlines, pipelines, shell pads and pilings,
whether now or hereafter located on acreage covered by the
Leases, or pooled therewith; and
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b. the payment and performance of all liabilities and obligations
arising from, or in connection with, any federal, state or local
law, rule, order, regulation or permit applicable to any waste
material or hazardous substance on, in or included within the
Assets or the presence, disposal, release or threatened release
of such waste material or hazardous substances from the Assets
and, in connection with such assumed liability, Assignee hereby
expressly accepts the Assets in their present condition as of the
Effective Date and assumes any and all liabilities and
obligations with respect to any matter that may arise out of such
condition, including, but not limited to, environmental claims
for losses or damages (including, without limitation, the
presence of naturally occurring radioactive material).
4.2 As of, and subsequent to, the Effective Date, all liabilities,
responsibilities and obligations arising from, under and in connection
with, all agreements and contracts whether recorded or unrecorded and
whether specified herein or in Exhibit "B," attached hereto,
including, without limitation, all Leases, Subleases, Operating
Agreements, Unit Agreements, Farmout Agreements and Assignments.
5.
Indemnification
5.1 Effective from and after the Effective Date, Assignee shall indemnify,
defend and hold harmless Assignor, its officers, directors, agents,
representatives and employees from and against any and all losses,
claims, suits, controversies, liabilities and expenses arising
directly or indirectly out of Assignee's ownership and use of the
Assets and, further, after the expiration of two (2) years from the
date hereof, Assignee shall indemnify, defend and hold harmless
Assignor, its officers, directors, agents, representatives and
employees from and against any and all losses, claims, suits,
controversies, liabilities and expenses without regard to whether such
arise from an incident or condition occurring prior to, or after, the
Effective Date.
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5.2 For a period of two (2) years only from the date hereof, Assignor
shall indemnify, defend and hold harmless Assignee, its officers,
directors, agents, representatives and employees from and against any
and all losses, claims, suits, controversies, liabilities, and
expenses arising directly or indirectly out of Assignor's ownership
and use of the Assets prior to the Effective Date.
6.
Additional Provisions
6.1 Successors and Assigns All of the provisions hereof shall inure to the
benefit of, and be binding upon, the parties hereto and their
respective heirs, successors and assigns.
6.2 No Third-Party Beneficiaries Subject to the provisions of Article 4.2
hereof, nothing contained in this Agreement is intended or shall be
construed to confer any right or benefit upon any third party.
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IN WITNESS WHEREOF, the parties hereto have executed this Assignment this
day of January, 1997 but is effective as of the Effective Date.
WITNESSES: ASSIGNOR:
BRECHTEL ENERGY CORPORATION, AGENT AND
ATTORNEY-IN-FACT
By:
PETER P. BRECHTEL, JR., PRESIDENT
WITNESSES: ASSIGNEE:
RIO GRANDE OFFSHORE, LTD.
BY: RIO GRANDE DRILLING
COMPANY, GENERAL PARTNER
By:
GUY BOB BUSCHMAN, PRESIDENT
Signature page to that certain Assignment, Bill of Sale and Conveyance
dated January , 1997 by and between Brechtel Energy Corporation, Assignor, and
Rio Grande Offshore, Ltd., Assignee, conveying Assignor's interests in East
Righthand Creek Field, Allen and Beauregard Parishes, Louisiana.
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EXHIBIT "D"
Attached to, and made part of, that certain
Purchase and Sale Agreement dated November ,
1996 by and
between Brechtel Energy Corporation, Seller, and Rio
Grande Offshore, Ltd., Buyer.
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this day of November, 1996
by and between BRECHTEL ENERGY CORPORATION, a Louisiana corporation, 19331 North
12th Street, Covington, Louisiana 70433 ("BEC"), BURKS OIL AND GAS PROPERTIES,
INC., a Texas corporation, 14300 Cornerstone Village Drive, Suite 515, Houston,
Texas 77014-1251 ("Burks"), RIO GRANDE OFFSHORE, LTD., a Texas limited
partnership, 10101 Reunion Place, Union Square, Suite 210, San Antonio, Texas
78216-4156 ("Principal") and the GULF SOUTH BANK AND TRUST COMPANY, 313 Westbank
Expressway, Gretna, Louisiana 70053 (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Principal has agreed to establish an escrow account with
Escrow Agent on the terms and conditions set forth herein, and Escrow Agent has
agreed to the terms hereof:
NOW, THEREFORE, in consideration of the premises herein, the parties hereto
agree as follows:
1. ESTABLISHMENT OF ESCROW FUND. The Principal shall deliver to Escrow
Agent the sum of Two Hundred Fifty-Five Thousand and No/100
($255,000.00) Dollars allocated as between BEC and Burks as follows:
BEC $250,000.00, Burks $5,000.00 (hereinafter referred to collectively
as the "Escrow Fund"). The Escrow Agent shall administer the Escrow
Fund under these special terms and conditions: See Exhibit "A,"
attached hereto and made part hereof for all purposes.
2. INVESTMENT OF ESCROW FUND. Unless otherwise directed in writing by the
Principal, Escrow Agent shall deposit or invest for the benefit of BEC
and Burks all or any portion of the cash in the Escrow Fund in one or
more, money market funds selected by Escrow Agent. Administrative fees
may be accepted by Gulf South Bank and Trust Company, in its capacity
as Escrow Agent, from such mutual funds companies as a result of
investing trust assets with such companies.
3. TERM OF AGREEMENT. For a period commencing on the date hereof and
terminating no later than March 1, 1997, the Escrow Agent agrees to
hold the Escrow Fund and to disburse the Escrow Fund in accordance
with the terms hereof. If Escrow Agent has not been instructed to
distribute the Escrow Fund on or before March 1, 1997 and no Notice
has been received by Escrow Agent of a dispute concerning distribution
of the Escrow Fund, the Escrow Agent shall turn over the Escrow Fund
to BEC and Burks in accordance with the instructions contained in
Paragraph 1 of said Exhibit "A."
4. DISTRIBUTION OF ESCROW FUND. Escrow Agent shall make distributions
from Escrow Fund only upon single/joint detailed written instructions
in accordance with Exhibit "A," attached hereto.
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Distributions shall be made within a reasonable time after Escrow
Agent's receipt of such instructions, taking into account the time
required to liquidate the invested Escrow Fund or a portion thereof.
Specifically, no distribution will be made on the same day notice is
given to Escrow Agent, if said instructions for disbursement are
received after 9:00 A.M.
5. AMENDMENTS. This Agreement may be amended, or modified at any time in
any or all respects but only by an instrument in writing executed by
all of the parties hereto.
6. NOTICES. Any notice, delivery, communication, request, reply or advice
(herein collectively, "Notice") in this Agreement provided or
permitted to be given or made by any party to another must be in
writing and may be given or served by depositing the same in the
United States Mail, postage prepaid and registered or certified with
return receipt requested, or by delivering the same to the address of
the person or entity to receive such Notice. Notice deposited in the
mail in the manner hereinabove described shall be effective at the
time of receipt. For purposes of Notice, the addresses of the parties
shall, until changed as hereinafter provided, be as follows:
If to Escrow Agent:
Gulf South Bank and Trust Company
313 Westbank Expressway
Gretna, Louisiana 70053
Attention: Mr. Dean F. Gruder
or at such other address as the Escrow Agent may have advised each of
the parties hereto by Notice in writing:
If to BEC:
Brechtel Energy Corporation
19331 North 12th Street
Covington, Louisiana 70433
or at such other address as BEC may have advised each of the parties
hereto by Notice in writing in the manner provided herein:
If to Burks:
Burks Oil and Gas Properties, Inc.
14300 Cornerstone Village Drive, Suite 515
Houston, Texas 77014-1251
or at such other address as Burks may have advised each of the parties
hereto by Notice in writing;
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If to Principal:
Rio Grande Offshore, Ltd.
10101 Reunion Place
Union Square, Suite 210
San Antonio, Texas 78216-4156
or at such other address as Principal may have advised each of the
parties hereto by Notice in writing.
7. ESCROW AGENT. Escrow Agent acts hereunder solely as a depository, and
the responsibility of the Escrow Agent extends only to the duties
affirmatively stated in this Agreement and to the exercise of ordinary
diligence. No implied duties or obligations of Escrow Agent shall be
read into this Escrow Agreement, and Escrow Agent shall not in any
event be required to construe or determine the rights of any party
under this Agreement.
Escrow Agent shall in no way be responsible for, nor shall it have any
duty to notify, any party hereto or any other party interested in this
Escrow Agreement of any payment required or maturity occurring under
this Escrow Agreement or under the terms of any instrument deposited
hereunder.
Escrow Agent may consult with its attorneys as to any matters
incidental to duties hereunder and shall be fully protected and incur
no liability when acting thereon in accordance with the advice of its
attorneys. Escrow Agent shall not be responsible for any act or
omission, except for actual fraud, dishonesty or bad faith. Escrow
Agent may rely upon any such instructions and deliver the Escrow Fund
as directed without further investigation. Escrow Agent shall be
protected in acting upon any written notice, request, waiver, consent,
certificate, receipt, authorization, power of attorney or other paper
or document that Escrow Agent, in good faith, believes to be genuine
and what it purports to be, including, but not limited to, items
directing investment or non-investment of funds, items requesting or
authorizing release, disbursement or retainage of the subject matter
of Escrow Agreement and items amending the terms of this Escrow
Agreement.
In the event of dispute arising between and/or among any two or more
of the parties hereto, or if a claim is asserted with respect to the
Escrow Fund, the Escrow Agent may withhold any requested action until
the dispute is amicably resolved. In any event, Escrow Agent reserves
the right to deposit all property in its possession in connection with
this Agreement into the registry of a court of competent jurisdiction
in a concursus or other proceeding, upon directing Notice to the
parties as provided hereinabove, and thereby shall be relieved of any
further responsibility under this Agreement. The Escrow Agent shall be
entitled to reimbursement for all legal fees and costs incurred by it
in connection with any concursus, interpleader or other action filed
by Escrow Agent hereunder and in connection with any dispute or claim
involving the distribution of the Escrow Fund.
Each person comprising Principal hereby jointly, severally and
solidarily agrees to indemnify and hold harmless the Escrow Agent from
and against all losses, costs, claims, demands, expenses and damages
and attorneys fees suffered or incurred by Escrow Agent as a result of
any litigation or cause of action arising from, or in conjunction
with, this Agreement or involving the subject matter hereof.
If any party to this Agreement is a legal entity other than a natural
person, the Escrow Agent may conclusively presume that the undersigned
representative of such party has full power and authority to instruct
Escrow Agent on behalf of such party, unless written notice to the
contrary is delivered to Escrow Agent.
8. *COMPENSATION, FEES, ETC. Escrow Agent shall be entitled to reasonable
compensation for its services hereunder and to reimbursement for its
costs and expenses in connection with its performance of services
under this Agreement (including amounts representing reasonable fees
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and expenses of Escrow Agent's counsel and accountants). Such
compensation, fees, costs and expenses shall be paid from the income
earned on the Escrow Fund, but if such amounts are unpaid, in whole or
in part, the Escrow Agent shall be entitled to deduct such amounts
from the Escrow Fund.
9. ASSIGNMENT. No assignment of the rights of any party to this Agreement
shall be valid and enforceable without the prior written consent of
all of the parties hereto.
10. SUCCESSOR ESCROW AGENT. Escrow Agent may resign at any time by giving
written notice to the other parties hereto, whereupon such parties
agree to immediately appoint a successor escrow agent. Until a
successor escrow agent has been named and accepts its appointment or
until another disposition of the Escrow Fund has been agreed upon by
all parties hereto, Escrow Agent shall be discharged of all of its
duties hereunder save to keep the Escrow Fund whole.
* Such compensation not to exceed the sum of $1,000.00.
* Such fees not to exceed the sum of $500.00.
12. CONTROLLING LAW. The validity of this Agreement, the construction of
its terms and the determination of the rights and duties of the
parties hereto shall be governed by, and construed in accordance with,
the laws of the State of Louisiana.
WITNESSES: BRECHTEL ENERGY CORPORATION
BY:
BURKS OIL & GAS PROPERTIES, INC.
BY:
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RIO GRANDE OFFSHORE, LTD.
BY ITS GENERAL PARTNER,
RIO GRANDE DRILLING COMPANY
BY:
GULF SOUTH BANK AND TRUST COMPANY
BY:
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IRREVOCABLE POWER OF ATTORNEY
STATE OF LOUISIANA
PARISH OF ORLEANS
KNOW ALL MEN BY THESE PRESENTS, THAT, the following undersigned parties:
RHC ASSOCIATES, L.L.C., a Louisiana limited liability company,
represented by Peter P. Brechtel, Jr., whose mailing address is 19331 North 12th
Street, Covington, Louisiana 70433;
TEAM AMERICA, represented by John C. Wilshusen, President, whose
mailing address is 5005 Laurel Street, Suite 112, Tampa, Florida 35607;
DOUBLE H ENTERPRISES, INC., a Louisiana corporation, represented by
Hank W. Helmer, President, whose mailing address is Post Office Box 1670,
Gretna, Louisiana 70053;
CIG EXPLORATION, INC., a Louisiana corporation, represented by Arthur
T. Cerniglia, President, whose mailing address is 5321 Janice Avenue, Kenner,
Louisiana 70065;
REVEILLE RESOURCES, INC., a Louisiana corporation, represented by
Michael C. McKeogh, President, whose mailing address is 601 Poydras Street,
Suite 2421, New Orleans, Louisiana 70130;
DONALD H. BURKS, whose mailing address is 15318 Poplar Grove Drive,
Houston, Texas 77068; and
MARY CHASSAIGNAC BURKS, whose mailing address is 15318 Poplar Grove
Drive, Houston, Texas 77068,
collectively, hereinafter referred to as "Principal" or "Principals," do hereby
declare, make, constitute and appoint BRECHTEL ENERGY CORPORATION ("Agent") to
be their true and lawful agent and attorney-in-fact, to act for them and in
their name, place and stead, to execute a Purchase and Sale Agreement and to
appear before any Notary Public and execute an Assignment, Bill of Sale and
Conveyance assigning, conveying, granting and delivering unto RIO GRANDE
OFFSHORE, LTD., with special and limited warranty, all of each Principal's
undivided right, title and interest in and to the Assets as described in that
certain Letter of Intent (the Agreement") dated November 6, 1996 by and between
Brechtel Energy Corporation and Rio Grande Offshore, Ltd., attached hereto as
Exhibit "A," such conveyance to be for a price and on terms substantially the
same as contained in said Agreement.
The Principals further declare that they do hereby authorize the said
Agent to incorporate in said instrument such terms, conditions and agreements as
said Agent shall deem meet and proper in his own sole and uncontrolled
direction, to sign all papers, documents and acts necessary in order to convey
their interest in the above described property, to receive and receipt for the
proceeds thereof and to do any and all things the said Agent, in his sole
discretion, deems necessary or proper in connection therewith to carry out the
intent and purpose of the Agreement.
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The Principals do further declare that they do hereby give and grant
unto Agent, as their agent and attorney-in-fact, full and complete power to
perform any and all acts necessary and proper in the premises as fully and with
the same force and effect as the Principals were they personally present and
acting for themselves, hereby ratifying and confirming all that such Agent shall
lawfully do, or shall have lawfully done, in carrying out the purposes for which
the powers herein described are hereby granted.
Principals acknowledge and understand that Agent is undertaking this
office for purposes of accommodation and convenience, only, in completing the
transaction contemplated by the Agreement and, therefore, Agent shall have no
liability or responsibility whatsoever respecting the transaction, its
consummation, the results emanating therefrom or any financial consequences to
any principal individually, including, without limitation, any federal, state or
local tax consequences arising out of treatment of the contemplated transaction
for tax purposes. Principals, furthermore, hereby indemnify and hold Agent
harmless from any claim for loss, cause of action (even if brought by a member
or members of the group of principals herein appearing) or damages occurring,
directly or indirectly, as a result of the consummation or non-consummation of
the contemplated transaction, including, without limitation, attorney fees,
costs of court and expenses of expert witnesses incurred by Agent in defending
such claims for loss or damage or other causes of action; provided, however,
Principal's indemnification shall not be available to Agent where Agent has
acted with gross negligence or wilful misconduct.
This Irrevocable Power of Attorney may be executed in any number of
counterpart instruments and shall be binding upon each party so executing. The
signature and acknowledgment pages of such instruments may be combined into a
single instrument for purposes of filing same in the public records.
THIS DONE AND PASSED on the day of execution by each principal in the
presence of the undersigned competent witnesses, but effective as of November 1,
1996.
WITNESSES: RHC ASSOCIATES, L.L.C.
BY:
NAME:
TITLE:
DATE:
TEAM AMERICA
BY:
NAME: John C. Wilshusen
TITLE: President
DATE:
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ENTERPRISES, INC.
BY:
NAME: Hank W. Helmer
TITLE: President
DATE:
CIG EXPLORATION, INC.
BY:
NAME: Arthur T. Cerniglia
TITLE: President
DATE:
REVEILLE RESOURCES, INC.
BY:
NAME: Michael C. McKeogh
TITLE: President
DATE:
DONALD H. BURKS
BY:
NAME: Donald H. Burks
DATE:
MARY CHASSAIGNAC BURKS
BY:
NAME: Mary Chassaignac Burks
DATE:
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STATE OF LOUISIANA
PARISH OF ____________
On this day of November, 1996, before me personally appeared PETER P.
BRECHTEL, JR. to me personally known, who, being by me duly sworn, did say that
he is the representative of RHC ASSOCIATES, L.L.C. and that said instrument was
signed of said corporation by authority of its Board of Directors and said Peter
P. Brechtel, Jr. acknowledged said instrument to be the free act and deed of
said corporation.
NOTARY PUBLIC
STATE OF LOUISIANA
PARISH OF _________________
On this day of November, 1996, before me personally appeared HANK W. HELMER
to me personally known, who, being by me duly sworn, did say that he is the
President of DOUBLE H ENTERPRISES, INC. and that said instrument was signed of
said corporation by authority of its Board of Directors and said Hank W. Helmer
acknowledged said instrument to be the free act and deed of said corporation.
NOTARY PUBLIC
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STATE OF LOUISIANA
PARISH OF __________________
On this day of November, 1996, before me personally appeared ARTHUR T.
CERNIGLIA to me personally known, who, being by me duly sworn, did say that he
is the President of CIG EXPLORATION, INC. and that said instrument was signed of
said corporation by authority of its Board of Directors and said Arthur T.
Cerniglia acknowledged said instrument to be the free act and deed of said
corporation.
NOTARY PUBLIC
STATE OF LOUISIANA
PARISH OF _________________
On this day of November, 1996, before me personally appeared MICHAEL C.
MCKEOGH to me personally known, who, being by me duly sworn, did say that he is
the President of REVEILLE RESOURCES, INC. and that said instrument was signed of
said corporation by authority of its Board of Directors and said Michael C.
McKeogh acknowledged said instrument to be the free act and deed of said
corporation.
NOTARY PUBLIC
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STATE OF ___________
COUNTY OF ___________
On this day of November, 1996, before me personally appeared JOHN C.
WILSHUSEN to me personally known, who, being by me duly sworn, did say that he
is the President of TEAM AMERICA and that this instrument was signed in behalf
of said corporation by authority of its Board of Directors and said John C.
Wilshusen acknowledged said instrument to be the free act and deed of said
corporation.
NOTARY PUBLIC
STATE OF TEXAS
COUNTY OF
On this day of November, 1996, before me, the undersigned authority,
personally came and appeared DONALD H. BURKS, to me known to be the person
described in and who executed the foregoing instrument, and acknowledged that he
executed the same as his free act and deed.
NOTARY PUBLIC
STATE OF TEXAS
COUNTY OF
On this day of November, 1996, before me, the undersigned authority,
personally came and appeared MARY CHASSAIGNAC BURKS, to me known to be the
person described in and who executed the foregoing instrument, and acknowledged
that he executed the same as his free act and deed.
NOTARY PUBLIC
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EXHIBIT "E"
Attached to, and made part of, that certain
Purchase and Sale Agreement dated November ,
1996 by and
between Brechtel Energy Corporation, Seller, and Rio
Grande Offshore, Ltd., Buyer.
The following is stock on hand on a well-by-well basis at 7:00 A.M.,
November 1, 1996:
BARRELS OF OIL
Cavenham Energy Resources #1 517.70
Cavenham Energy Resources #2 711.42
Cavenham Energy Resources #3 544.42
Ragley Lumber Company #1 646.29
Powell Lumber Company #1 275.55
Crosby Land & Resources #1 (Long-String) 647.96
Crosby Land & Resources #1-D (Short-String) 401.64
Ragley Lumber Company #2
(Formerly Ballard-Ragley #1) 120.24
Tank Battery 20.00
TOTAL STOCK ON HAND AT 7:00 A.M.,
<PAGE>
NOVEMBER 1, 1996 3,885.22
AVERAGE PRICE OF OIL SOLD FOR OCTOBER 25.038
DOLLAR VALUE OF STOCK ON HAND 97,278.14
LESS SEVERANCE TAX AT 12.42% (12,081.94)
NET VALUE OF STOCK ON HAND 85,196.20
NET REVENUE WORKING INTEREST .729122769
DOLLAR VALUE OF STOCK ON HAND
ATTRIBUTABLE TO W.I. $62,118.49
<PAGE>
LLC AUTHORITY TO SELL
1. The undersigned hereby certify to RIO GRANDE OFFSHORE, LTD. ("Buyer")
and to its successors and assigns, that:
a. The undersigned are all the members of, and all the parties
owning any interest in, RHC ASSOCIATES, L.L.C. ("L.L.C."), a
limited liability company formed under the laws of the State of
Louisiana.
b. The principal office of the LLC is located at 19331 North 12th
Street, Covington, Louisiana 70433.
c. The Articles of Organization (the "Articles" ) of the LLC, dated
January 24, 1996, and the Operating Agreement of the LLC, dated
January 31, 1996, are in full force and effect and have not been
amended or modified as of the date hereof.
d. The LLC's federal employer identification number is 72-1314351.
e. The LLC is composed of the following members:
BRECHTEL ENERGY CORPORATION 34.5284%
19331 North 12th Street
Covington, Louisiana 70433
E-1
<PAGE>
COASTAL ENERGY CORPORATION 31.1233%
Post Office Box 1670
Gretna, Louisiana 70056
MUD MOTORS, INC. 10.0000%
Post Office Box 1670
Gretna, Louisiana 70056
ATC PROPERTIES, INC. 8.6321%
19331 North 12th Street
Covington, Louisiana 70433
E-2
<PAGE>
MILLER, PATRICK & ROWE, INC. 7.1979%
2439 Manhattan Boulevard, Suite 205
Harvey, Louisiana 70058
AFP EXPLORATION, INC. 2.8794%
3752 Lake Charles Drive
Gretna, Louisiana 70056
SUSAN BRECHTEL 2.8363%
19331 North 12th Street
Covington, Louisiana 70433
RICHARD J. THIBODEAUX 2.8026%
3121 Plymouth Place
New Orleans, Louisiana 70131
2. The undersigned hereby authorize PETER P. BRECHTEL, JR. (the Managing
Partner) for, and on behalf of, the LLC to sell, transfer and convey
unto RIO GRANDE OFFSHORE, LTD., a Texas Limited Partnership, 10101
Reunion Place, Union Square, Suite 210, San Antonio, Texas 78216, in
accordance with the terms and conditions of that certain Letter of
Intent, dated November 6, 1996, as amended, and a mutually agreeable
Purchase and Sale Agreement, all of the LLC's right, title and interest
to the Assets as defined in said Letter of Intent; which authorization
is permitted by, and effective under, applicable law, the Articles and
Operating Agreement.
E-3
<PAGE>
3. In connection with the authority granted in Article 2, above, the
Managing Partner may make, execute and deliver all acts and execute and
deliver all instruments and other agreements deemed necessary or
appropriate by the Managing Partner, from time to time, in order to
carry out the purposes of this LLC Authority to Sell, including,
without limitation, an Irrevocable Power of Attorney authorizing
Brechtel Energy Corporation to act for, and on behalf of, the LLC in
execution of a Purchase and Sale Agreement and a Conveyance, Assignment
and Bill of Sale.
4. The undersigned agree that this LLC Authority to Sell shall remain in
full force and effect until the actual receipt by Buyer of a written
notice of revocation or of a change signed by all of the members of the
LLC. IN WITNESS WHEREOF, we have cause this agreement to be duly
executed this day of November, 1996.
WITNESSES: BRECHTEL ENERGY CORPORATION
By:
PETER P. BRECHTEL, JR., PRESIDENT
E-4
<PAGE>
COASTAL ENERGY CORPORATION
By:
MUD MOTORS, INC.
By:
ATC PROPERTIES, INC.
By:
E-5
<PAGE>
MILLER, PATRICK & ROWE, INC.
By:
AFP EXPLORATION, INC.
By:
SUSAN BRECHTEL
RICHARD J. THIBODEAUX
E-6
<PAGE>
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me personally appeared PETER P.
BRECHTEL, JR. to me personally known, who, being by me duly sworn, did say that
he is the President of BRECHTEL ENERGY CORPORATION and that said instrument was
signed on behalf of said corporation by authority of its Board of Directors and
said Peter P. Brechtel, Jr. acknowledged said instrument to be the free act and
deed of said corporation.
NOTARY PUBLIC
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me personally appeared to me
personally known, who, being by me duly sworn, did say that he is the of COASTAL
ENERGY CORPORATION and that said instrument was signed on behalf of said
corporation by authority of its Board of Directors and said acknowledged said
instrument to be the free act and deed of said corporation.
NOTARY PUBLIC
E-7
<PAGE>
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me personally appeared to me
personally known, who, being by me duly sworn, did say that he is the of MUD
MOTORS, INC. and that said instrument was signed on behalf of said corporation
by authority of its Board of Directors and said acknowledged said instrument to
be the free act and deed of said corporation.
NOTARY PUBLIC
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me personally appeared to me
personally known, who, being by me duly sworn, did say that he is the of ATC
PROPERTIES, INC. and that said instrument was signed on behalf of said
corporation by authority of its Board of Directors and said acknowledged said
instrument to be the free act and deed of said corporation.
NOTARY PUBLIC
E-8
<PAGE>
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me personally appeared to me
personally known, who, being by me duly sworn, did say that he is the of MILLER,
PATRICK & ROWE, INC. and that said instrument was signed on behalf of said
corporation by authority of its Board of Directors and said acknowledged said
instrument to be the free act and deed of said corporation.
NOTARY PUBLIC
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me personally appeared to me
personally known, who, being by me duly sworn, did say that he is the of AFP
EXPLORATION, INC. and that said instrument was signed on behalf of said
corporation by authority of its Board of Directors and said acknowledged said
instrument to be the free act and deed of said corporation.
NOTARY PUBLIC
E-9
<PAGE>
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me, the undersigned authority,
personally came and appeared SUSAN BRECHTEL, to me known to be the person
described in and who executed the foregoing instrument, and acknowledged that he
executed the same as his free act and deed.
NOTARY PUBLIC
E-10
<PAGE>
STATE OF LOUISIANA
PARISH OF
On this day of November, 1996, before me, the undersigned authority,
personally came and appeared RICHARD J. THIBODEAUX, to me known to be the person
described in and who executed the foregoing instrument, and acknowledged that he
executed the same as his free act and deed.
NOTARY PUBLIC
E-11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(This schedule contains summary financial information extracted from
this October 31, 1996 Form 10-QSB)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jan-31-1997
<PERIOD-END> Oct-31-1996
<CASH> 501399
<SECURITIES> 0
<RECEIVABLES> 848907
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1361997
<PP&E> 11502212
<DEPRECIATION> 3471026
<TOTAL-ASSETS> 10696024
<CURRENT-LIABILITIES> 2443537
<BONDS> 5589769
0
0
<COMMON> 55528
<OTHER-SE> 1520277
<TOTAL-LIABILITY-AND-EQUITY> 10696024
<SALES> 3732930
<TOTAL-REVENUES> 3732930
<CGS> 2937145
<TOTAL-COSTS> 3872045
<OTHER-EXPENSES> 934900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 488624
<INCOME-PRETAX> (274975)
<INCOME-TAX> 5648
<INCOME-CONTINUING> (280623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (280623)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
