<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1995.
REGISTRATION NO. 33-62177
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
APACHE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or
organization)
ONE POST OAK CENTRAL
2000 Post Oak Boulevard, Suite 100
Houston, Texas 77056-4400
(713) 296-6000
NO. 41-0747868
(I.R.S. Employer
Identification No.)
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Z. S. KOBIASHVILI
VICE PRESIDENT AND GENERAL COUNSEL
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
(713) 296-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
WILLIAM N. FINNEGAN, IV R. JOEL SWANSON
ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P.
TEXAS COMMERCE TOWER ONE SHELL PLAZA, 910 LOUISIANA
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002-4995
(713) 220-4200 (713) 229-1234
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
- ------------------------------------------------------------------------------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 5, 1995
PROSPECTUS
6,800,000 SHARES
LOGO
COMMON STOCK
------------------------
All 6,800,000 shares of Common Stock, par value $1.25 per share (the
"Common Stock"), offered hereby (the "Shares") are being sold by Apache
Corporation ("Apache" or the "Company"). The Common Stock is listed on the New
York Stock Exchange (the "NYSE") under the trading symbol "APA." On August 31,
1995, the last reported sale price of the Common Stock as reported on the NYSE
was $29 1/8 per share. See "Price Range of Common Stock and Dividends."
SEE "RISK FACTORS" AT PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- ---------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
=============================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $450,000.
(3) The Company has granted the several Underwriters a 30-day option to purchase
up to an additional 1,020,000 shares to cover over-allotments, if any. If
all such shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company would be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The Shares are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of certificates
for the Shares will be made in New York, New York on or about ,
1995.
------------------------
MERRILL LYNCH & CO. DEAN WITTER REYNOLDS INC.
------------------------
The date of this Prospectus is , 1995.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE
CHICAGO STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (Commission File No. 1-4300) are
incorporated in and made a part of this Prospectus:
(i) Annual Report on Form 10-K/A for the fiscal year ended December 31,
1994, filed August 2, 1995.
(ii) Quarterly Report on Form 10-Q/A for the quarter ended March 31,
1995, filed August 4, 1995.
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995,
filed August 14, 1995.
(iv) Current Report on Form 8-K dated March 1, 1995, amended by Amendment
No. 1 on Form 8-K/A, filed March 22, 1995.
(v) Current Report on Form 8-K/A dated May 17, 1995, filed July 17, 1995.
(vi) Current Report on Form 8-K dated June 30, 1995, filed July 24, 1995.
(vii) Registration Statement on Form 8-A dated January 21, 1986, for the
Common Stock purchase rights issued under the Company's Rights
Agreement dated January 10, 1986.
All documents which the Company files pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering described herein (the "Offering") shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents. Any statement contained in a
document incorporated by reference, or deemed to be incorporated by reference,
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document or in any accompanying prospectus supplement modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all
documents described above (other than exhibits thereto, unless such exhibits are
specifically incorporated by reference into the documents that this Prospectus
incorporates by reference). Requests should be addressed to Apache Corporation,
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas
77056-4400, Attention: Corporate Secretary (telephone (713) 296-6000).
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements (including the notes thereto)
appearing elsewhere in this Prospectus or incorporated by reference in this
Prospectus. Unless otherwise indicated, information in this Prospectus assumes
that the Underwriters' over-allotment option will not be exercised. See
"Underwriting." Unless otherwise indicated, the information in this Prospectus
includes the effects of (i) the acquisition on March 1, 1995 of certain U.S. oil
and gas properties from Texaco Exploration and Production Inc. ("Texaco") from
and after the acquisition date, and (ii) the restatement of the Company's
financial, operating and reserve information to include DEKALB Energy Company
("DEKALB") on a combined basis effective for all periods as a result of the
Company's May 17, 1995 acquisition of DEKALB, which was accounted for as a
pooling of interests. Investors should carefully consider the information set
forth under the heading "Risk Factors."
THE COMPANY
OVERVIEW
Apache Corporation, a Delaware corporation formed in 1954, is an
independent energy company that explores for, develops, produces, gathers,
processes and markets crude oil and natural gas. In North America, Apache's
exploration and production interests are spread over 15 states and two Canadian
provinces, focusing on the Gulf of Mexico, the Anadarko Basin, the Permian
Basin, the Gulf Coast, the Rocky Mountains and the Western Sedimentary Basin of
Canada. Outside of North America, Apache has exploration and production
interests offshore Western Australia and exploration interests in Egypt and
Indonesia and offshore China and the Ivory Coast. Apache's Common Stock has been
listed on the NYSE since 1969 and on the Chicago Stock Exchange (the "CSE")
since 1960.
As of December 31, 1994, on a pro forma basis giving effect to the
completed Texaco and DEKALB transactions and the pending Aquila acquisition
(discussed below), and net of completed and pending property dispositions in
1995, the Company's estimated proved reserves were 420 MMboe, of which
approximately 62% was natural gas.
Apache's growth strategy is to increase reserves, production and cash flow
through a combination of acquisitions, moderate-risk drilling and development of
its inventory of existing projects. The Company emphasizes reducing operating
costs and selling marginal and non-strategic properties. An emerging aspect of
Apache's strategy is its exploration and development activity in the
international arena in pursuit of larger reserve targets than are generally
available domestically. Several recent international discoveries have created an
inventory of development projects to be drilled in the next several years.
Property acquisition is only one phase in a continuing cycle of Apache's
business growth. Apache's objective is to follow each material acquisition with
a cycle of reserve enhancement, property consolidation and cash flow
acceleration, facilitating asset growth and debt reduction. This approach
requires well-planned and carefully executed property development and a
commitment to a selective program of ongoing property dispositions. Apache
targets acquisitions that have ascertainable additional reserve potential to
which it applies an active drilling, workover and recompletion program to
realize the potential of the undeveloped and partially developed properties. In
1994, the Company replaced over 114% of U.S. production through its drilling,
workover and recompletion program. Apache prefers to operate its properties so
that it can more efficiently influence their development and currently operates
properties accounting for over 75% of its current production.
3
<PAGE> 5
RECENT DEVELOPMENTS
On August 28, 1995, the Company entered into a purchase and sale agreement
with Aquila Energy Resources Corporation ("Aquila"), a wholly owned, indirect
subsidiary of UtiliCorp United Inc. ("UtiliCorp"), to acquire substantially all
the assets of Aquila (the "Aquila Assets") for approximately $198 million,
subject to certain adjustments. The oil and gas properties included in the
Aquila Assets are located primarily in the Anadarko Basin, the Gulf Coast, the
Gulf of Mexico and the Permian Basin, in many cases in close proximity to
existing Apache properties. These properties are concentrated, with the largest
seven fields representing approximately three quarters of proved reserves and
the largest 15 fields representing more than 90% of proved reserves. Five of the
largest seven fields are operated by Aquila. Based on information provided to
the Company by Aquila, the Aquila Assets represented estimated proved reserves
of approximately 26 MMboe at December 31, 1994. The composition of the estimated
proved reserves included in the Aquila Assets was approximately 77% gas at
December 31, 1994. The Aquila Assets also include a favorable long-term gas
sales contract at escalating prices, with an allocated value under the purchase
agreement of $28.7 million. The Company intends to finance the acquisition of
the Aquila Assets with a portion of the net proceeds of the Offering and a
transaction involving a deferred tax-free, like-kind exchange of properties.
The Company has consummated two other significant acquisitions in 1995. On
March 1, 1995, the Company purchased certain U.S. oil and gas properties from
Texaco for an adjusted purchase price of $564 million, effective as of January
1, 1995. The Texaco properties comprised estimated proved reserves at the
effective date of 105 MMboe (after adjustment for the exercise of preferential
rights and properties excluded following due diligence, and using unescalated
prices), of which approximately 70% was oil. Prior to the time of purchase, the
average daily production of the acquired properties was approximately 20 Mbbls
of oil and 85 MMcf of gas. On May 17, 1995, Apache acquired DEKALB, an oil and
gas company engaged in the exploration for, and the development of, crude oil
and natural gas in Canada, pursuant to a merger agreement under which Apache
issued 8.4 million shares of Common Stock in exchange for all outstanding DEKALB
capital stock and DEKALB employee stock options outstanding at the time of the
merger and tendered to Apache. At year-end 1994, DEKALB's estimated proved
reserves, located almost entirely in Canada, were 300 Bcf of natural gas and 11
MMbbls of hydrocarbon liquids, or a total of 61 MMboe.
During the first half of 1995, Apache received $73 million from completed
dispositions of oil and gas properties as part of its previously announced plans
to sell lower-margin and non-strategic properties. On September 1, 1995, Apache
disposed of certain of its Rocky Mountain properties to Citation 1994 Investment
Limited Partnership ("Citation") for consideration of approximately $151
million, subject to adjustment. These assets include Apache's interest in 138
fields with approximately 1,600 active wells located in Colorado, Montana, North
Dakota, South Dakota, Utah and Wyoming, with average daily production of
approximately 9 Mbbls of oil and 9 MMcf of natural gas. Estimated proved
reserves attributable to completed and pending property dispositions in 1995
were 41 MMboe at December 31, 1994.
4
<PAGE> 6
SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION
The following table sets forth summary pro forma information with respect
to the Company's estimated proved oil and gas reserves as of December 31, 1994,
giving effect to the completed DEKALB and Texaco transactions, the pending
Aquila acquisition and certain completed and pending dispositions of
non-strategic properties in 1995. The reserve information below is based on
estimates calculated as of December 31, 1994 and does not reflect production and
revisions since December 31, 1994 or changes in oil and gas prices, changes in
expectations of developing and producing proved undeveloped reserves (including
offshore), changes in marketing expectations and access to markets or changes in
estimates of recoverable reserves resulting from price changes. The reserves
attributable to the completed DEKALB and Texaco acquisitions and the pending
Aquila acquisition were not owned by the Company on such date. The Company has
made other acquisitions and dispositions of property interests during 1995 which
in the aggregate are not material. All estimates of oil and gas reserves are
subject to significant uncertainty. See "Risk Factors."
<TABLE>
<CAPTION>
APACHE AND 1995 TOTAL
DEKALB(1) TEXACO(2) AQUILA(3) DISPOSITIONS(4) PROVED
---------- --------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Oil and natural gas liquids (Mbbls).... 110,624 73,597 6,035 29,166 161,090
Natural gas (MMcf)..................... 1,316,155 186,495 120,857 68,351 1,555,156
Equivalent reserves (Mboe)............. 329,983 104,680 26,178 40,558 420,283
Present value of estimated future net
cash flows, before income taxes,
discounted at 10% (in thousands)..... $1,600,927 $ 368,518 $ 110,120 $ 149,650 $1,929,915
</TABLE>
- ---------------
(1) On May 17, 1995, the Company acquired DEKALB through a merger that was
accounted for under the pooling of interests method.
(2) On March 1, 1995, the Company acquired certain properties from Texaco,
effective January 1, 1995.
(3) The Company proposes to acquire certain properties from Aquila effective
concurrently with and conditioned on the consummation of the Offering.
Netherland, Sewell & Associates, Inc. ("Netherland, Sewell") estimated
reserves owned by Aquila as of December 31, 1994. Since that time, Aquila
has acquired additional property interests included in the amounts set forth
above. Netherland, Sewell has estimated total proved reserves of Aquila as
of December 31, 1994 in the approximate amounts of 2,781 Mbbls of oil and
106,535 MMcf of gas (totaling 20,537 Mboe), and $92 million of present value
of estimated future net cash flows, before income taxes, discounted at 10%
(which amounts exclude the properties acquired by Aquila in 1995).
(4) The reserves shown give effect to the September 1, 1995 disposition of
certain Rocky Mountain properties valued at approximately $151 million, the
sale of $20 million in properties on April 1, 1995, the sale of $31 million
in properties on May 1, 1995, and other smaller sales.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock offered............... 6,800,000 shares
Shares of Common Stock to be outstanding
after the Offering(1)...................... 76,714,519 shares
Use of Proceeds.............................. To provide a portion of the funds to acquire
the Aquila Assets and to reduce amounts
outstanding under the Company's principal
revolving credit facility. The Company may
subsequently reborrow under the facility to
finance future acquisitions of additional oil
and gas properties or for other corporate
purposes. See "Use of Proceeds" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
NYSE Symbol.................................. APA
</TABLE>
- ---------------
(1) Based on shares outstanding as of June 30, 1995. Does not include the
following shares of Common Stock reserved for issuance (subject to
adjustment): 2,777,778 shares issuable on conversion of the 3.93%
convertible notes at $27.00 per share; 5,622,555 shares issuable on
conversion of the 6% Convertible Subordinated Debentures due 2002 at $30.68
per share; 122,606 shares reserved for the dividend reinvestment plan with
respect to the Common Stock; 400,000 shares reserved for the
retirement/401(k) savings plan; and 3,411,200 shares reserved under
existing employee stock option plans, including 911,197 shares issuable on
the exercise of employee stock options outstanding as of June 30, 1995 and
359,400 shares issuable on the exercise of employee stock options granted
August 23, 1995. Does not include 2,000,000 shares of Common Stock issuable
from time to time in connection with the Company's private merger program.
The Company currently has a policy of reserving one share of Common Stock
for each share outstanding or otherwise reserved to provide for any
issuances under the Company's Rights Agreement.
Quantities of natural gas are expressed in terms of thousand cubic feet
("Mcf"), million cubic feet ("MMcf") or billion cubic feet ("Bcf"). Oil (which
includes condensate) is quantified in terms of barrels ("bbls"), thousands of
barrels ("Mbbls") or millions of barrels ("MMbbls"). One barrel of oil is the
energy equivalent of six Mcf of natural gas, expressed as a barrel of oil
equivalent ("boe"). Natural gas is compared to oil in terms of thousand barrels
of oil equivalents ("Mboe") and in million barrels of oil equivalents ("MMboe").
Oil and natural gas liquids are compared with natural gas in terms of million
cubic feet equivalent ("MMcfe") and billion cubic feet equivalent ("Bcfe").
Daily oil and gas production is expressed in terms of barrels of oil per day
("bopd") and thousands of cubic feet per day ("Mcfd"), respectively. The
Company's "net" working interest in wells or acreage is determined by
multiplying gross wells or acreage by the Company's working interest therein.
Unless otherwise specified, all references to wells and acres are gross.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL, OPERATING AND RESERVE DATA
The following table sets forth certain information regarding Apache's
consolidated results of operations, financial position and operating and reserve
data as of and for the periods indicated. On May 17, 1995, Apache acquired
DEKALB through a merger which was accounted for under the pooling of interests
method. As a result, the financial, operating and reserve data presented below
has been restated to present Apache and DEKALB on a combined basis, including
certain conforming adjustments to depreciation, depletion and amortization and
income taxes. The data presented below should be read in conjunction with the
Company's consolidated financial statements and the notes thereto incorporated
by reference in this Prospectus. The following financial information is not
necessarily indicative of future results of the Company. See also "Selected
Consolidated Financial, Operating and Reserve Data."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992(1)
---------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AND PER UNIT AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas production revenues...................... $ 538,389 $ 481,848 $ 453,835
Consolidated revenues................................ 592,626 512,632 517,403
Net income (loss).................................... 45,583 46,755 (15,682)
Net income (loss) per common share................... .65 .75 (.28)
Cash dividends per common share(2)................... .28 .28 .28
CASH FLOW DATA:
Net income (loss) from continuing operations......... $ 45,583 $ 41,421 $ (14,632)
Depreciation, depletion and amortization............. 257,821 198,320 179,876
Impairments.......................................... 7,300 23,200 65,320
Amortization of deferred loan costs.................. 3,987 3,896 3,888
Provision for deferred income taxes.................. 24,385 20,539 (998)
Gain on sale of investment in affiliate.............. -- -- (30,259)
Change in working capital and other.................. 18,693 (31,385) 19,758
---------- ---------- ----------
Net cash provided by operating activities....... $ 357,769 $ 255,991 $ 222,953
========= ========= =========
BALANCE SHEET DATA (period end):
Working capital (deficit)............................ $ (3,203) $ (55,538) $ (32,775)
Total assets......................................... 2,036,627 1,759,203 1,774,767
Long-term debt....................................... 719,033 504,334 524,098
Shareholders' equity................................. 891,087 868,596 554,524
PRODUCTION DATA:
Oil (Mbbls).......................................... 13,815 13,036 13,465
Natural gas (MMcf)................................... 176,397 131,591 119,962
Natural gas liquids (Mbbls).......................... 724 733 885
Equivalent production (Mboe)......................... 43,939 35,701 34,344
AVERAGE SALES PRICE:
Oil (per bbl)........................................ $ 15.65 $ 16.74 $ 18.11
Natural gas (per Mcf)................................ 1.78 1.94 1.66
Natural gas liquids (per bbl)........................ 11.28 11.55 11.79
RESERVE DATA -- PROVED (period end):
Oil and natural gas liquids (Mbbls).................. 110,624 102,957 94,643
Natural gas (MMcf)................................... 1,316,155 1,125,630 919,642
Equivalent reserves (Mboe)........................... 329,983 290,562 247,917
Present value of estimated future net cash flows,
before income taxes, discounted at 10%............ $1,600,927 $1,626,096 $1,272,952
</TABLE>
- ---------------
(See notes on following page)
7
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1995(3)(4) 1994 1995(3)(4) 1994
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT
AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas production revenues............ $ 174,519 $ 134,440 $ 317,708 $ 259,418
Consolidated revenues...................... 206,052 147,054 373,770 279,775
Net income................................. 537 12,907 4,620 21,132
Net income per common share................ .01 .19 .07 .30
Cash dividends per common share(2)......... .07 .07 .14 .14
CASH FLOW DATA:
Net income from continuing operations...... $ 537 $ 12,907 $ 4,620 $ 21,132
Depreciation, depletion and amortization
........................................ 78,830 61,969 148,625 122,226
Impairments................................ -- 2,800 -- 6,300
Amortization of deferred loan costs........ 1,150 965 2,373 1,744
Provision for deferred income taxes........ 17,358 7,721 19,773 12,252
Change in working capital and other........ (21,165) (6,587) (34,152) (22,964)
---------- ---------- ---------- ----------
Net cash provided by operating
activities......................... $ 76,710 $ 79,775 $ 141,239 $ 140,690
========= ========= ========= =========
BALANCE SHEET DATA (period end):
Working capital (deficit).................. $ 21,511 $ (19,685) $ 21,511 $ (19,685)
Total assets............................... 2,554,557 1,823,797 2,554,557 1,823,797
Long-term debt............................. 1,207,913 578,181 1,207,913 578,181
Shareholders' equity....................... 890,542 876,978 890,542 876,978
PRODUCTION DATA:
Oil (Mbbls)................................ 5,122 3,381 9,152 6,690
Natural gas (MMcf)......................... 54,361 41,830 104,159 81,321
Natural gas liquids (Mbbls)................ 174 186 365 364
Equivalent production (Mboe)............... 14,356 10,539 26,878 20,607
AVERAGE SALES PRICE:
Oil (per bbl).............................. $ 17.48 $ 15.98 $ 17.20 $ 14.42
Natural gas (per Mcf)...................... 1.52 1.87 1.50 1.96
Natural gas liquids (per bbl).............. 12.19 11.09 12.14 10.61
</TABLE>
- ---------------
(1) Includes a $40.6 million after-tax writedown of DEKALB's oil and gas
properties and a $25.6 million after-tax loss from the sale of
substantially all of DEKALB's U.S. assets. Also includes a $19.8 million
after-tax gain resulting from the sale by the Company of its 36.67%
interest in Natural Gas Clearinghouse.
(2) No cash dividends were paid on outstanding DEKALB common stock in 1995,
1994, 1993 or 1992.
(3) The three months and six months ended June 30, 1995 include the effect of
the acquisition of properties from Texaco on March 1, 1995.
(4) Includes nonrecurring transaction costs totaling $8.7 million after tax
relating to the DEKALB merger.
8
<PAGE> 10
RISK FACTORS
Prospective investors should carefully review the following factors
together with the other information contained in this Prospectus prior to making
an investment decision.
EFFECT OF VOLATILE PRODUCT PRICES
The Company's future financial condition and results of operations will
depend upon the prices received for the Company's oil and natural gas production
and the costs of acquiring, finding, developing and producing reserves. Prices
for oil and natural gas are subject to fluctuations in response to relatively
minor changes in supply, market uncertainty and a variety of additional factors
that are beyond the control of the Company. These factors include worldwide
political instability (especially in the Middle East and other oil-producing
regions), the foreign supply of oil and gas, the price of foreign imports, the
level of consumer product demand, government regulations and taxes, the price
and availability of alternative fuels and the overall economic environment. A
substantial or extended decline in oil and gas prices would have a material
adverse effect on the Company's financial position, results of operations,
quantities of oil and gas that may be economically produced and access to
capital. In addition, the sale of the Company's production depends upon a number
of factors beyond the Company's control, including the availability and capacity
of transportation and processing facilities.
Oil and natural gas prices have historically been volatile and are likely
to continue to be volatile in the future. Such volatility makes it difficult to
estimate the value of producing properties for acquisition and to budget and
project the return on exploration and development projects involving the
Company's producing properties. In addition, unusually volatile prices often
disrupt the market for oil and gas properties, as buyers and sellers have more
difficulty agreeing on the purchase price of properties.
The Company engages in hedging activities with respect to some of its
projected oil and gas production through a variety of financial arrangements
designed to protect against price declines, including swaps, collars and futures
agreements. To the extent that Apache engages in such activities, it may be
prevented from realizing the benefits of price increases above the levels of the
hedges. Because the Company's reserve base was approximately 66% natural gas on
an energy equivalent basis as of December 31, 1994, it is more sensitive to
fluctuations in the price of natural gas than to fluctuations in the price of
oil.
The Company periodically reviews the carrying value of its oil and gas
properties under the full-cost accounting rules of the Commission. Under the
full-cost accounting rules, capitalized costs of oil and gas properties on a
country-by-country basis may not exceed the present value of estimated future
net revenues from proved reserves, discounted at 10%, plus the lower of cost or
fair market value of unproved properties as adjusted for related tax effects.
The test is applied at the unescalated prices in effect at the applicable time
and results in a write-down if the "ceiling" is exceeded, even if prices
declined for only a short period of time. Many full-cost companies, including
Apache, are concerned about the impact of prolonged unfavorable gas prices on
their ceiling test calculations. A further deterioration of oil or gas prices
from current levels could result in the Company recording a noncash charge to
earnings related to its oil and gas properties in 1995. The Commission's rules
permit the exclusion of capitalized costs and present value of recently acquired
properties in performing ceiling test calculations. Pursuant to these rules,
Apache has requested waivers and the Commission has granted one-year waivers
with respect to the properties acquired from Texaco and certain properties
acquired from Crystal Oil Company ("Crystal"). If the ceiling is exceeded on all
U.S. properties, Apache is permitted to perform an additional ceiling test
excluding the capitalized costs and present value of the properties acquired
from Texaco and Crystal and required to record a write-down of carrying value if
the ceiling is still exceeded. If a write-down is required, it would result in a
one-time charge to earnings and would not impact net cash flow from operating
activities.
RELIANCE ON ESTIMATES OF PROVED RESERVES AND FUTURE NET CASH FLOWS; DEPLETION OF
RESERVES
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth in this Prospectus or incorporated by
reference herein represent
9
<PAGE> 11
only estimates. In addition, the estimates of future net cash flows from proved
reserves of the Company and the present value thereof are based upon various
assumptions about future production levels, prices and costs that may prove to
be incorrect over time. Any significant variance from the assumptions could
result in the actual quantity of the Company's reserves and future net cash
flows therefrom being materially different from the estimates set forth in this
Prospectus or incorporated by reference herein. In addition, the Company's
estimated reserves may be subject to downward or upward revision based upon
production history, results of future exploration and development, prevailing
oil and gas prices, operating and development costs and other factors.
The rate of production from oil and gas properties declines as reserves are
depleted. Except to the extent that the Company acquires additional properties
containing proved reserves, conducts successful exploration and development
activities or, through engineering studies, identifies additional behind-pipe
zones or secondary recovery reserves, the proved reserves of the Company will
decline as reserves are produced. Future oil and gas production is, therefore,
highly dependent upon the Company's level of success in acquiring or finding
additional reserves.
ACQUISITION RISKS
The Company intends to continue acquiring oil and gas properties. Although
the Company performs a review of the acquired properties that it believes is
consistent with industry practices, such reviews are inherently incomplete. It
generally is not feasible to review in depth every individual property involved
in each acquisition. Ordinarily, the Company will focus its review efforts on
the higher-value properties and will sample the remainder. However, even a
detailed review of records and properties may not necessarily reveal existing or
potential problems, nor will it permit a buyer to become sufficiently familiar
with the properties to assess fully their deficiencies and potential.
Inspections may not always be performed on every well, and environmental
problems, such as ground water contamination, are not necessarily observable
even when an inspection is undertaken. Even when problems are identified, the
Company often assumes certain environmental and other risks and liabilities in
connection with acquired properties. There are numerous uncertainties inherent
in estimating quantities of proved oil and gas reserves and actual future
production rates and associated costs with respect to acquired properties, and
actual results may vary substantially from those assumed in the estimates. In
addition, there can be no assurance that acquisitions will not have an adverse
effect upon the Company's operating results, particularly during the periods in
which the operations of acquired businesses are being integrated into the
Company's ongoing operations.
OPERATING RISKS; AVAILABILITY OF INSURANCE
Exploration for and production of oil and natural gas can be hazardous,
involving unforeseen occurrences such as blowouts, cratering, fires and loss of
well control, which can result in damage to or destruction of wells or
production facilities, injury to persons, loss of life or damage to property or
the environment. The Company maintains insurance against certain losses or
liabilities arising from its operations in accordance with customary industry
practices and in amounts that management believes to be prudent. However,
insurance is not available to the Company against all operational risks, and the
occurrence of a significant event that is not fully insured could have a
material adverse effect on the Company's financial position.
COMPETITION
The oil and gas industry is highly competitive. As an independent oil and
gas company, the Company frequently competes for reserve acquisitions,
exploration leases, licenses, concessions and marketing agreements against
companies having substantially larger financial and other resources than the
Company possesses.
GOVERNMENT REGULATIONS
The Company's exploration, production and marketing operations are
regulated extensively at the federal, state and local levels, as well as by
other countries in which the Company does business. Oil and gas
10
<PAGE> 12
exploration, development and production activities are subject to various laws
and regulations governing a wide variety of matters. For example, most states in
which Apache operates regulate the quantities of natural gas that may be
produced from wells within their borders to prevent waste in the production of
natural gas and to protect the correlative rights of competing interest owners.
It is impossible at this time to determine what changes may occur with respect
to such regulations and what effect, if any, such changes may have on the
Company and the natural gas industry as a whole.
As an owner and operator of oil and gas properties, the Company is also
subject to various federal, state, local and foreign country environmental
regulations, including air and water quality control laws. These laws and
regulations may, among other things, impose liability on the lessee under an oil
and gas lease for the cost of pollution cleanup resulting from operations,
subject the lessee to liability for pollution damages, require suspension or
cessation of operations in affected areas and impose restrictions on the
injection of liquids into subsurface aquifers that may contaminate groundwater.
Although the Company believes that it is in substantial compliance with existing
applicable environmental laws and regulations, there can be no assurance that
substantial costs for compliance will not be incurred in the future. Moreover,
it is possible that other developments, such as stricter environmental laws,
regulations and enforcement policies thereunder, could result in additional,
presently unquantifiable, costs or liabilities to the Company.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
6,800,000 shares of Common Stock offered hereby are estimated to be $190 million
($219 million if the over-allotment option is exercised in full), assuming a
price to public of $29 1/8 per share. The Company intends to use approximately
$55 million of the net proceeds of the Offering to finance the pending
acquisition of the Aquila Assets, which are to be acquired for an aggregate
consideration of approximately $198 million, subject to adjustment.
Approximately $143 million of the consideration for the acquisition of the
Aquila Assets will be provided through a deferred tax-free, like-kind exchange
involving properties sold to Citation. See "Recent Developments." As a result,
the remainder of the net proceeds of the Offering will be applied to reduce
indebtedness under the Company's principal revolving credit facility.
On August 25, 1995, the amount outstanding under the revolving credit
facility was $754 million. Based upon the Company's public senior debt rating
and its ratio of debt to total capital on such date, the facility bears interest
at the First National Bank of Chicago's prime rate of interest plus .125%, or at
London Interbank Offered Rates ("LIBOR") plus 1.125%, at the Company's option,
and has a final maturity date of March 1, 2000. Amounts paid under the facility
may subsequently be reborrowed to finance future acquisitions of oil and gas
properties or for other corporate purposes. Advances under the revolving credit
facility during the past year were used primarily for property acquisitions and
working capital. As of August 25, 1995, the Company had $75 million available
for borrowing under the credit facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Subsequent Events."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the NYSE and the CSE and traded under the
symbol "APA." The following table sets forth, for the periods indicated, (i) the
high and low sale prices of the Common Stock as reported on the NYSE Composite
Transactions Reporting System, and (ii) the dividends paid on the Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE CASH
------------- DIVIDENDS
HIGH LOW PAID(1)
---- ---- --------------
<S> <C> <C> <C>
1993:
First Quarter....................................... $26 1/4 $17 5/8 $.07
Second Quarter...................................... 30 1/4 24 3/8 .07
Third Quarter....................................... 33 1/2 26 3/8 .07
Fourth Quarter...................................... 31 1/4 20 3/8 .07
1994:
First Quarter....................................... $26 7/8 $22 1/2 $.07
Second Quarter...................................... 29 22 1/4 .07
Third Quarter....................................... 29 1/4 23 .07
Fourth Quarter...................................... 28 7/8 23 5/8 .07
1995:
First Quarter....................................... $27 1/4 $22 3/8 $.07
Second Quarter...................................... 30 7/8 25 3/4 .07
Third Quarter (through August 31)................... 29 3/8 26 .07
</TABLE>
- ---------------
(1) No cash dividends were paid on outstanding DEKALB common stock in 1995, 1994
or 1993.
For a recent closing sale price for the Common Stock, as reported on the
NYSE Composite Transactions Reporting System, see the cover page of this
Prospectus. As of August 24, 1995, there were approximately 13,400 holders of
record of Common Stock. Each share of Common Stock also represents one Common
Stock purchase right that, under certain circumstances, would entitle the holder
to acquire additional shares of Common Stock. See "Description of Capital
Stock." The Company has paid cash dividends on its Common Stock for 114
consecutive quarters through July 31, 1995, and intends to continue the payment
of dividends, although future dividend payments will depend upon the Company's
level of earnings, financial requirements and other relevant factors.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
consolidated subsidiaries as of June 30, 1995, and as adjusted to give effect to
the sale of the Common Stock offered hereby and the application of the estimated
net proceeds thereof as described in "Use of Proceeds."
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(1)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt.............................. $ 7,000 $ 7,000
========= ===========
Long-term debt:
Credit facility(2).............................................. $ 764,000 $ 628,827
9.25% notes, net of discount.................................... 99,727 99,727
3.93% convertible notes......................................... 75,000 75,000
6% convertible subordinated debentures.......................... 172,500 172,500
Other (including subsidiary debt)............................... 96,686 96,686
---------- --------------
Total long-term debt(3).................................... 1,207,913 1,072,740
---------- --------------
Shareholders' equity:
Preferred stock, without par value, 5,000,000 shares authorized,
none outstanding............................................. -- --
Common stock, $1.25 par value per share, 215,000,000 shares
authorized, 71,033,559 and 77,833,559 shares issued,
respectively(4).............................................. 88,792 97,292
Paid-in capital................................................. 501,033 682,706
Retained earnings............................................... 330,715 330,715
Currency translation adjustment................................. (16,544) (16,544)
Treasury stock, at cost, 1,119,040 shares....................... (13,454) (13,454)
---------- --------------
Total shareholders' equity................................. 890,542 1,080,715
---------- --------------
Total capitalization............................................ $2,098,455 $2,153,455
========= ===========
</TABLE>
- ---------------
(1) As adjusted to give effect to the sale of the 6,800,000 shares of Common
Stock offered hereby, at an assumed price to public of $29 1/8 per share
and the application of approximately $55 million of the net proceeds
thereof to finance the pending Aquila acquisition and the application of
the remaining $135 million of the net proceeds thereof to reduce
indebtedness under the Company's principal revolving credit facility.
(2) Certain information concerning the Company's revolving credit facility is
set forth in Note 3 to the audited consolidated financial statements
incorporated by reference in this Prospectus. As of August 25, 1995, the
outstanding balance under the credit facility was $754 million.
(3) Does not include certain contingent liabilities of the Company. See Note 9
to the audited consolidated financial statements incorporated by reference
in this Prospectus.
(4) Does not include the following shares of Common Stock reserved for issuance
(subject to adjustment): 2,777,778 shares issuable on conversion of the
3.93% convertible notes at $27.00 per share; 5,622,555 shares issuable on
conversion of the 6% Convertible Subordinated Debentures due 2002 at $30.68
per share; 122,606 shares reserved for the dividend reinvestment plan with
respect to the Common Stock; 400,000 shares reserved for the
retirement/401(k) savings plan; and 3,411,200 shares reserved under
existing employee stock option plans, including 911,197 shares issuable on
the exercise of employee stock options outstanding as of June 30, 1995 and
359,400 shares issuable on the exercise of employee stock options granted
August 23, 1995. Does not include 2,000,000 shares of Common Stock issuable
from time to time in connection with the Company's private merger program.
The Company currently has a policy of reserving one share of Common Stock
for each share outstanding or otherwise reserved to provide for any
issuances under the Company's Rights Agreement.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL, OPERATING AND RESERVE DATA
The following table sets forth certain information regarding Apache's
consolidated results of operations, financial position and operating and reserve
data as of and for the periods indicated. On May 17, 1995, Apache acquired
DEKALB through a merger which was accounted for under the pooling of interests
method. As a result, the financial, operating and reserve data presented below
has been restated to present Apache and DEKALB on a combined basis, including
certain conforming adjustments to depreciation, depletion and amortization and
income taxes. The data presented below should be read in conjunction with the
Company's consolidated financial statements and the notes thereto incorporated
by reference in this Prospectus. The following financial information is not
necessarily indicative of future results of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1993 1992(1) 1991(2)(3) 1990
---------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas production revenues........... $ 538,389 $ 481,848 $ 453,835 $ 409,011 $ 335,450
Consolidated revenues..................... 592,626 512,632 517,403 457,872 386,688
Net income (loss)
Continuing operations................... 45,583 41,421 (14,632) (35,216) 53,114
Discontinued operations................. -- -- (1,050) -- 11,633
Cumulative effect of change in
accounting principle.................. -- 5,334 -- -- --
---------- ----------- ---------- ---------- ----------
Net income (loss)..................... $ 45,583 $ 46,755 $ (15,682) $ (35,216) $ 64,747
========== =========== ========== ========== ==========
Net income (loss) per common share
Continuing operations................... $ .65 $ .67 $ (.26) $ (.65) $ 99
Discontinued operations................. -- -- (.02) -- .21
Cumulative effect of change in
accounting principle.................. -- .08 -- -- --
---------- ----------- ---------- ---------- ----------
Net income (loss) per common share.... $ .65 $ .75 $ (.28) $ (.65) $ 1.20
========== =========== ========== ========== ==========
Cash dividends per common share(4)...... $ .28 $ .28 $ .28 $ .28 $ .28
CASH FLOW DATA:
Net income (loss) from continuing
operations............................ $ 45,583 $ 41,421 $ (14,632) $ (35,216) $ 53,114
Depreciation, depletion and
amortization.......................... 257,821 198,320 179,876 188,410 160,693
Impairments............................. 7,300 23,200 65,320 94,241 --
Amortization of deferred loan costs..... 3,987 3,896 3,888 1,988 355
Provision for deferred income taxes..... 24,385 20,539 (998) (27,312) 17,773
Gain on sale of investment in
affiliate............................. -- -- (30,259) -- --
Change in working capital and other..... 18,693 (31,385) 19,758 (21,122) 15,794
---------- ----------- ---------- ---------- ----------
Net cash provided by operating
activities......................... $ 357,769 $ 255,991 $ 222,953 $ 200,989 $ 247,729
========== =========== ========== ========== ==========
BALANCE SHEET DATA (period end):
Working capital (deficit)............... $ (3,203) $ (55,538) $ (32,755) $ (57,593) $ 18,358
Total assets............................ 2,036,627 1,759,203 1,774,767 1,597,633 1,363,337
Long-term debt.......................... 719,033 504,334 524,098 658,395 386,580
Shareholders' equity.................... 891,087 868,596 554,524 601,181 622,489
Common shares outstanding............... 69,666 69,504 55,361 55,305 53,296
PRODUCTION DATA:
Oil (Mbbls)............................. 13,815 13,036 13,465 10,063 5,988
Natural gas (MMcf)...................... 176,397 131,591 119,962 134,162 120,534
Natural gas liquids (Mbbls)............. 724 733 885 1,212 520
Equivalent production (Mboe)............ 43,939 35,701 34,344 33,635 26,597
AVERAGE SALES PRICE:
Oil (per bbl)........................... $ 15.65 $ 16.74 $ 18.11 $ 18.61 $ 21.21
Natural gas (per Mcf)................... 1.78 1.94 1.66 1.55 1.68
Natural gas liquids (per bbl)........... 11.28 11.55 11.79 11.88 11.35
RESERVE DATA -- PROVED (period end):
Oil and natural gas liquids (Mbbls)..... 110,624 102,957 94,643 105,891 52,002
Natural gas (MMcf)...................... 1,316,155 1,125,630 919,642 963,242 889,178
Equivalent reserves (Mboe).............. 329,983 290,562 247,917 266,431 200,198
Present value of estimated future net
cash flows, before income taxes,
discounted at 10%..................... $1,600,927 $ 1,626,096 $1,272,952 $1,334,532 $1,344,063
</TABLE>
- ---------------
(See notes on following page)
14
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1995(5)(6) 1994 1995(5)(6) 1994
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT
AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas production revenues............ $ 174,519 $ 134,440 $ 317,708 $ 259,418
Consolidated revenues...................... 206,052 147,054 373,770 279,775
Net income................................. 537 12,907 4,620 21,132
Net income per common share................ .01 .19 .07 .30
Cash dividends per common share(4)......... .07 .07 .14 .14
CASH FLOW DATA:
Net income from continuing operations...... $ 537 $ 12,907 $ 4,620 $ 21,132
Depreciation, depletion and amortization... 78,830 61,969 148,625 122,226
Impairments................................ -- 2,800 -- 6,300
Amortization of deferred loan costs........ 1,150 965 2,373 1,744
Provision for deferred income taxes........ 17,358 7,721 19,773 12,252
Change in working capital and other........ (21,165) (6,587) (34,152) (22,964)
---------- ---------- ---------- ----------
Net cash provided by operating
activities............................ $ 76,710 $ 79,775 $ 141,239 $ 140,690
========= ========= ========= =========
BALANCE SHEET DATA (period end):
Working capital (deficit).................. $ 21,511 $ (19,685) $ 21,511 $ (19,685)
Total assets............................... 2,554,557 1,823,797 2,554,557 1,823,797
Long-term debt............................. 1,207,913 578,181 1,207,913 578,181
Shareholders' equity....................... 890,542 876,978 890,542 876,978
PRODUCTION DATA:
Oil (Mbbls)................................ 5,122 3,381 9,152 6,690
Natural gas (MMcf)......................... 54,361 41,830 104,159 81,321
Natural gas liquids (Mbbls)................ 174 186 365 364
Equivalent production (Mboe)............... 14,356 10,539 26,878 20,607
AVERAGE SALES PRICE:
Oil (per bbl).............................. $ 17.48 $ 15.98 $ 17.20 $ 14.42
Natural gas (per Mcf)...................... 1.52 1.87 1.50 1.96
Natural gas liquids (per bbl).............. 12.19 11.09 12.14 10.61
</TABLE>
- ---------------
(1) Includes $40.6 million after-tax writedown of DEKALB's oil and gas
properties and $25.6 million after-tax loss from the sale of substantially
all of DEKALB's U.S. assets. Also includes a $19.8 million after-tax gain
resulting from the sale by the Company of its 36.67% interest in Natural
Gas Clearinghouse.
(2) Includes financial data for MW Petroleum Corporation after June 30, 1991.
(3) Includes a $7.1 million after-tax charge resulting from the relocation of
the Company's headquarters to Houston, Texas and a $66 million after-tax
writedown of DEKALB's oil and gas properties.
(4) No cash dividends were paid on outstanding DEKALB common stock in 1995,
1994, 1993 or 1992. Cash dividends paid on DEKALB common stock totaled $.8
million in 1991 and $2.9 million in 1990.
(5) The three months and six months ended June 30, 1995 include the effect of
the acquisition of properties from Texaco on March 1, 1995.
(6) Includes nonrecurring transaction costs totaling $8.7 million after tax
relating to the DEKALB merger.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has consummated two acquisitions in 1995. On March 1, 1995, the
Company purchased certain U.S. oil and gas properties from Texaco for an
adjusted purchase price of $564 million, effective January 1, 1995. On May 17,
1995, Apache acquired DEKALB, an oil and gas company engaged in the exploration
for, and the development of, crude oil and natural gas in Canada, pursuant to a
merger agreement under which Apache issued 8.4 million shares of Common Stock in
exchange for all outstanding DEKALB capital stock and DEKALB employee stock
options outstanding at the time of the merger and tendered to Apache. The merger
was accounted for as a pooling of interests for financial accounting purposes.
Accordingly, the following discussion and analysis has been prepared on a
combined basis using the pooling of interests method of accounting. As a result
of the Company's recent acquisitions, the Company's results of operations for
the first two quarters of 1995 are not comparable to its historical results and
are not necessarily indicative of results for the full year or future periods.
Apache's financial performance during the first half of 1995 is best
understood in light of the following factors:
Production Increases; Commodity Prices. The Company's performance during
the first two quarters of 1995 was affected by lower average natural gas prices,
substantially offset by increases in natural gas production. Apache's natural
gas production increased in the first half of 1995 by 28% over the prior year,
attributable principally to acquisitions and favorable drilling results. The
Company's average realized gas price of $1.50 per Mcf during the first half of
1995 was $.46 per Mcf below the price during the same period in the previous
year, negatively impacting sales by $48 million.
In the first half of 1995, Apache's oil production increased by 37% over
the same period in 1994. Oil prices continued to improve from the five-year low
experienced in the fourth quarter of 1993. Oil revenues were positively impacted
by $25.5 million as a result of a $2.78 per barrel increase in average realized
oil prices in the first half of 1995 as compared with the same period in 1994.
Acquisitions. The Company consummated the DEKALB and Texaco acquisitions
during the first half of 1995. The second quarter of 1995 reflects the ownership
of the properties acquired from Texaco. All of the Company's financial
statements have been restated as a result of the DEKALB merger, which was
accounted for as a pooling of interests.
Since the Aquila transaction has not been consummated, the discussion
immediately following does not contemplate the effects of such transaction on
the Company's operations or liquidity. For a discussion of the effects of the
Aquila transaction, see "-- Subsequent Events" and "Recent Developments."
FINANCIAL RESULTS
Apache reported net income of $.5 million, or $.01 per share, for the
second quarter of 1995 compared to $12.9 million, or $.19 per share, for the
same period last year. Current quarter earnings were reduced by a nonrecurring
pre-tax charge of approximately $10 million associated with Apache's acquisition
of DEKALB (now known as DEK Energy Company). The merger costs reduced 1995 net
income by $8.7 million, or $.12 per share. Apache's results of operations for
the quarter were also negatively impacted by a 19% decline in gas prices which
reduced revenues by $19 million and net income by $.16 per share.
Earnings for the first six months of 1995 totaled $4.6 million, or $.07 per
share, compared to $21.1 million, or $.30 per share, during the first half of
1994. Lower gas prices compared to a year ago negatively impacted revenues by
$48 million and partially offset the impact of increased oil and gas production
from acquisitions and drilling.
16
<PAGE> 18
RESULTS OF OPERATIONS
Volume and price information for the Company's 1995 and 1994 second quarter
and first six months oil and gas production is summarized in the following
tables:
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- INCREASE ------------------- INCREASE
1995 1994 (DECREASE) 1995 1994 (DECREASE)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gas Volume -- Mcf per day:
U.S.............................. 519,147 402,765 29% 502,679 392,820 28%
Canada........................... 73,683 53,057 39% 67,458 52,472 29%
Australia........................ 4,542 3,850 18% 5,329 3,994 33%
-------- -------- -------- --------
Total............................ 597,372 459,672 30% 575,466 449,286 28%
======== ======== ======== ========
Average Gas Price -- Per Mcf:
U.S.............................. $ 1.59 $ 1.89 (16%) $ 1.56 $ 1.99 (22%)
Canada........................... 1.02 1.71 (40%) 1.00 1.70 (41%)
Australia........................ 1.87 1.96 (5%) 1.94 1.93 1%
Total............................ 1.52 1.87 (19%) 1.50 1.96 (23%)
Oil Volume -- Barrels per day:
U.S.............................. 50,869 32,461 57% 45,334 32,233 41%
Canada........................... 2,061 1,952 6% 2,014 2,035 (1%)
Australia........................ 3,360 2,741 23% 3,217 2,693 19%
-------- -------- -------- --------
Total............................ 56,290 37,154 52% 50,565 36,961 37%
======== ======== ======== ========
Average Oil Price -- Per barrel:
U.S.............................. $ 17.36 $ 15.82 10% $ 17.07 $ 14.21 20%
Canada........................... 17.81 16.63 7% 17.26 14.36 20%
Australia........................ 19.16 17.42 10% 19.05 16.91 13%
Total............................ 17.48 15.98 9% 17.20 14.42 19%
NGL Volume -- Barrels per day:
U.S.............................. 1,378 1,356 2% 1,470 1,340 10%
Canada........................... 539 687 (22%) 549 669 (18%)
-------- -------- -------- --------
Total............................ 1,917 2,043 (6%) 2,019 2,009 0%
======== ======== ======== ========
Average NGL Price -- Per barrel:
U.S.............................. $ 13.29 $ 12.60 5% $ 13.01 $ 11.83 10%
Canada........................... 9.39 8.10 16% 9.80 8.16 20%
Total............................ 12.19 11.09 10% 12.14 10.61 14%
</TABLE>
Oil and gas production revenues for the second quarter and first half of
1995 increased over the prior year by 30% and 22%, respectively, due to the
March 1, 1995 acquisition of properties from Texaco, acquisitions completed by
Apache during the fourth quarter of 1994 and favorable drilling results. The
declines in Apache's second quarter and first half average realized gas price,
reflecting significantly lower spot prices from a year ago, offset further
increases in revenue.
Second quarter gas sales increased to $82.8 million, up six percent from
the same period last year. Apache's second quarter gas production was a record
597.4 MMcfd, an increase of 30% from last year. Of the 137.7 MMcfd increase in
gas production in the second quarter of 1995, 68 MMcfd was a result of the
acquisition of properties from Texaco and 22 MMcfd resulted from the acquisition
of properties from Crystal in December 1994. Apache's average natural gas price
declined 19% from second quarter 1994 to $1.52 per Mcf, negatively impacting
revenues by $19 million.
Gas sales for the first six months of 1995 of $155.8 million declined two
percent compared to the six-month period in 1994 as the impact of lower gas
prices more than offset production gains. Apache's production increased 126.2
MMcfd during the first half of 1995 as compared to the same period in 1994. The
28%
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<PAGE> 19
increase in gas production in the first six months of 1995 resulted largely from
the acquisition of properties from Texaco and Crystal. The volume increase
resulted in additional sales of $44.7 million. The Company's realized gas price
of $1.50 per Mcf during the first half of 1995 was $.46 per Mcf lower than last
year's price of $1.96 per Mcf during the same period. The 23% drop in the
average realized price of gas negatively impacted sales by $48 million.
Oil sales of $89.6 million for the 1995 second quarter were $35.5 million,
or 66%, above the previous year as a result of higher production volumes. The
52% increase in oil production was primarily due to the acquisition of Texaco
properties, which added 17.7 Mbopd to Apache's second quarter sales. The total
increase in production favorably impacted sales by $27.8 million, while a $1.50
per barrel increase in realized oil prices compared to 1994 positively impacted
1995 sales by $7.7 million.
For the first six months of 1995, oil sales increased 63% to $157.4
million, compared to $96.4 million for the same period a year ago. In the first
half of 1995, oil production rose 13.6 Mbopd, or 37%. Oil revenues were
positively impacted by $25.5 million as a result of a $2.78 per barrel increase
in realized oil prices.
Revenues from the sale of natural gas liquids totaled $2.1 million for the
second quarter and $4.4 million for first half of 1995. Higher natural gas
liquids prices contributed to the $.1 million quarter-to-quarter and $.6 million
year-to-year increases in sales as compared to a year ago.
Gathering, processing and marketing revenues of $28.4 million for the
second quarter and $51.2 million for the first half of 1995 were 169% and 196%,
respectively, higher than last year's revenues. Operating margins increased $.3
million from the second quarter of 1994 and $.6 million from the first six
months of 1994, respectively. The activity reflects increased volumes of
purchase and resale transactions by Apache's oil and gas marketing subsidiaries.
These transactions generally carry a low margin.
Depreciation, depletion and amortization expense of $78.8 million for the
second quarter of 1995 and $148.6 million for the first half of the year
increased 27% and 22%, respectively, over the comparable 1994 periods due to
increased oil and gas production. Apache's domestic depreciation, depletion and
amortization rate for the second quarter declined from $5.60 per boe in 1994 to
$5.32 per boe in 1995 due to the impact of the Texaco acquisition.
Operating costs rose $20 million, or 56%, to $55.5 million for the quarter
and $29.3 million, or 41%, to $100.5 million year-to-date from the comparable
periods last year due primarily to the impact of Apache's acquisitions.
Operating costs include lifting costs, workover expense, production taxes and
severance taxes. Based on an equivalent unit of production, operating costs
increased 15% in the second quarter of 1995 to $3.87 per boe and eight percent
in the first half period to $3.74 per boe, respectively. The increase in unit
cost reflects the high percentage of oil properties included in the Texaco
transaction, as oil properties typically have a higher per unit expense than gas
properties.
Administrative, selling and other costs in the second quarter of 1995 rose
$.2 million, or two percent, from a year ago, while costs for the first half
increased $.6 million, or three percent, due to costs of integrating the Texaco
properties. On a boe basis, costs for the quarter and first six months dropped
25% and 21%, respectively, due to increased production from acquisitions and
drilling. In connection with the DEKALB merger, nonrecurring transaction costs
totaling approximately $10 million were charged to expense in the second quarter
of 1995.
Net financing costs increased 149% for the second quarter of 1995 to $20.3
million, and 132% for the first half of the year to $35.6 million. The increase
in financing costs reflects an increase in debt outstanding and higher interest
rates as compared to last year. Debt increased $496 million since December 31,
1994 and $696 million since December 31, 1993, as a result of increased
borrowings to fund acquisitions. The increase in interest rates primarily
reflects higher market rates.
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<PAGE> 20
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments.
Apache's primary needs for cash are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt and payment of dividends. The Company generally funds its
exploration and development activities through internally generated cash flows.
Apache budgets its capital expenditures based upon projected cash flows and
routinely adjusts its capital expenditures in response to changes in oil and gas
prices and corresponding changes in cash flow.
Expenditures for exploration and development totaled $142.1 million during
the first half of 1995 compared to $162.8 million during the same period last
year. In the first six months of 1995, Apache completed 68 of 102 gross wells as
producers, while the Company completed 149 of 183 gross wells as producers in
the first half of 1994. While the Company reduced its exploration and
development expenditures from a year ago so that additional cash from operating
activities could be applied to reduce debt, Apache continued to drill in the
Mid-Continent, Permian Basin and Gulf of Mexico regions of the United States.
Internationally, the Company continued developmental drilling on the Harriet
prospect in Australia and appraisal drilling on the Zhao Dong prospect in the
Bohai Bay, People's Republic of China. Further evaluation is necessary to
determine the commercial potential of the discovery offshore China. In Egypt, an
appraisal well further delineated a discovery made on the Qarun prospect. This
well confirmed the results of one of two earlier discoveries, which established
the development potential of this area of the Qarun Concession. International
exploration and development expenditures totaled $36.3 million in the first half
of 1995 compared to $36.7 million in 1994. Apache's annual expenditures for
exploration and development are expected to total approximately $275 million for
1995, not taking into account any capital expenditures associated with the
properties to be acquired in the Aquila transaction.
Acquisitions for cash during the first half of 1995 totaled $573.9 million
as compared to $27 million for the same period of 1994. On March 1, 1995, Apache
purchased certain oil and gas assets from Texaco for an adjusted purchase price
of $564 million. In addition to the properties acquired for cash during the
first six months of 1995, Apache issued 8.4 million shares of Common Stock to
acquire DEKALB in a transaction accounted for as a pooling of interests. See
"Acquisitions" in the Notes to the audited Consolidated Financial Statements
incorporated herein by reference.
Capital Resources and Liquidity.
Apache's primary capital resources are net cash provided by operating
activities, unused borrowing capacity under the Company's revolving bank credit
facility and proceeds from the sale of non-strategic assets. Net cash provided
by operating activities totaled $141 million for the first half of 1995 and
1994.
On January 4, 1995, Apache completed the issuance of $172.5 million
principal amount of its 6% Convertible Subordinated Debentures due 2002, which
are convertible into Common Stock at a conversion price of $30.68 per share. The
Company anticipates filing a registration statement on Form S-3 in September
1995 with respect to resales of underlying shares of Common Stock. Net proceeds
were used to reduce bank debt, to provide funds for acquisitions and for general
corporate purposes. The 6% debentures have not been registered under the
Securities Act of 1933, as amended ("Securities Act"), and may not be offered or
sold in the United States absent registration or an applicable exemption from
such registration requirements. Costs associated with the issue of the 6%
debentures totaled $4.1 million.
On March 1, 1995, the Company's revolving bank credit facility was amended
and restated, increasing it from $700 million to $1 billion. The facility
matures on March 1, 2000, and may be extended in one-year increments with the
lenders' consent. Based on the Company's ratio of debt to total capital, the
interest rate margin over LIBOR at June 30, 1995 was 1.125%. The Company also
pays a facility fee based on its ratio of debt to total capital. The facility
fee at June 30, 1995 was .375% of the available portion of the commitment and
.1875% of the unavailable portion of the commitment. As of June 30, 1995, the
available portion of the commitment was $831 million, of which $764 million was
outstanding. Costs associated with the amendment of the credit facility totaled
$7.2 million. At June 30, 1995, Apache had a total of $1.2 billion in long-term
debt outstanding, up $496 million from the end of 1994.
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<PAGE> 21
During the first half of 1995, Apache received $73.2 million from the
disposition of oil and gas properties as part of its previously announced plans
to sell lower-margin and non-strategic properties. On September 1, 1995, Apache
disposed of certain of its Rocky Mountain properties to Citation for
consideration of approximately $151 million, subject to adjustment. These assets
include Apache's interest in 138 fields with approximately 1,600 active wells
located in Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming.
The Company had $17.3 million in cash equivalents on hand at June 30, 1995,
down from $30 million at the end of 1994. The Company's ratio of current assets
to current liabilities at quarter-end 1995 of 1.1:1 was improved from year-end
1994 when the ratio was 1.0:1.
Management believes that cash on hand, net cash provided by operating
activities and unused available borrowing capacity under the revolving bank
credit facility will be adequate to meet future liquidity needs for the next two
fiscal years, including satisfaction of the Company's financial obligations and
funding of exploration and development operations and routine acquisitions.
Future Trends.
The Company plans to continue with implementation of several strategic
initiatives designed to accelerate the integration of acquired properties,
streamline operations and strengthen its balance sheet. As previously announced,
Apache plans to accelerate the disposition of non-strategic assets and to close
the Denver, Colorado office in 1995. In general, the proceeds from property
dispositions will be used for debt reductions.
Apache has continually followed a practice of expanding and upgrading its
reserves through a combination of exploratory and development drilling,
workovers and recompletions and upgrading its production base by disposing of
lower-margin and non-strategic properties. Apache will continue to review
acquisition opportunities which are additive to earnings and cash flow, and to
review its capital structure to maximize shareholders' return and maintain
financial flexibility.
SUBSEQUENT EVENTS
The Company intends to use approximately $55 million of the net proceeds of
the Offering to finance in part the pending acquisition of the Aquila Assets.
The oil and gas properties included in the Aquila Assets are concentrated, with
the largest seven fields representing approximately three quarters of proved
reserves, and many of the Aquila properties are located in close proximity to
existing Apache properties. Accordingly, the Company believes that economies of
scale will result from elimination of duplicative administrative and other
expenses and the consolidation of nearby operations following the closing of the
Aquila transaction. In the Gulf of Mexico, the Company expects to operate
certain currently manned Aquila platforms as unmanned platforms, using the
facilities and personnel located at nearby Apache platforms. In addition, the
high percentage of gas properties included in the Aquila Assets can be expected
to reduce operating costs on an equivalent unit of production basis, as gas
properties typically have a lower per unit expense than oil properties.
A significant portion of the net proceeds of the Offering will be applied
to reduce indebtedness under the Company's principal revolving credit facility.
See "Use of Proceeds." After giving effect to such repayment of debt, as of June
30, 1995, the Company would have a ratio of debt to total capitalization of
approximately 50%. As of August 25, 1995, the Company had $75 million available
for borrowing under the credit facility. The credit facility provides for
periodic redeterminations of the borrowing base to reflect the Company's
estimated proved reserves, and, depending upon the outcome of such
redetermination following the Offering (taking into account the Citation and
Aquila transactions), the Company expects to be able to reborrow all or a
portion of the amount of outstanding indebtedness repaid with proceeds of the
Offering. The Company is currently evaluating alternatives to refinance a
portion of its outstanding debt.
In connection with its ongoing private merger program, the Company has
filed an acquisition shelf registration statement on Form S-4 with respect to
2,000,000 shares of Common Stock to be offered from time to time in connection
with the acquisition of privately held interests in oil and gas properties and
related assets or in entities that hold such interests or assets.
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<PAGE> 22
THE COMPANY
OVERVIEW
Apache Corporation, a Delaware corporation formed in 1954, is an
independent energy company that explores for, develops, produces, gathers,
processes and markets crude oil and natural gas. In North America, Apache's
exploration and production interests are spread over 15 states and two Canadian
provinces, focusing on the Gulf of Mexico, the Anadarko Basin, the Permian
Basin, the Gulf Coast, the Rocky Mountains and the Western Sedimentary Basin of
Canada. Outside of North America, Apache has exploration and production
interests offshore Western Australia and exploration interests in Egypt and
Indonesia and offshore China and the Ivory Coast. Apache's Common Stock has been
listed on the NYSE since 1969 and on the CSE since 1960.
As of December 31, 1994, on a pro forma basis giving effect to the
completed Texaco and DEKALB transactions and the pending Aquila acquisition, and
net of completed and pending property dispositions in 1995, the Company's
estimated proved reserves were 420 MMboe, of which approximately 62% was natural
gas.
As of December 31, 1994, Apache (including DEKALB) had approximately 4,085
net oil and gas wells and 1,032,982 net developed acres of oil and gas
properties. In addition, the Company had interests in 760,270 net undeveloped
acres under U.S. and Canadian leases and 4,239,290 net undeveloped acres under
international exploration and production rights. The Company completed 296 of
367 North American wells during 1994 as producers, and completed 415 workover
and recompletion projects. For the second quarter of 1995, which included
results from the Texaco and DEKALB transactions, the Company's daily average oil
and gas production was approximately 56 Mbbls and 597 MMcf, respectively.
The Company holds interests in many of its U.S., Canadian and international
properties through operating subsidiaries, such as MW Petroleum Corporation
("MW"), DEK Energy Company (formerly known as DEKALB), Apache Energy Resources
Corporation ("AERC," formerly known as Hadson Energy Resources Corporation),
Apache Energy Limited ("AEL," formerly known as Hadson Energy Limited), Apache
International, Inc. and Apache Overseas, Inc. Properties referred to in this
Prospectus may be held by those subsidiaries. The Company treats all operations
as one segment of business.
On March 1, 1995, the Company acquired certain oil and gas properties from
Texaco for an adjusted purchase price of $564 million, effective January 1,
1995. On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in
the exploration for, and the development of, crude oil and natural gas in
Canada, through a merger which resulted in DEKALB's becoming a wholly owned
subsidiary of Apache. The merger was accounted for as a pooling of interests for
financial accounting purposes. As a result, Apache's financial information has
been restated to include DEKALB on a combined basis. See "Recent Developments."
The Company is a Delaware corporation with its principal executive offices
at One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas
77056-4400. The Company's telephone number is (713) 296-6000.
STRATEGY
Apache's growth strategy is to increase oil and gas reserves, production
and cash flow through a combination of acquisitions, moderate-risk drilling and
development of its inventory of existing projects. Apache also emphasizes
reducing operating costs per unit produced and selling marginal and
non-strategic properties in order to increase its profit margins. An emerging
aspect of Apache's strategy is its exploration and development activity in the
international arena in pursuit of larger reserve targets than are generally
available domestically. Several recent international discoveries have created an
inventory of development projects to be drilled in the next several years.
Because production of oil and gas results in depletion of reserves, future
oil and gas production is highly dependent upon Apache's level of success in
adding reserves. Apache adds reserves by acquisition, active
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<PAGE> 23
exploration and development, and identification, through engineering studies, of
additional behind-pipe zones or secondary recovery reserves.
In conjunction with Apache's ongoing property acquisitions, the Company has
recently initiated the Apache private merger program to acquire privately held
interests in oil and gas properties. The primary focus of this program will be
to acquire interests in properties in areas where the Company operates. To
enable the Company to use Common Stock as well as cash in such acquisitions, the
Company has filed a Common Stock acquisition shelf registration statement on
Form S-4 with respect to 2,000,000 shares of Common Stock.
Property acquisition is only one phase in a continuing cycle of Apache's
business growth. Apache's objective is to follow each material acquisition with
a cycle of reserve enhancement, property consolidation and cash flow
acceleration, facilitating asset growth and debt reduction. This approach
requires well-planned and carefully executed property development and a
commitment to a selective program of ongoing property dispositions. Apache
targets acquisitions that have ascertainable additional reserve potential to
which it applies an active drilling, workover and recompletion program to
realize the potential of undeveloped and partially developed properties. In
1994, the Company replaced over 114% of U.S. production through its drilling,
workover and recompletion program. Apache prefers to operate its properties so
that it can more efficiently influence their development and currently operates
properties accounting for over 75% of its production.
NORTH AMERICAN OPERATIONS
The Company's North American exploration and production activities are
divided into four U.S. operating regions, the Gulf of Mexico, Mid-Continent,
Western and Gulf Coast regions, and a Canadian region. At December 31, 1994,
approximately 97% of the Company's total estimated proved reserves (prior to any
dispositions in 1995) was located in the four U.S. regions and Canada.
Gulf of Mexico. As a result of Apache's acquisition of Matagorda Island
Blocks 681 and 682 in late 1992 and the Hall-Houston transactions in 1993, the
Gulf of Mexico became Apache's largest producing region. The Gulf of Mexico
region encompasses all of Apache's interests in properties offshore Texas,
Louisiana and Alabama. By year-end 1994, Apache increased its production in the
Gulf of Mexico to approximately 203 MMcf of gas per day. At December 31, 1994,
the Gulf of Mexico region encompassed 282,302 net acres, located in both state
and federal waters, and accounted for 48 MMboe, or 15%, of Apache's total
estimated proved reserves.
Mid-Continent. Apache's Mid-Continent region is known for its sizable
position in the Anadarko Basin. Apache has drilled and operated in the Anadarko
Basin for over three decades, developing an extensive database of geologic
information and a substantial acreage position. In 1993, Apache enhanced its
position through the acquisition of AERC with its significant acreage and
producing interests in the Anadarko Basin. At December 31, 1994, Apache held an
interest in 271,770 net acres in the region, which accounted for approximately
76 MMboe, or 23%, of Apache's total estimated proved reserves.
Western. On September 1, 1995, Apache disposed of a substantial portion of
its Rocky Mountain properties in connection with its property rationalization
program. In connection with this disposition, the Company is closing its Rocky
Mountain regional office, located in Denver, Colorado, and redeploying those
employees to provide support for its Gulf Coast, Permian Basin and Canadian
operations. The Rocky Mountain properties to be exchanged by Apache comprise
interests in 138 fields and approximately 1,600 active wells in six states with
daily production of approximately 9 Mbbls of oil and 9 MMcf of natural gas. At
December 31, 1994, such Rocky Mountain properties accounted for estimated proved
reserves of 28 MMboe, which includes certain reserves acquired in the Texaco
transaction.
Apache will retain its assets in the Green River Basin of Colorado and
Wyoming and in the San Juan Basin of New Mexico, and will operate those
properties through its former Permian Basin region, which has been renamed the
Western region to reflect the integration of the remaining Rocky Mountain
properties. The other properties comprising the Western region are located in
the Permian Basin of West Texas and New Mexico and have been important producers
for Apache, generating 16% of the Company's production revenues during 1994. As
of December 31, 1994, the properties that comprise the Western region, after
giving
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effect to completed and pending dispositions in 1995, accounted for 70 MMboe, or
21%, of the Company's total estimated proved reserves.
Gulf Coast. Apache's Gulf Coast region encompasses the Texas and Louisiana
coasts, central Texas, Mississippi and Alabama. At year-end 1994, the region
encompassed approximately 194,107 net acres, and accounted for 43 MMboe, or 13%,
of the Company's total estimated proved reserves.
Canada. The Canadian region concentrates its exploration and development
activity in the Provinces of Alberta and British Columbia. The region generated
eight percent of the Company's revenues in 1994. At December 31, 1994, the
region encompassed approximately 408,114 net acres, and accounted for 61 MMboe,
or 18%, of the Company's total estimated proved reserves.
AUSTRALIAN AND INDONESIAN OPERATIONS
Australia. The state of Western Australia has become an important region
for Apache following the completion of the AERC acquisition. In the fourth
quarter of 1993, Apache consolidated the operations of its Australian properties
with AERC's Australian subsidiary, AEL, headquartered in Perth, Western
Australia. Average production in the region was approximately 3,500 bopd during
June 1995.
At December 31, 1994, Apache held 3,373,150 net developed and undeveloped
acres in Western Australia. Australian reserves accounted for 11 MMboe, or 3%,
of the Company's total proved reserves at year-end 1994. Apache also owns a
22.5% interest in and operates the Harriet Gas Gathering Project, a gas
processing and compression facility with a throughput capacity of 80 MMcfd, and
a 60-mile, 12-inch offshore pipeline with a throughput capacity of 175 MMcfd.
The facilities are located in close proximity to AEL's producing properties
offshore in the Carnarvon Basin. During 1994, AEL produced and sold 2.9 Bcf of
natural gas.
Indonesia. In early 1993, Apache took over as operator and increased its
interest in the Java Sea IV Block, offshore Indonesia, and the Padang Panjang
Block on the island of Sumatra, Indonesia. In early 1994, operations for
Indonesia were consolidated under the direction of AEL out of its offices in
Perth, Western Australia. In 1994, two exploratory wells were drilled in
Indonesia, one of which was a discovery that is currently being appraised for
commerciality.
OTHER INTERNATIONAL OPERATIONS
Egypt. Apache and its partners are developing two adjacent fields in the
Western Desert of Egypt. Apache holds a 25% interest in the two-million acre
Qarun Concession in the Western Desert of Egypt which is operated by Phoenix
Resource Companies of Qarun. In February 1995, Apache and its partners announced
a discovery in the Qarun Concession that tested at rates up to 1,370 bopd. In
May 1995, Apache and its partners announced a second discovery in the Qarun
Concession in which the discovery well tested at cumulative rates of up to
11,957 bopd. Development of the Qarun Concession is currently underway, and oil
sales are expected to commence as early as the fourth quarter of 1995.
China. Apache and its partner are evaluating a discovery in the Bohai Bay,
offshore the People's Republic of China. Apache has a 50% interest in, and acts
as operator of, a concession containing approximately 48,677 undeveloped acres
(24,339 acres net to Apache) in the Zhao Dong Block of the Bohai Bay, offshore
the People's Republic of China. In 1994, the initial discovery well tested at a
rate of over 2,000 bopd and was confirmed by an appraisal well which tested at
over 3,500 bopd. An appraisal drilling program is currently being conducted to
evaluate field development of the block.
Other. The Company has an interest in the Foxtrot Concession offshore the
Ivory Coast and is currently seeking a market for any gas that may be produced
from such concession.
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RECENT DEVELOPMENTS
ACQUISITION OF AQUILA PROPERTIES
On August 28, 1995, the Company entered into an agreement with Aquila, a
wholly owned, indirect subsidiary of UtiliCorp, to acquire substantially all the
assets of Aquila for approximately $198 million, subject to certain post-closing
adjustments. The Aquila Assets include estimated proved reserves of 26 MMboe at
year-end 1994 and a favorable long-term gas sales contract at escalating prices,
with an allocated value under the purchase agreement of $28.7 million. Aquila
will receive a 7.5% net profits interest in the Aquila Assets, effective after
Apache has recovered an amount equivalent to the purchase price, costs incurred
in connection with the Aquila Assets and fees and other transaction costs not to
exceed $7 million in connection with the Offering and the Aquila transaction.
The closing of the Offering is conditioned upon and is expected to occur
concurrently with the closing of the Aquila transaction.
The Aquila Assets are concentrated, with the largest seven fields
representing approximately three quarters of proved reserves and the largest 15
fields representing more than 90% of proved reserves. Five of the largest seven
fields are operated by Aquila. Based on information provided to the Company by
Aquila, the Aquila Assets represented estimated proved reserves of approximately
26 MMboe at December 31, 1994, of which approximately 77% was gas.
The Aquila Assets consist of interests in 63 fields (including 45 producing
areas and fields) located on 250,000 gross acres in the Anadarko Basin, the Gulf
Coast, the Gulf of Mexico and the Permian Basin. In addition, the Aquila Assets
include nonoperated minority interests in four gas plants in Oklahoma. The
Aquila properties are in many cases located in close proximity to existing
Apache properties. Accordingly, the Company believes that the acquisition of the
Aquila properties will result in certain economies of scale for Apache. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Subsequent Events."
The long-term gas sales contract included in the Aquila Assets provides
that Aquila's affiliate will agree to purchase approximately 43 Bcf of gas to be
delivered by the Company over a period of five years and four months at a
specified price commencing at $2.00 per MMBtu in 1995 and increasing to $2.70 in
1996, $2.80 in 1997, $2.90 in 1998, $3.10 in 1999 and $3.20 in 2000.
The agreement provides that the Company and its wholly owned subsidiaries,
MW and AERC, may effect a deferred tax-free exchange of like-kind properties of
qualifying use for certain of the Aquila Assets. The like-kind properties to be
exchanged by the Company primarily include lower margin and non-strategic
properties located in the Rocky Mountains (including the properties sold to
Citation) which were previously selected for sale by the Company in connection
with its ongoing program of selective property dispositions.
OTHER RECENT ACQUISITIONS
On March 1, 1995, Apache purchased certain U.S. oil and gas properties from
Texaco for an adjusted purchase price of $564 million, effective January 1,
1995. The Texaco properties comprised estimated proved reserves at the effective
date of approximately 105 MMboe (after adjustment for the exercise of
preferential rights and properties excluded following due diligence and using
unescalated prices), of which approximately 70% was oil. At the time of
purchase, the daily production of the acquired properties was approximately 20
Mbbls of oil and 85 MMcf of natural gas.
The Texaco properties are concentrated, with approximately two-thirds of
the reserves located in 54 fields, and are in producing regions where Apache has
existing operations -- the Permian Basin, the Gulf Coast of Texas and Louisiana,
western Oklahoma, eastern Texas and the Gulf of Mexico. Apache operates
approximately two-thirds of the production and holds an average working interest
of 70% in the operated properties. The Texaco transaction included approximately
500,000 net mineral acres, as well as a substantial quantity of seismic data.
On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in
the exploration for, and the development of, crude oil and natural gas in
Canada, through a merger which resulted in DEKALB's becoming a wholly owned
subsidiary of Apache. Pursuant to the merger agreement, Apache issued 8.4
million
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shares of its common stock in exchange for all outstanding DEKALB capital stock
and DEKALB employee stock options outstanding at the time of the merger and
tendered to Apache. The merger was accounted for as a pooling of interests for
financial accounting purposes.
At year-end 1994, DEKALB's estimated proved reserves, located almost
entirely in Canada, were estimated to be approximately 300 Bcf of natural gas
and 11 MMbbls of oil and natural gas liquids, or a total of 61 MMboe. The DEKALB
acquisition provides Apache with a substantial presence in North America's
largest natural gas basin and the infrastructure, including skilled
professionals, to conduct Canadian operations. Apache believes that the DEKALB
properties have significant potential for both exploration and further
development.
DISPOSITIONS
In early 1995, Apache announced plans to accelerate the disposition of
certain properties, including the sale of a substantial portion of its Rocky
Mountain properties and lower margin and non-strategic properties. During the
first half of 1995, Apache received approximately $73 million from completed
sales of such properties. On September 1, 1995, the Company disposed of certain
Rocky Mountain properties for approximately $151 million, subject to adjustment.
These properties had 28 MMboe of estimated proved reserves at December 31, 1994.
SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION
The following table sets forth summary pro forma information with respect
to the Company's estimated proved oil and gas reserves as of December 31, 1994,
giving effect to the completed DEKALB and Texaco transactions, the pending
Aquila acquisition and certain completed and pending dispositions of
non-strategic properties in 1995. The reserve information below is based on
estimates calculated as of December 31, 1994 and does not reflect production and
revisions since December 31, 1994 or changes in oil and gas prices, changes in
expectations of developing and producing proved undeveloped reserves (including
offshore), changes in marketing expectations and access to markets or changes in
estimates of recoverable reserves resulting from price changes. The reserves
attributable to the completed DEKALB and Texaco acquisitions and the pending
Aquila acquisition were not owned by the Company on such date. The Company has
made other acquisitions and dispositions of property interests during 1995 which
in the aggregate are not material. All estimates of oil and gas reserves are
subject to significant uncertainty. See "Risk Factors."
<TABLE>
<CAPTION>
APACHE AND 1995 TOTAL
DEKALB(1) TEXACO(2) AQUILA(3) DISPOSITIONS(4) PROVED
---------- --------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Oil and natural gas liquids (Mbbls).... 110,624 73,597 6,035 29,166 161,090
Natural gas (MMcf)..................... 1,316,155 186,495 120,857 68,351 1,555,156
Equivalent reserves (Mboe)............. 329,983 104,680 26,178 40,558 420,283
Present value of estimated future net
cash flows, before income taxes,
discounted at 10% (in thousands)..... $1,600,927 $ 368,518 $ 110,120 $ 149,650 $1,929,915
</TABLE>
- ---------------
(1) On May 17, 1995, the Company acquired DEKALB through a merger that was
accounted for under the pooling of interests method.
(2) On March 1, 1995, the Company acquired certain properties from Texaco,
effective January 1, 1995.
(3) The Company proposes to acquire certain properties from Aquila effective
concurrently with and conditioned on the consummation of the Offering.
Netherland, Sewell estimated reserves owned by Aquila as of December 31,
1994. Since that time, Aquila has acquired additional property interests
included in the amounts set forth above. Netherland, Sewell has estimated
total proved reserves of Aquila as of December 31, 1994 in the approximate
amounts of 2,781 Mbbls of oil and 106,535 MMcf of gas (totaling 20,537
Mboe), and $92 million of present value of estimated future net cash flows,
before income taxes, discounted at 10% (which amounts exclude the properties
acquired by Aquila in 1995).
(4) The reserves shown give effect to the September 1, 1995 disposition of
certain Rocky Mountain properties valued at approximately $151 million, the
sale of $20 million in properties on April 1, 1995, the sale of $31 million
in properties on May 1, 1995, and other smaller sales.
25
<PAGE> 27
NATURAL GAS MARKETING
During 1994, Apache sold approximately 89% of its U.S. natural gas on the
spot market through NGC Corporation (formerly Natural Gas Clearinghouse) ("NGC")
or through market responsive contracts with other parties; the remaining 11% was
sold through long-term, premium-priced contracts. Sales to NGC accounted for 37%
of the Company's oil and gas revenues in 1994. Apache has notified NGC that it
does not intend to continue its arrangement with NGC beyond its current term,
which expires in September 1995. The Company believes that such termination will
not have a material adverse effect on the Company due to the existence of
alternative marketing arrangements and purchasers. The Company is exploring
alternative means to market its gas following termination of such arrangement.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 5,000,000 shares of
preferred stock, none of which was outstanding as of June 30, 1995, and
215,000,000 shares of Common Stock, of which 69,914,519 shares were outstanding
as of June 30, 1995.
The descriptions set forth below of the Common Stock and preferred stock
constitute brief summaries of certain provisions of the Company's Restated
Certificate of Incorporation and Bylaws and are qualified in their entirety by
reference to the relevant provisions of such documents, both of which are listed
as exhibits to the Registration Statement of which this Prospectus is a part and
are incorporated herein by reference.
COMMON STOCK
All outstanding shares of Common Stock are fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. The Board of Directors of the Company is classified into three
groups of approximately equal size, one-third elected each year. Stockholders do
not have the right to cumulate votes in the election of directors and have no
preemptive or subscription rights. The Common Stock is neither redeemable nor
convertible, and there are no sinking fund provisions relating to such stock.
Subject to preferences that may be applicable to any shares of preferred
stock outstanding at the time, holders of Common Stock are entitled to dividends
when, as and if declared by the Board of Directors from funds legally available
therefor and are entitled, in the event of liquidation, to share ratably in all
assets remaining after payment of liabilities.
The Company's current policy is to reserve one share of Common Stock for
each share issued in order to provide for possible exercises of Common Stock
purchase rights under the Company's existing Rights Agreement.
The Common Stock and the Common Stock purchase rights are listed on the
NYSE and the CSE. Norwest Bank Minnesota, National Association is the transfer
agent and registrar for the Common Stock.
The Company typically mails its annual report to stockholders within 120
days after the end of its fiscal year. Notices of stockholder meetings are
mailed to record holders of Common Stock at their addresses shown on the books
of the transfer agent and registrar.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law ("DGCL") prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the time such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
26
<PAGE> 28
corporation outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the corporation and by employee stock
plans that do not provide participants with the rights to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which such
person became an interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder. The provisions of Section 203 may have the effect of delaying,
deferring or preventing a change of control of the Company.
RIGHTS
On January 10, 1986, the Board of Directors declared a dividend of one
right to purchase one share of Common Stock at $50 per share (subject to
adjustment) on each outstanding share of Common Stock (the "Rights"). The Rights
are exercisable only after a person (other than the Company or its employee
benefit plans), together with all persons acting in concert with it, has
acquired 20% or more of the Common Stock, or has commenced a tender offer for
30% or more of the Common Stock. If the Company engages in certain business
combinations or a 20% shareholder engages in certain transactions with the
Company, the Rights become exercisable for the Common Stock or common stock of
the corporation acquiring the Company (as the case may be) at 50% of the then
market price. Any Rights that are or were beneficially owned by a person who has
acquired 20% or more of the Common Stock and who engages in certain transactions
or realizes the benefits of certain transactions with the Company will become
void. The Company may redeem the Rights at a specified price at any time until
ten business days after public announcement that a person has acquired 20% or
more of the outstanding shares of Common Stock. The Rights will expire on
January 31, 1996, unless earlier redeemed by the Company. The Company is
considering successor arrangements. Unless the Rights have been previously
redeemed, all shares of Common Stock issued by the Company will include Rights,
including the Common Stock offered hereby.
PREFERRED STOCK
No preferred stock is outstanding. Shares of preferred stock may be issued
by the Board of Directors with such voting powers and in such classes and
series, and with such designations, preferences, and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
thereof, as may be stated and expressed in the resolution or resolutions
providing for the issue of such stock. The Company has no current plans to issue
any preferred stock.
CHANGE OF CONTROL
The Company's Restated Certificate of Incorporation includes provisions
designed to prevent the use of certain tactics in connection with a potential
takeover of the Company. Article Twelve of the Restated Certificate of
Incorporation generally stipulates that the affirmative vote of 80% of the
Company's voting shares is required to adopt any agreement for the merger or
consolidation of the Company with or into any other corporation which is the
beneficial owner of more than 5% of the Company's voting shares. Article Twelve
further provides that such an 80% approval is necessary to authorize any sale or
lease of assets between the Company and any beneficial holder of 5% or more of
the Company's voting shares. Article Fourteen of the Restated Certificate of
Incorporation contains a "fair price" provision which requires that any tender
offer made by a beneficial owner of more than 5% of the outstanding voting stock
of the Company in connection with any plan of merger, consolidation or
reorganization, any sale or lease of substantially all of the Company's assets,
or any issuance of equity securities of the Company to the 5% stockholder must
provide at least as favorable terms to each holder of Common Stock other than
the stockholder making the tender offer. Article Fifteen of the Restated
Certificate of Incorporation contains an "anti-greenmail" mechanism which
prohibits the Company from acquiring any voting stock from the beneficial owner
of more than 5% of the outstanding voting stock of the Company, except for
acquisitions pursuant to a tender offer to all holders of voting stock on the
same price, terms and conditions, acquisitions in compliance with Rule 10b-18 of
the Exchange Act and acquisitions at a price not exceeding the market value per
share. Article Sixteen of the
27
<PAGE> 29
Restated Certificate of Incorporation prohibits the stockholders of the Company
from acting by written consent in lieu of a meeting.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Dean Witter Reynolds Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase the
shares set forth opposite its name below. In the Purchase Agreement, the several
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all the shares offered hereby if any of the shares are purchased. In
the event of default by an Underwriter, the Purchase Agreement provides that, in
certain circumstances, purchase commitments of the nondefaulting Underwriters
may be increased or the Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
UNDERWRITER
----------------------- NUMBER
OF SHARES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................
Dean Witter Reynolds Inc..........................................
---------
Total................................................ 6,800,000
========
</TABLE>
The Representatives of the Underwriters have advised the Company that they
propose initially to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Company has granted to the Underwriters an option exercisable for 30
days after the date hereof to purchase up to 1,020,000 additional shares of
Common Stock to cover over-allotments, if any, at the initial public offering
price, less the underwriting discount. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the foregoing
table is of the 6,800,000 shares of Common Stock initially offered hereby.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
Common Stock for a period of 90 days after the date of this Prospectus in a
public offering or, subject to certain conditions, in a private offering,
without the prior written consent of the Representatives, except for certain
sales in connection with acquisitions of interests in oil and gas properties,
issuances pursuant to the Company's employee benefit plans or issuances upon the
conversion, exchange or exercise of outstanding securities convertible into or
exchangeable or exercisable for Common Stock. If any such consent is given, it
would not necessarily be preceded or followed by a public announcement thereof.
28
<PAGE> 30
LEGAL MATTERS
Certain legal matters regarding the Shares of Common Stock offered hereby
under laws other than federal or state securities laws have been passed upon for
the Company by its Vice President and General Counsel, Z. S. Kobiashvili. As of
the date of this Prospectus, Mr. Kobiashvili owns 541 shares of Common Stock
through the Company's retirement/401(k) savings plan and holds employee stock
options to purchase 20,000 shares of Common Stock, of which 2,500 options are
currently exercisable. Certain legal matters in connection with the Offering
will also be passed upon for the Company by Andrews & Kurth L.L.P., Houston,
Texas, and for the Underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The audited consolidated financial statements of the Company and the
audited statement of Combined Revenues and Direct Operating Expenses for the Oil
and Gas Properties of Texaco Exploration and Production Inc. Sold to Apache
Corporation, each incorporated by reference into this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto. In its report on the consolidated financial
statements of the Company, that firm states that with respect to DEKALB its
opinion is based on the report of other independent public accountants, namely
Coopers & Lybrand. The financial statements referred to above have been
incorporated by reference or included herein in reliance upon the authority of
those firms as experts in accounting and auditing in giving said reports.
The audited consolidated financial statements of DEKALB incorporated by
reference in this Registration Statement have been audited by Coopers & Lybrand,
Chartered Accountants, as indicated in their report with respect thereto, and
are incorporated herein in reliance upon the authority of said firm as experts
in accounting and auditing in giving said report.
The information included and incorporated by reference herein regarding the
total proved reserves of the Company was prepared by the Company and reviewed by
Ryder Scott Company Petroleum Engineers ("Ryder Scott"), as stated in their
letter reports with respect thereto, and is so included and so incorporated by
reference in reliance upon the authority of said firm as experts in such
matters. The information included and incorporated by reference herein regarding
the total estimated proved reserves acquired from Texaco was prepared by the
Company and reviewed by Ryder Scott, as stated in their letter report with
respect thereto, and is so included and so incorporated by reference in reliance
upon the authority of said firm as experts in such matters. The information
included and incorporated by reference herein regarding the total proved
reserves of DEKALB was prepared by DEKALB and for the four years ended December
31, 1994 was reviewed by Ryder Scott, as stated in their letter reports with
respect thereto, and is so included and so incorporated by reference in reliance
upon the authority of said firm as experts in such matters. The reserve review
letters of Ryder Scott as of December 31, 1994, are filed as exhibits to the
Registration Statement of which this Prospectus is a part, in reliance upon the
authority of said firm as experts with respect to the matters covered by their
reports and the giving of their reports.
A portion of the information included herein regarding the total proved
reserves of Aquila proposed to be acquired by the Company was prepared by
Netherland, Sewell & Associates, Inc. as of December 31, 1994, as stated in
their letter report with respect thereto. Netherland, Sewell has not reviewed
any of the reserves of Aquila acquired during 1995, including those set forth in
this Prospectus on a pro forma basis as of December 31, 1994. The reserve review
letter of Netherland, Sewell is filed as an exhibit to the Registration
Statement of which this Prospectus is a part in reliance upon the authority of
said firm as experts with respect to the matters covered by their report and the
giving of their report.
29
<PAGE> 31
AVAILABLE INFORMATION
Apache is subject to the informational requirements of the Exchange Act,
and in accordance therewith, files periodic reports, proxy statements and other
information with the Commission. The Company's filings may be inspected and
copied or obtained by mail upon payment of the Commission's prescribed rates at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and CitiCorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Common Stock and associated Rights are
listed on the NYSE and the CSE. Although the Shares of Common Stock offered
hereby are not currently admitted for trading on either exchange, applications
have been made to list the Shares on both the NYSE and the CSE. The Company's
9.25% Notes due June 1, 2002 are listed on the NYSE. The Company's reports,
proxy statements and other filings with the Commission are also available for
inspection at the offices of the NYSE located at 20 Broad Street, New York, New
York 10005 and the CSE, 440 S. LaSalle St., Chicago, Illinois 60605.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and in the amendments, exhibits and schedules thereto.
For further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement, and to the exhibits and
schedules filed therewith. All of these documents may be inspected without
charge at the Commission's principal office in Washington, D.C., and copies
thereof may be obtained from the Commission at the prescribed rates or may be
examined without charge at the public reference facilities of the Commission.
Any statements contained herein concerning the provisions of any document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement shall be qualified in
its entirety by such reference.
30
<PAGE> 32
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Information Incorporated by
Reference............................ 2
Prospectus Summary..................... 3
Risk Factors........................... 9
Use of Proceeds........................ 12
Price Range of Common Stock and
Dividends............................ 12
Capitalization......................... 13
Selected Consolidated Financial,
Operating and Reserve Data........... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 16
The Company............................ 21
Recent Developments.................... 24
Description of Capital Stock........... 26
Underwriting........................... 28
Legal Matters.......................... 29
Experts................................ 29
Available Information.................. 30
</TABLE>
6,800,000 SHARES
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
, 1995
------------------------------------------------------
------------------------------------------------------
<PAGE> 33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee................................................................ $ 72,133
NYSE additional listing fee..................................................... 27,370
Printing expenses............................................................... 150,000*
Blue Sky fees and expenses...................................................... 10,000*
Legal fees and expenses......................................................... 75,000*
Accounting fees and expenses.................................................... 75,000*
Transfer agent and registrar fees............................................... 1,000*
Miscellaneous fees and expenses................................................. 39,497*
--------
Total................................................................. $450,000
========
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, inter alia, authorizes
a corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding (other than an action by or in the right of the corporation) because
such person is or was a director, officer, employee or agent of the corporation
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reason to believe his conduct was
unlawful. Similar indemnity is authorized for such persons against expenses
(including attorneys' fees) actually and reasonably incurred in defense or
settlement of any such pending, completed or threatened action or suit by or in
the right of the corporation if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnity has met the
applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him. The Company maintains policies
insuring its and its subsidiaries' officers and directors against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act.
Article VII of the Company's Bylaws provides, in substance, that directors,
officers, employees and agents of the Company shall be indemnified to the extent
permitted by Section 145 of the Delaware General Corporation Law. Additionally,
Article Seventeen of the Company's Restated Certificate of Incorporation
eliminates in certain circumstances the monetary liability of directors of the
Company for a breach of their fiduciary duty as directors. These provisions do
not eliminate the liability of a director (i) for a breach of the director's
duty of loyalty to the Company or its stockholders; (ii) for acts or omissions
by the director not in good faith; (iii) for acts or omissions by a director
involving intentional misconduct or a knowing violation of the law; (iv) under
Section 174 of the Delaware General Corporation Law (relating to the declaration
of dividends and purchase or redemption of shares in violation of the Delaware
General Corporation Law); and (v) for transactions from which the director
derived an improper personal benefit.
II-1
<PAGE> 34
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 -- Form of Purchase Agreement between Apache Corporation and the
Underwriters named therein.(1)
2.1 -- Purchase and Sale Agreement by and between Aquila Energy Resources
Corporation and Apache Corporation dated August 28, 1995.(2)
4.1 -- Restated Certificate of Incorporation of Apache Corporation
(incorporated by reference to Exhibit 3.1 to Apache's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, Commission
File No. 1-4300).
4.2 -- Bylaws of Apache Corporation as of July 31, 1995 (incorporated by
reference to Exhibit 4.2 of Apache's Registration Statement on Form
S-4, Registration No. 33-61669, filed with the Commission on August
8, 1995).
4.3 -- Form of common stock certificate (incorporated by reference to
Exhibit 4.4 to Amendment No. 1 to Apache's Registration Statement on
Form S-3, Registration No. 33-5097, filed with the Commission on May
16, 1986).
4.4 -- Rights Agreement dated as of January 10, 1986 between the Company and
First Trust Company, Inc., rights agent, relating to the declaration
of Rights to the Company's common stockholders of record on January
24, 1986 (incorporated by reference to Exhibit 4.9 of Apache's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985,
Commission File No. 1-4300).
5.1 -- Opinion of legal counsel regarding legality of securities being
registered.(1)
23.1 -- Consent of Arthur Andersen LLP.(2)
23.2 -- Consent of Coopers & Lybrand, Chartered Accountants.(2)
23.3 -- Consent of Ryder Scott Company Petroleum Engineers ("Ryder
Scott").(2)
23.4 -- Consent of Netherland, Sewell & Associates, Inc.(1)
23.5 -- Consent of legal counsel (included in Exhibit 5.1).(1)
24.1 -- Power of Attorney (included in Part II as a part of the signature
pages of the Registration Statement).(1)
99.1 -- Reports of Ryder Scott dated January 20 and January 23, 1995.(1)
99.2 -- Report of Ryder Scott dated February 6, 1995.(1)
99.3 -- Report of Ryder Scott dated August 21, 1995.(1)
99.4 -- Report of Netherland, Sewell & Associates, Inc., dated January 19,
1995.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or
II-2
<PAGE> 35
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Houston, State of Texas.
APACHE CORPORATION
Date: September 5, 1995 By: /s/ Z. S. KOBIASHVILI
-------------------------------
Z. S. Kobiashvili
Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated. (Apache Corporation does not have a
Principal Financial Officer.)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<S> <C> <C>
RAYMOND PLANK* Chairman and Chief September 5, 1995
- --------------------------------------------- Executive Officer
(Raymond Plank) (Principal Executive
Officer)
MARK A. JACKSON* Vice President, Finance September 5, 1995
- ---------------------------------------------
(Mark A. Jackson)
R. KENT SAMUEL* Controller and Chief September 5, 1995
- --------------------------------------------- Accounting Officer
(R. Kent Samuel) (Principal Accounting
Officer)
</TABLE>
II-4
<PAGE> 37
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<S> <C> <C>
FREDERICK M. BOHEN* Director September 5, 1995
- ---------------------------------------------
(Frederick M. Bohen)
VIRGIL B. DAY* Director September 5, 1995
- ---------------------------------------------
(Virgil B. Day)
G. STEVEN FARRIS* Director September 5, 1995
- ---------------------------------------------
(G. Steven Farris)
RANDOLPH M. FERLIC* Director September 5, 1995
- ---------------------------------------------
(Randolph M. Ferlic)
EUGENE C. FIEDOREK* Director September 5, 1995
- ---------------------------------------------
(Eugene C. Fiedorek)
W. BROOKS FIELDS* Director September 5, 1995
- ---------------------------------------------
(W. Brooks Fields)
ROBERT V. GISSELBECK* Director September 5, 1995
- ---------------------------------------------
(Robert V. Gisselbeck)
STANLEY K. HATHAWAY* Director September 5, 1995
- ---------------------------------------------
(Stanley K. Hathaway)
JOHN A. KOCUR* Director September 5, 1995
- ---------------------------------------------
(John A. Kocur)
JOSEPH A. RICE* Director September 5, 1995
- ---------------------------------------------
(Joseph A. Rice)
* /s/ Z. S. KOBIASHVILI
- ---------------------------------------------
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- --------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Purchase Agreement between Apache Corporation and the
Underwriters named therein.(1)
2.1 -- Purchase and Sale Agreement by and between Aquila Energy Resources
Corporation and Apache Corporation dated August 28, 1995.(2)
4.1 -- Restated Certificate of Incorporation of Apache Corporation
(incorporated by reference to Exhibit 3.1 to Apache's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, Commission File
No. 1-4300).
4.2 -- Bylaws of Apache Corporation as of July 31, 1995 (incorporated by
reference to Exhibit 4.2 of Apache's Registration Statement on Form
S-4, Registration No. 33-61669, filed with the Commission on August 8,
1995).
4.3 -- Form of common stock certificate (incorporated by reference to Exhibit
4.4 to Amendment No. 1 to Apache's Registration Statement on Form S-3,
Registration No. 33-5097, filed with the Commission on May 16, 1986).
4.4 -- Rights Agreement dated as of January 10, 1986 between the Company and
First Trust Company, Inc., rights agent, relating to the declaration
of Rights to the Company's common stockholders of record on January
24, 1986 (incorporated by reference to Exhibit 4.9 of Apache's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985,
Commission File No. 1-4300).
5.1 -- Opinion of legal counsel regarding legality of securities being
registered.(1)
23.1 -- Consent of Arthur Andersen LLP.(2)
23.2 -- Consent of Coopers & Lybrand, Chartered Accountants.(2)
23.3 -- Consent of Ryder Scott Company Petroleum Engineers ("Ryder Scott").(2)
23.4 -- Consent of Netherland, Sewell & Associates, Inc.(1)
23.5 -- Consent of legal counsel (included in Exhibit 5.1).(1)
24.1 -- Power of Attorney (included in Part II as a part of the signature
pages of the Registration Statement).(1)
99.1 -- Reports of Ryder Scott dated January 20 and January 23, 1995.(1)
99.2 -- Report of Ryder Scott dated February 6, 1995.(1)
99.3 -- Report of Ryder Scott dated August 21, 1995.(1)
99.4 -- Report of Netherland, Sewell & Associates, Inc., dated January 19,
1995.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
<PAGE> 1
EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
AQUILA ENERGY RESOURCES CORPORATION
SELLER
AND
APACHE CORPORATION
BUYER
Dated August 28, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Reserved Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. The Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Adjustments to Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Disclaimer of Representations and Warranties of Seller . . . . . . . . . . . . . . . 20
3.3 Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . 20
4. Covenants and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1 Covenants and Agreements of Seller . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Covenants and Agreements of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.3 Mutual Covenants and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.4 Acknowledgement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.5 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5. Title Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.2 Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.3 Title Indemnity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.4 Preferential Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.5 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1 Inspection Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 Environmental Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.4 Environmental Defect Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.5 Limitation of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7. Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.1 Seller's Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.2 Buyer's Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
Purchase and Sale Agreement
Page i
<PAGE> 3
<TABLE>
<S> <C> <C>
8. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.1 Date of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.2 Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.3 Closing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9. Obligations and Agreements After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.1 Post-Closing Adjustment Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.2 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.3 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.4 Assumption and Retention of Obligations . . . . . . . . . . . . . . . . . . . . . . 50
9.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.6 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.7 Certain Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.2 Liabilities Upon Termination or Breach . . . . . . . . . . . . . . . . . . . . . . . 56
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.1 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.6 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.9 Certain Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.12 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.14 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Exhibits
Exhibit A The Interests
Exhibit A-1 The Leases
Exhibit A-2 The Wells
Exhibit A-3 The Houston Office
Exhibit A-4 The Gas Plants
Exhibit A-5 The Easements
Exhibit B Agreement to Convey Net Profits Royalty Interest
Exhibit C Form of Conveyance
Exhibit D-1 Seller Guaranty
Exhibit D-2 AMI Guaranty
Exhibit E Aquila Gas Purchase Agreement
Exhibit F Gas and Condensate Gathering Agreement
</TABLE>
Purchase and Sale Agreement
Page ii
<PAGE> 4
<TABLE>
<S> <C>
Schedules
Schedule 1.3(g) Seller's Marquez Ranch
Schedule 1.3(h) Seller's High Island Pipeline System
Schedule 2.3(a)(5) Capital Costs
Schedule 3.1(a) Jurisdictions Where Seller is Qualified
Schedule 3.1(d) Conflicts
Schedule 3.1(f) Actions
Schedule 3.1(i) Environmental Matters
Schedule 3.1(j) Required Filings
Schedule 3.1(k)(1) Interests Funds Held by Others
Schedule 3.1(k)(2) Amount Held in Suspense Accounts
Schedule 3.1(l) Insurance
Schedule 3.1(m) Non-terminable Contracts
Schedule 3.1(n) Material and Affiliate Contracts
Schedule 3.1(p) Wells
Schedule 3.1(r) Operating Expenditures
Schedule 3.1(s)(1) Proprietary Data
Schedule 3.1(s)(2) Third Party Data
Schedule 3.1(t) Leases
Schedule 3.1(u) Tax Protests
Schedule 3.1(v) Tax Partnerships
Schedule 3.1(aa) Operations
Schedule 3.1(dd) Payout Balances
Schedule 3.1(ff) Conduct of Seller's Business
Schedule 3.3(a) Jurisdictions Where Buyer is Qualified
Schedule 3.3(c) Defaults Under Indebtedness
Schedule 3.3(e) Actions
Schedule 4.1(c) Contractual Obligations
Schedule 5.1(d)(3) Applicable Laws Title Defect
Schedule 5.1(d)(4) Action Title Defect
Schedule 9.4(b) Excepted Contract Obligations
Schedule 9.5(a) Seller Retained Indemnities
</TABLE>
Purchase and Sale Agreement
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<PAGE> 5
DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.14(a)
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(f)
Adjusted Purchase Price . . . . . . . . . . . . . . . . . . . . . . . Section 4.5(b)(1)
AEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)
AEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)
AGPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.3(a)(4)
AOG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.3(a)(5)
Agreed Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Opening Paragraph
Allocated Value . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.2(a)(ii)
AMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.3(c)(1)
Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(g)
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(cc)
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(cc)
Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Opening Paragraph
Buyer-Initiated Claims . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(e)
Buyer SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.3(k)
Buyer's Production . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(d)
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(7)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.1
Closing Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.1
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.5(a)
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(g)
Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.2(d)
Costs to Address . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(c)
Covered Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.7(d)
Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(h)
December 31, 1994 Balance Sheet . . . . . . . . . . . . . . . . . . . Section 3.1(cc)
Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(f)(v)
Defect Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.2(a)(i)
Defensible Title . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Definitive Defect . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.3(a)
Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(i)
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.5
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.2(b)
Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(b)
Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(y)
Environmental Defect . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(b)
Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(7)
Environmental Matter . . . . . . . . . . . . . . . . . . . . . . . . Section 6.5
Equipment and Facilities . . . . . . . . . . . . . . . . . . . . . . Section 1.2(c)
Exchanging Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . Section 4.5(a)
Final Adjusted Purchase Price . . . . . . . . . . . . . . . . . . . . Section 9.1(b)
Final Settlement Date . . . . . . . . . . . . . . . . . . . . . . . . Section 9.1(b)
Final Settlement Statement . . . . . . . . . . . . . . . . . . . . . Section 9.1(b)
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(cc)
FPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(bb)
FWPCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(7)
GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.4(c)
Gas Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(f)
Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(g)
Hazardous Substance . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(8)
HMTA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(7)
Houston Office . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(e)
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(j)
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.5(d)
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.5(d)
Interest Additions . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.3(b)
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)
Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Interim Settlement . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.1(a)
Interim Settlement Date . . . . . . . . . . . . . . . . . . . . . . . Section 9.1(a)
Interim Settlement Statement . . . . . . . . . . . . . . . . . . . . Section 9.1(a)
June 30, 1995 Balance Sheet . . . . . . . . . . . . . . . . . . . . . Section 3.1(cc)
Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.9
Land Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.2
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(a)
Liable Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.5
LIBOR Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)
Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(n)
Maximum Environmental Indemnity Payment . . . . . . . . . . . . . . . Section 6.2(f)(v)
Maximum Title Indemnity Payments . . . . . . . . . . . . . . . . . . Section 5.3(a)
MCF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.3(a)(4)
Net Revenue Interests . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)(2)
Non-Definitive Defects . . . . . . . . . . . . . . . . . . . . . . . Section 5.3(a)
Non-Marketing Events . . . . . . . . . . . . . . . . . . . . . . . . Section 4.2(c)
Nonoperated Interests . . . . . . . . . . . . . . . . . . . . . . . . Section 1.4(b)(2)
Operated Interests . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.4(b)(1)
OSHA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(8)
Other Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.5
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Opening Paragraph
Pending Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.4(a)
Permitted Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(c)
Post Effective Time Matters . . . . . . . . . . . . . . . . . . . . . Section 9.4(a)
Post Oak Office . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.2
Post-Signing Period . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.1(a)
Pre-Closing Period . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.3(a)(1)
</TABLE>
Purchase and Sale Agreement
Page iv
<PAGE> 6
DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Preliminary Adjusted Purchase Price . . . . . . . . . . . . . . . . . Section 8.3(b)
Preliminary Settlement Statement . . . . . . . . . . . . . . . . . . Section 8.3(b)
Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(j)
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(d)
Proprietary Data . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(s)
PUHCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(bb)
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
RCRA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(7)
Qualifying Claim . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(f)(v)
Real and Personal Property Taxes . . . . . . . . . . . . . . . . . . Section 4.5(b)(1)
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . Section 4.2(c)
Related Agreements . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.3(a)
Reserved Interests . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Retained Indemnities . . . . . . . . . . . . . . . . . . . . . . . . Section 9.5(a)
Retained Obligations . . . . . . . . . . . . . . . . . . . . . . . . Section 9.5(a)
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 11.14(a)
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.2(c)
Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Opening Paragraph
Seller's Conditions . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)
Seller's Net Profits Royalty Interest . . . . . . . . . . . . . . . . Section 1.4
Seller's Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3(e)
Seller's Production . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3(d)
Seller's Representatives . . . . . . . . . . . . . . . . . . . . . . Section 4.1(b)
SWDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(7)
Third Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.7(d)
Third Party Claim Amount . . . . . . . . . . . . . . . . . . . . . . Section 6.2(c)
Third Party Data . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(s)
Third Party-Initiated Claims . . . . . . . . . . . . . . . . . . . . Section 6.2(e)
Third Party-Liability Amount . . . . . . . . . . . . . . . . . . . . Section 6.2(d)
Title Defect . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(d)
Title Indemnity Deductible . . . . . . . . . . . . . . . . . . . . . Section 5.3(a)
Title Indemnity Payments . . . . . . . . . . . . . . . . . . . . . . Section 5.3(a)
Total Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(d)
TSCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(i)(7)
UtiliCorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(c)
Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2(b)
Working Interest . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)(3)
</TABLE>
Purchase and Sale Agreement
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<PAGE> 7
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement"), dated August 28, 1995,
is between AQUILA ENERGY RESOURCES CORPORATION, a Delaware corporation
("Seller"), and APACHE CORPORATION, a Delaware corporation ("Buyer"). In
consideration of the mutual promises contained in this Agreement, the benefits
to be derived by each party under this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer and Seller (the "Parties") agree as follows:
1. PURCHASE AND SALE
1.1 PURCHASE AND SALE. Seller agrees to sell and convey, and Buyer
agrees to purchase and pay for, the "Interests" (as defined in Section 1.2) at
the Closing (as defined in Section 8.1), subject to the terms and conditions of
this Agreement. The transactions contemplated by this Agreement are referred to
collectively as the "Acquisition."
1.2 INTERESTS. Except for the Reserved Interests (as defined in Section
1.3), "Interests" means the following:
(a) The "Leases," defined as all of Seller's right, title, and
interest in and to (i) all oil, gas, and mineral deeds, leases, and
subleases, and other similar instruments and agreements, including those
described or referred to in Exhibit A-1; (ii) all fee mineral interests,
surface estates, fee estates, mineral servitudes, leasehold interests,
working interests, royalty interests, overriding royalty interests, net
profits interests, production-payment interests, and other rights,
privileges, interests, and estates created, transferred, or governed by
such instruments and agreements; (iii) all other rights, privileges,
interests, and estates in or appurtenant to the lands covered by such
instruments and agreements or described or referred to in Exhibit A-1; and
(iv) all lands described or referred to in Exhibit A-1 and all lands
described in or referred to in any instrument, deed, or agreement under
Section 1.2(a)(i).
(b) The "Wells," defined as all of Seller's right, title, and interest
in and to all oil wells, condensate wells, natural gas wells, water source
wells, injection wells (for injection of water, recycling of natural gas,
injection of substances used in secondary and tertiary recovery operations,
and injection of other substances), and all wells included within any
pooled, unitized or communitized areas covering or including any Leases,
including units formed under orders, regulations, rules, approvals,
decisions, or other official acts of a Government (as defined in Section
3.1(g)), whether producing, operating, shut in, or temporarily abandoned,
including, without limitation, the wells listed on Exhibit A-2.
Purchase and Sale Agreement
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(c) The "Equipment and Facilities," defined as all of Seller's right,
title, and interest in and to all marine platforms, tools, equipment,
fixtures, tangible personal property, goods, inventory, improvements, and
facilities located on the Leases or Gas Plants or used or held for use in
connection with the ownership or operation of the Leases, Wells, Gas Plants
or Production, including boats, casing, chemicals, Christmas trees,
communications equipment, compressors, dehydrators, flow lines, gathering
lines, generators, laterals, loading docks, loading racks, machinery
(surface and subsurface), meters, pipelines, poles, power lines, power
plants, pumps, rods, separators, tanks, transformers, tubing, tubular
goods, vehicles and water systems, together with all accessions, additions,
and attachments.
(d) "Buyer's Production," defined as all of Seller's right, title, and
interest in and to oil, natural gas, condensate, natural gas liquids, and
other hydrocarbons or products produced from or attributable to the Leases,
Wells, and Gas Plants after the Effective Time (as hereinafter defined in
Section 1.5), plus oil, condensate, and other liquid hydrocarbons produced
before the Effective Time and held in storage above the pipeline connection
at the Effective Time. (The term "Production" refers generically to
Buyer's Production and Seller's Production, as defined in Section 1.3(d).)
(e) The "Houston Office," defined as all of Seller's right, title, and
interest in and to Seller's Houston office located at 10370 Richmond
Avenue, Houston, Texas, the lease agreement for that office, and all
furniture, fixtures, equipment, and facilities in that office owned by
Seller, including all computers and computer peripherals, as described in
Exhibit A-3.
(f) The "Gas Plants," defined as all of Seller's right, title, and
interest in and to the natural gas processing plants described in Exhibit
A-4 and all tools, equipment, fixtures, tangible personal property, goods,
inventory, improvements, and facilities located on the lands occupied by
the gas plants or used or held for use in connection with the ownership or
operation of the plants, including chemicals, communications equipment,
compressors, dehydrators, flow lines, gathering lines, generators, meters,
pumps, separators, and tanks.
(g) The "Contracts," defined as all of Seller's right, title, and
interest in and to all contracts that govern or relate to the ownership or
operation of the Leases, Wells, Equipment and Facilities, Production, or
Gas Plants to the extent not included in the definition of Leases,
including acreage-contribution agreements, area-of-mutual-interest
agreements, assignments, bidding agreements, bottom-hole agreements,
contribution agreements, division orders, drilling contracts, dry-hole
agreements, exploration agreements, farmin and farmout agreements, gas
balancing agreements (including claims to recover natural gas or money
under gas balancing agreements for underproduction of Seller's Production
before the Effective Time), joint venture agreements, Production sales
contracts, natural gas processing agreements (including agreements for
onshore processing of offshore Production), operating agreements,
participation agreements, platform-sharing agreements, service
Purchase and Sale Agreement
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contracts, storage contracts, transportation agreements, processing
contracts, treating contracts, and water rights agreements and the
unitization, unit operating, communitization, and pooling declarations,
agreements, and orders that create or govern units. The term "Contracts"
does not include the instruments or agreements related to the Houston
Office, which are covered by the definition of the Houston Office. To the
extent that Seller has rights of indemnification and warranty rights with
respect to any Lease, Well, Equipment and Facilities, Production or Gas
Plants, Seller shall use its best reasonable efforts to assign to Buyer
such rights insofar as the Interests transferred hereunder are affected
thereby; provided that Seller shall reserve such rights insofar as such
rights relate to any of the Reserved Interests or any obligation or
liability that Seller has retained under this Agreement.
(h) The "Data," defined as all of Seller's right, title, and interest
in and to Seller's books, records, databases, information systems, and
files on or about or related to the Leases, Wells, Equipment and
Facilities, Production, Gas Plants and the Houston Office, including
accounting information (including but not limited to Federal/Indian royalty
and state tax reports and supporting detail; records relating to sales of
production; revenue distributions by owner; vendor invoices; cost
allocations; well payout files; COPAS billing detail; billings to third
parties for use of company-owned facilities; production payment files;
lease operating statements; gas balancing files; oil and gas purchase
statements; remittance advice detail; allocation/meter statements; sales
invoices; revenue accounting spreadsheets; operator prepayment records and
correspondence), analyses (technical and financial), drilling records,
logs, engineering data, formation tests and reports, geological
information, geophysical information, seismic information, gravitational
information, interpretations, maps, paleontological information, production
records, reserve reports, title abstracts, title and contract files, title
opinions, transfer orders, and well tests and reports, in whatever medium,
including computer-sensible books, records, and files and related software
and documentation.
(i) The "Easements," defined as all of Seller's right, title, and
interest in and to tenements, appurtenances, surface leases, easements,
permits, licenses, servitudes, franchises, and rights-of-way in any way
appertaining, belonging, affixed or incidental to or used in connection
with the ownership or operation of the Leases, the Wells, the Equipment and
Facilities, and the Gas Plants, including, without limitation, as set forth
in Exhibit A-5.
(j) "Proceeds," defined as all of Seller's right, title, and interest
in and to all revenues, proceeds, insurance proceeds (subject to Seller's
reservation of such proceeds insofar as such proceeds relate to any
Reserved Interests or any obligation or liability that Seller has retained
under this Agreement), accounts, accounts receivable, and claims (i) for
the operation, salvage, sale, disposition, damage, or destruction of the
Equipment and Facilities, attributable to the period after the Effective
Time; (ii) attributable to Buyer's Production; and (iii) for the operation,
salvage, sale, disposition, damage, or destruction of the Gas Plants
attributable to the period after the Effective Time.
Purchase and Sale Agreement
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1.3 RESERVED INTERESTS. Seller shall reserve and except from the sale
and conveyance of the Interests in favor of itself, its successors and assigns,
the following (collectively the "Reserved Interests"):
(a) All accounts receivable attributable to the Interests that are
attributable to periods prior to the Effective Time, other than accounts
receivable for any gas balancing agreements.
(b) All claims and rights attributable to periods prior to the
Effective Time, including, without limitation, the right to initiate,
prosecute, or participate in, at Seller's sole cost and expense, all
audits, audit claims, and tax claims and proceedings (to the extent not
covered by Section 4.5) relating to or including periods prior to the
Effective Time, regardless of when commenced, arising out of or under any
applicable law, operating or Production sales agreements, or otherwise, and
to recover all costs and expenses claimed or shown by such audits or
proceedings as owing to the owner of the Interests for periods prior to the
Effective Time.
(c) Third party drilling rigs, marine vessels, and other similar
property that are located temporarily on the Leases, Wells, or Gas Plants
or used in connection with the drilling, reworking, or deepening of Wells,
and any pipelines, easements, fixtures, tanks, or equipment located on the
Leases, Wells, or Gas Plants, that belong to third parties but Seller's
right, title and interest in any contracts relating to the foregoing is
included in the Contracts.
(d) Oil, natural gas, condensate, natural gas liquids, and other
hydrocarbons or products produced from or attributable to the Leases,
Wells, or Gas Plants before the Effective Time, excluding the oil, natural
gas, condensate, natural gas liquids and other hydrocarbons or products
produced before the Effective Time but included in the definition of
Buyer's Production, but including all rights, if any, to recover additional
production or production proceeds produced from or attributable to the
Leases, Wells, or Gas Plants for periods prior to the Effective Time,
resulting from adjustments to net revenue interests in the applicable
division orders ("Seller's Production").
(e) All revenues, proceeds, accounts and claims attributable to
Seller's Production described in Section 1.3(d) ("Seller's Proceeds"),
except claims to recover natural gas or money under gas balancing
agreements for underproduction of Seller's Production before the Effective
Time, which are included in the definition of "Contracts" and are intended
to be transferred to Buyer.
(f) Seller's employment agreements and compensation and benefit
arrangements, consulting agreements, accounting contracts, and legal
services contracts; and all claims and contract rights that relate to
ownership or operation of the Interests before the Effective Time,
including Seller's claims for "take-or-pay" payments and settlements and
for payments, refunds, price
Purchase and Sale Agreement
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adjustments, account adjustments, audit adjustments, and other similar
matters, except the gas balancing claims included in the definition of
"Contracts."
(g) Seller's Marquez Ranch, including the mineral estate, if any,
located in Washington and Fayette Counties, Texas and more particularly
described on Schedule 1.3(g).
(h) Seller's High Island Pipeline System, including the High Island
A-69 Platform more particularly described on Schedule 1.3(h).
(I) All furniture, fixtures, equipment (including computer equipment),
and facilities related to the Houston Office that are not described on
Exhibit A-3.
(j) Seller's accounting information relating solely to the corporate
activities of Seller and not to the Interests being sold hereunder.
(k) Seller's financial hedge, option, and futures contracts (other
than contracts for the physical delivery of oil and gas), together with the
proceeds derived therefrom.
(l) Seller's deposits, cash, checks in process of collection, cash
equivalents, and funds attributable to the Interests with respect to any
period of time prior to the Effective Time and with respect to any period
of time after the Effective Time to the extent (i) Buyer received a credit
with respect to such amounts pursuant to the Purchase Price adjustments in
Sections 2.3 or 9.1, or (ii) Seller retained the liability related to such
amounts under this Agreement.
(m) Except as set forth in Sections 5.5 and 9.7(d), Seller's rights,
titles, claims, and interests (i) under any policy or agreement of
insurance or indemnity; (ii) under any bond; or (iii) to any insurance or
condemnation proceeds or awards.
(n) All of Seller's non-proprietary seismic, geophysical, geological,
geochemical, and other geotechnical information listed on Schedule
3.1(s)(2), which Schedule shall be provided within 20 days of the date
hereof, subject to Section 4.1(f).
(o) All of Seller's patents, trade secrets, copyrights, names, marks,
and logos.
(p) All of Seller's records and documents subject to confidentiality
provisions, claims of privilege, or other restrictions on access, except as
otherwise expressly provided herein; provided, however, Seller shall use
its best reasonable efforts to afford Buyer access to such materials,
except where disclosure would waive attorney-client privilege, attorney
work-product privilege or other similar privilege.
Purchase and Sale Agreement
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<PAGE> 12
(q) All of Seller's proprietary, intra-corporate computer software.
(r) Amounts held by Seller in accounts or otherwise and attributable
to any matter for which Seller retains liability under this Agreement.
1.4 CERTAIN TERMS. (a) Seller's Net Profits Royalty Interest. "Seller's
Net Profits Royalty Interest" means a net profits royalty interest as described
in Exhibit B.
(b) Operated and Nonoperated Interests. For purposes of this
Agreement:
(1) "Operated Interests" means (x) those Leases and Wells, along with
the appurtenant or related Equipment and Facilities, Easements, Contracts,
Data, Production, and Proceeds, for which Seller, or a contractor, agent,
or representative acting on Seller's behalf, serves as operator, whether
pursuant to an agreement among the owners of interests therein, Applicable
Laws (as hereinafter defined in Section 3.1(g)), or some other arrangement
and (y) the Houston Office.
(2) "Nonoperated Interests" means the Leases, Wells, and Gas Plants,
along with the appurtenant or related Equipment and Facilities, Easements,
Contracts, Data, Production, and Proceeds, not included in the definition
of Operated Interests in (1) above.
(c) "GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants, in statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be accepted by a significant segment of
the accounting profession, that are applicable to the circumstances as of the
date of determination.
1.5 EFFECTIVE TIME. The purchase and sale of the Interests shall be
effective as of July 1, 1995, at 7:00 a.m., at the location of the Interests
(the "Effective Time").
2. THE PURCHASE PRICE.
2.1 PURCHASE PRICE AND PAYMENT. In addition to the agreements and
considerations described in the Agreement, the purchase price shall be
$198,000,000 (the "Purchase Price"). The Purchase Price shall be subject to
adjustment as provided in Section 2.3. The Purchase Price shall be paid by
Buyer to Seller in two installments as follows:
(a) on the date of execution of this Agreement, Nineteen Million Eight
Hundred Thousand Dollars ($19,800,000) (the "Deposit"); and
Purchase and Sale Agreement
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(b) at Closing (as defined in Section 8.1), an amount (the "Closing
Amount") equal to:
(i) the Purchase Price as adjusted pursuant to Sections 2.3 and
8.3(b) less the sum of the Deposit and interest on the Deposit at the
LIBOR Rate (as hereinafter defined) from the date of this Agreement to
September 29, 1995, unless the Closing is delayed past September 29,
1995 solely due to (A) Seller's failure to fulfill the conditions in
Section 7.2 (a), (d) and (e) or (B) Seller's failure to consummate the
transactions contemplated by this Agreement following the fulfillment
of all of the conditions set forth in Section 7.1 ("Seller's
Conditions"), in which case such interest on the Deposit will be from
the date of this Agreement to the Closing Date; plus
(ii) interest at the Agreed Rate (as hereinafter defined) on
the Purchase Price as adjusted pursuant to Sections 2.3 and 8.3(b),
less the Deposit, from September 29, 1995 until the Closing Date,
unless such delay past September 29, 1995 was solely due to Seller's
Conditions.
Notwithstanding the foregoing, if the Closing is delayed until after
September 29, 1995 solely due to the delay in fulfilling the conditions in
Section 7.1(b) or (c) or Section 7.2(b) or (c), for the period from
September 29, 1995 to the Closing Date, (x) Seller shall retain one-half
such additional interest on the Deposit and Buyer shall receive a credit
for the other one-half of such interest as an adjustment to the Purchase
Price described in clause (b)(i) above and (y) Buyer shall only pay 50% of
the interest provided for in clause (ii) above. "LIBOR Rate" shall mean,
for any Interest Period, the rate per annum quoted by First Chicago
National Bank, Chicago, Illinois as the rate per annum applicable to loans
funding on the first day of such Interest Period (as hereafter defined) and
bearing interest based on the London interbank offered rate for one month
U.S. dollar deposits delivered on the first day of such Interest Period,
provided that the LIBOR Rate shall never exceed the maximum rate from time
to time permitted by Applicable Law. "Interest Period" shall mean, with
respect to any amount bearing interest at the LIBOR Rate, successive one
month periods, the first of which commences on the date such amount begins
bearing interest at the LIBOR Rate and the last of which ends on the date
such amount is paid and may be less than a one month period. In the case
of any amount bearing interest at the LIBOR Rate, (x) such interest shall
be calculated on the basis of a 360-day year, and (y) the LIBOR Rate
applicable to such amount shall be determined as of the first day of each
Interest Period applicable to such amount. The "Agreed Rate" shall mean a
rate per month calculated on a 30-day basis which is equal to the lesser of
(a) a rate that is one percent (1%) above the prime rate of interest of
First Chicago National Bank, Chicago, Illinois, as announced or published
by such bank from time to time (adjusted from time to time to reflect any
changes in such rate determined hereunder), or (b) the maximum rate from
time to time permitted by Applicable Law.
Purchase and Sale Agreement
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2.2 ALLOCATION. The Parties agree that the Purchase Price will be
allocated among the Interests and the Aquila Gas Purchase Contract (as defined
in Exhibit E) in accordance with Exhibit A.
2.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be adjusted
at Closing pursuant to Section 8.3(b) and, after Closing, pursuant to Sections
9.1(a) and (b) as follows:
(a) Upward Adjustments. The Purchase Price shall be adjusted upward
by the total of the following without duplication:
(1) the amount of all direct costs and expenditures paid by Seller
with respect to the Interests (A) that are attributable to the
drilling, completion, recompletion, reworking, operation and
maintenance of the Interests performed during the period beginning at
the Effective Time and ending on the Closing Date (the "Pre-Closing
Period"), (B) constituting leasehold acquisition costs, lease rentals
and shut-in payments due on or after (and expressly excluding those
due before) the Effective Time, (C) constituting ad valorem, property,
production, excise, severance, and all other taxes attributable to the
Pre-Closing Period, and (D) constituting amounts relating to
obligations arising under the Contracts with respect to the ownership
and operation of the Interests during the Pre-Closing Period;
(2) the amount of all direct costs and expenditures paid by
Seller, as operator, on behalf of other owners of working interests,
which costs and expenditures are (A) of the type referred to in
Section 2.3(a)(1) above, and (B) attributable to the Pre-Closing
Period;
(3) the value (based on the average July 1995 sales price from the
Interests) of all oil, condensate and liquid hydrocarbons that are in
storage above the pipeline connection at the Effective Time and that
fit the definition of "Buyer's Production", less taxes, burdens and
gravity adjustments customarily deducted by the purchasers of such
oil, condensate and liquid hydrocarbons;
(4) the value of the total net aggregate underproduction of
natural gas attributable to the Interests as of the Effective Time
after deduction of volumes attributable to royalties, overriding
royalties and other burdens payable out of production and values
attributable to payment of severance taxes, which total is 2,897,181
MCF (as hereinafter defined) as specified in Section 3.1(o) (i.e. the
total of all underproduction less the total of all overproduction),
such value to be $1.00 per one thousand cubic feet ("MCF") of natural
gas;
(5) Two Million Four Hundred Twenty-Five Thousand Three Hundred
Sixty-Six Dollars ($2,425,366) for capital costs and expenditures
Purchase and Sale Agreement
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<PAGE> 15
paid by Seller prior to the Effective Time which are attributable to
the drilling, completion, recompletion, reworking, operation and
maintenance of the Interests performed prior to the Effective Time as
listed on Schedule 2.3(a)(5);
(6) the amount of all insurance premiums paid by Seller with
respect to the Interests for insurance coverage during the Pre-
Closing Period;
(7) rent and utilities paid by Seller for the Houston Office
attributable to the Pre-Closing Period;
(8) One Million Dollars ($1,000,000) to partially compensate
Seller for its general and administrative costs to operate the Houston
Office (excluding rent and utilities) during the Pre-Closing Period
unless the Closing is delayed past September 29, 1995 solely due to
Seller's Conditions (as defined in Section 2.1(b)) in which event
there will be no adjustment pursuant to this Section 2.3(a)(8); and
(9) any other amount agreed upon by Seller and Buyer.
(b) Downward Adjustments. The Purchase Price shall be adjusted
downward by the total of the following, without duplication:
(1) the amount of all monies received by Seller that are
attributable to the ownership and operation of the Interests during
the Pre-Closing Period, including, without limitation:
(A) gross proceeds (net of royalties, overriding royalties,
net profits interests, reversionary interests, and production
payments payable out of production) for all oil, condensate,
liquid hydrocarbons and natural gas sold during the Pre-Closing
Period; and
(B) the proceeds from the disposition during the Pre-Closing
Period (with the consent of Buyer, when required, as provided in
Section 4.1(c)) of all or any portion of the Interests.
(2) the amount of all payments received by Seller from third
parties as reimbursements to Seller for the costs and expenditures set
forth in Section 2.3(a)(2) above;
(3) the amount of (A) all direct third party costs and
expenditures paid by Buyer which are attributable to the drilling,
completion, recompletion, reworking, operation and maintenance of the
Interests performed prior to the Effective Time, (B) all bonuses,
lease rentals and shut-in payments paid by Buyer with respect to the
Interests which were due prior to the Effective Time, and (C) all
amounts attributable to operations and production of the Interests
prior to the Effective Time
Purchase and Sale Agreement
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which are paid by Buyer and which relate to obligations arising under
the Contracts;
(4) the amount of all Environmental Defects for which Seller is
liable pursuant to Section 6 that are known and agreed upon and
settled by the Parties as of the time of Closing subject to the
limitations on Seller's liability for Environmental Defects set forth
in Section 6.2;
(5) an amount equal to all funds held by Seller for the account of
any other person in suspense accounts or otherwise relative to the
Interests except to the extent as indicated on such Schedule 3.1(k)(2)
that Seller retains liability pursuant to this Agreement with respect
to the matter for which such funds were held in reserve;
(6) any other amount agreed upon by Seller and Buyer.
3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Buyer, as of the date hereof and as of the Closing Date (as defined
in Section 8.1), that:
(a) Seller is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. Seller is duly
qualified to carry on its business and is in good standing in each state
where the nature of its business requires qualification. Schedule 3.1(a)
lists each jurisdiction where Seller is qualified to do business.
(b) Seller has all requisite corporate power and authority to carry on
its business as presently conducted, to execute and deliver this Agreement
and the Related Agreements (as defined in Section 8.3(a)), to perform its
obligations under this Agreement and the Related Agreements, and to own the
Interests.
(c) The execution, delivery, and performance of this Agreement and the
Related Agreements, and the consummation of the Acquisition and the
transactions contemplated hereunder and thereunder, have been duly and
validly authorized by all requisite corporate action (including any
necessary shareholder approval) of Seller, Aquila Energy Marketing
Corporation ("AEM"), Aquila Energy Corporation ("AEC") and UtiliCorp
United, Inc. ("UtiliCorp").
(d) The execution, delivery and performance of this Agreement and the
Related Agreements and the consummation of the Acquisition and the
transactions contemplated hereunder and thereunder do not and will not:
(1) violate, be in conflict with, or require the consent of any
person under any provision of Seller's, AEM's, or AEC's certificate of
incorporation or bylaws;
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(2) violate any Applicable Law or Environmental Law (as defined in
Section 3.1(i)(7)) or, except for the HSR Act (as defined in Section
3.1(j)) and routine Governmental consents typically received after the
consummation of transactions of the nature of the Acquisition, require
the consent of any Government;
(3) except as set forth in Schedule 3.1(d), violate, conflict
with, constitute a default under, accelerate or permit the
acceleration of any obligation, or require consent under (a) any
mortgage, indenture, loan, credit agreement, or other instrument or
agreement evidencing indebtedness for borrowed money; (b) any Contract
or Lease other than violations, conflicts, defaults, accelerations and
consents which would not have an adverse effect on any single Interest
in excess of $15,000; or (c) any other agreement or instrument to
which Seller, AEM, or AEC is a party or by which Seller, AEM, AEC,
UtiliCorp, or any of their Interests are bound;
(4) except as set forth in Schedule 3.1(d), result in the creation
or imposition of an Encumbrance (as defined in Section 5.1(b)) on the
Interests.
(e) This Agreement has been duly executed and delivered by Seller.
This Agreement is and, upon execution and delivery thereof, the Related
Agreements, instruments, agreements, and other documents required to be
executed and delivered by Seller, AEM, and AEC under Section 7.2(e) shall
be the legal, valid, and binding obligations of Seller, AEM, and AEC,
enforceable in accordance with their terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, and other laws
for the protection of creditors and the application of general principles
of equity.
(f) Except as described on Schedule 3.1(f), no written notice of any
suit, action, arbitration proceeding, legal proceeding, administrative
proceeding, or Governmental inquiry or investigation ("Action") has been
received by Seller, and to Seller's Knowledge (as hereinafter defined in
Section 11.9), no Action is threatened, which might result in impairment,
loss, or diminution of Seller's title to any part of the Interests; which
might hinder or impede the operation of the Interests including the Leases,
Wells or Gas Plants; or which might in any way impede the consummation of
the Acquisition or the transactions contemplated by the Related Agreements.
(g) Seller has, with respect to Operated Interests, and to Seller's
Knowledge, all operators of Nonoperated Interests have, complied with and
are not in default under, all Applicable Laws that govern the ownership or
operation, as applicable, of the Interests, the failure to comply with
which singly would have an adverse effect in excess of $15,000 on an
Interest. "Applicable Laws" means, as of the date of this Agreement and as
of the Closing Date, all applicable laws, statutes, ordinances, decrees,
requirements, orders,
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judgments, writs, rules, regulations, and injunctions of Governments that
have jurisdiction over the person, property, or activity in question, which
are in effect on the date of this Agreement and the Closing Date, but does
not include Environmental Laws. "Governments" means the government of the
United States of America; the government of each state, commonwealth,
territory, Indian tribe, or possession of the United States of America; the
government of each county, parish, municipality, or other governmental
subdivision or entity of, or in, a state of the United States of America;
and each agency, board, bureau, commission, court, department, and
instrumentality of each such government.
(h) Seller has, with respect to Operated Interests, and to Seller's
Knowledge, all operators of Nonoperated Interests have, all licenses and
permits required by Governments and has or have properly made all filings
necessary to obtain the licenses and permits, and to own and operate, as
applicable, the Interests as they are now being owned and operated. Such
licenses, permits, and filings are in full force and effect, and there are
no violations or failures to obtain licenses or permits that singly would
have an adverse effect in excess of $15,000 on any Interest with respect to
any licenses, permits and filings.
(i) Except as set forth on Schedule 3.1(i):
(1) With respect to the Operated Interests, and to Seller's
Knowledge with respect to Nonoperated Interests, there are no
underground storage tanks, as defined in Environmental Law, on the
Interests which constitute a violation of Environmental Law.
(2) With respect to the Operated Interests, and to Seller's
Knowledge with spect to Nonoperated Interests, the Leases, Wells,
Equipment and Facilities and Gas Plants contain no friable asbestos or
polychlorinated biphenyls above 50 ppm which constitute a violation of
Environmental Law.
(3) Seller has, with respect to Operated Interests, and to
Seller's Knowledge, all operators of Nonoperated Interests have, used
the Leases, Wells, and Gas Plants solely for oil and gas operations
and related operations. While Seller has owned the Interests, except
for the production and storage of oil, gas and other hydrocarbons and
the storage and disposal of brine in the ordinary course of business
consistent with prevailing oil and gas industry practices, neither
Seller, with respect to Operated Interests, nor, to Seller's
Knowledge, the operators of Nonoperated Interests have used the
Leases, Wells, or Gas Plants to dispose of Hazardous Substances. To
Seller's Knowledge, no Hazardous Substances have been disposed that
would cause an adverse material impact to the Leases, Wells, or Gas
Plants.
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(4) Seller, with respect to Operated Interests, has not and, to
Seller's Knowledge, all operators of Nonoperated Interests have not
been involved in or caused a spill or release of any Hazardous
Substance related to the ownership or operation of the Interests which
constitutes a violation of Environmental Law, except for matters that
have been addressed and have no continuing adverse consequence to
Seller or the Interests, which spill or release has or is reasonably
likely to result in a claim against an Interest that singly would have
an adverse effect in excess of $25,000 on an Interest.
(5) There are no Actions seeking money damages, injunctive relief,
remedial action, penalties, cost recovery, or any other remedy pending
or threatened in writing against Seller, the Operated Interests or to
Seller's Knowledge, the Nonoperated Interests and relating to the
violation of, liability under, or noncompliance with, an Environmental
Law; the discharge, disposal, or release of a Hazardous Substance; or
the exposure of a person or property to a Hazardous Substance.
(6) Seller has been and is, with respect to Operated Interests,
and to Seller's Knowledge, all operators of the Nonoperated Interests
have been and are operating, in material compliance under all
Environmental Laws.
(7) "Environmental Law" means all applicable federal, state, or
local laws, statutes, ordinances, decrees, requirements, orders,
judgments, writs, rules, regulations, and injunctions that are in
writing and in effect as of the date hereof and as of the Closing Date
that relate to (A) the prevention, abatement, remediation, or
elimination of pollution; (B) the protection of the environment; (C)
the protection of persons or property from actual or potential
exposure (or the effects of exposure) to an actual or potential spill
or release of a Hazardous Substance or petroleum or produced brine; or
(D) the manufacture, processing, production, gathering,
transportation, importation, use, treatment, storage, or disposal of a
Hazardous Substance or petroleum or produced brine. "Environmental
Law" includes the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the Resource Conservation and Recovery
Act ("RCRA"), the Clean Water Act, the Clean Air Act, the Safe
Drinking Water Act, the Solid Waste Disposal Act ("SWDA"), the Toxic
Substance Control Act ("TSCA"), the Hazardous Materials Transportation
Act ("HMTA"), the Federal Water Pollution Control Act ("FWPCA"), and
any similar law, regulation or requirement of any Governmental
authority or agency having jurisdiction over the person, property or
activity in question, as such laws, regulations and requirements are
in effect as of the date hereof and as of the Closing Date.
(8) "Hazardous Substance" means a substance, chemical, pollutant,
waste, or other material (A) that consists, wholly or in part, of a
substance that is regulated as toxic or hazardous to human health or
the
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environment under an Environmental Law or (B) that exists in a
condition or under circumstances that constitute a violation of an
Environmental Law. "Hazardous Substance" includes any "hazardous
substance" under CERCLA, any "hazardous chemical" under the
Occupational Safety and Health Act ("OSHA"), any "hazardous material"
under HMTA, any "hazardous chemical substance" under FWPCA, any
"hazardous waste" under RCRA; provided, however, that the term shall
not include naturally occurring substances at levels equal to or below
background.
(j) Except as set forth on Schedule 3.1(j), no filing or registration
with, and no permit, authorization, consent, or approval of, any Government
or any third party is necessary for consummation by Seller, AEM, or AEC of
the transactions contemplated by this Agreement and the Related Agreements
except (1) as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and (2) all rights to
consent by, required notices to, filings with, and other actions by
Governments in connection with the change of ownership or control of an
interest in Governmental oil and gas leases that are customarily obtained
after such change of ownership or control.
(k) Except as set forth on Schedule 3.1(k)(1), no funds attributable
to any of the Interests for periods after the Effective Time are being held
by any oil and gas purchaser or other person in suspense accounts or
otherwise, except such funds that are being disbursed in the ordinary
course of business. Schedule 3.1(k)(2) is a true and correct list as of
August 23, 1995 of all amounts held by Seller in suspense accounts or
otherwise relative to the Interests for the benefit or account of any other
person. Seller shall supplement such Schedule 3.1(k)(2) as of five (5)
days prior to the Closing Date.
(l) Seller maintains insurance on and bonds with respect to the
Interests covering such risks and with such deductible amounts as are
consistent with oil and gas industry practice, and Seller shall provide
Buyer with copies of certificates of insurance and bonds at least ten days
prior to Closing. Schedule 3.1(l) contains a listing of all such insurance
policies and bonds and specifies for each policy and bond the expiration
date, coverage limits, deductibles, and underwriter.
(m) Except as set forth on Schedule 3.1(m), Seller has, with respect
to Operated Interests, and to Seller's Knowledge, all operators of
Nonoperated Interests have, no Contracts involving the purchase or sale of
Production that require a dedication of Production for a term in excess of
one (1) month that are not terminable without penalty or other liability at
the sole discretion of Seller upon not more than one (1) month's notice,
except for commitments under operating agreements. Seller is not obligated
under any take-or-pay, prepayment, call on production, or similar
arrangement to sell or dispose of any Production without receiving current
payment therefor.
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(n) Except as set forth on Schedule 3.1(n) and in the Contracts
described in Section 3.1(m) (other than those set forth in Schedule 3.1(m))
and in joint operating agreements entered into in the normal course of
business, the Interests are not subject to (1) any instrument, agreement or
other Contract evidencing or related to indebtedness for borrowed money; or
(2) any Contract in which the amount involved exceeds $50,000 or the
remaining term, including any delivery obligation, exceeds one (1) year
("Material Contracts"). All of the existing Contracts solely between
Seller and any of its affiliates with respect to sales, services or support
to any of the Interests or operations on the Interests are as set forth on
Schedule 3.1(n), all of which contracts shall terminate except for such
Contracts (i) referred to in Section 9.7(g) or (ii) otherwise indicated on
Schedule 3.1(n) to survive Closing. All Material Contracts are to Seller's
Knowledge in full force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, and other laws for the protection
of creditors and the application of general principles of equity; Seller is
not, with respect to Operated Interests and, to Seller's Knowledge all
operators of Nonoperated Interests are not in material breach or default
with respect to any of its obligations pursuant to any such Material
Contract; all payments (including, without limitation, valid calls for
advance payment under unit or operating agreements) due by Seller
thereunder have been made by Seller; to Seller's Knowledge, no other party
to any Material Contract is in breach or default with respect to any of its
obligations thereunder to the extent such breach or default would have a
material adverse impact on Seller or any of the Interests; and neither
Seller nor, to Seller's Knowledge, any other party to any Material Contract
has given notice of any action to terminate, cancel, rescind, or procure a
judicial reformation of a Material Contract or any provision thereof.
Except as set forth on Schedule 3.1(n), no Contracts to which Seller is a
party or a successor-in-interest and to which Buyer will be subject after
the Effective Time contain any provision that prevents Buyer from owning,
managing, and operating the Interests in accordance with Seller's past
practices.
(o) Seller's total net aggregate underproduction as of the Effective
Time after deduction of volumes attributable to taxes, royalties,
overriding royalties and other burdens payable out of Production (i.e. the
total of all underproduction less the total of all overproduction) related
to the Operated Interests and, to Seller's Knowledge, the Nonoperated
Interests under applicable gas balancing agreements, oil-lifting
agreements, co-tenancy arrangements, and other instruments, agreements, and
arrangements is 2,897,181 MCF for which information has been provided to
Buyer.
(p) Except to the extent set forth on Schedule 3.1(p), to Seller's
Knowledge, no Well is subject to material penalties on allowables because
of any overproduction or any other violation of Applicable Law, which would
have a material adverse effect on any of the Wells. Except for the Wells
listed in Schedule 3.1(p), there are no Wells included in the Operated
Interests, or to Seller's Knowledge, in the Nonoperated Interests that
Seller or the operator of
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such Well is currently obligated by Applicable Law, Environmental Law or
order of any Government to plug and abandon within a time certain or that
Seller has shut-in or temporarily abandoned.
(q) With respect to the Operated Interests, and to Seller's Knowledge
with respect to the Nonoperated Interests, all Equipment and Facilities
necessary to operate the Leases, the Wells and the Gas Plants have been
maintained in a state of repair consistent with prevailing oil and gas
industry practices. Since July 1, 1995, Seller has not, and to Seller's
Knowledge, all operators of Nonoperated Interests and other owners of
interests in the Leases, Wells, and Gas Plants have not, removed any of the
Equipment and Facilities (whether or not idle) from the Leases, Wells, or
Gas Plants, except in the ordinary course of business.
(r) Except as set forth on Schedule 3.1(r), Seller has not executed
and is not otherwise contractually bound by any authority for expenditure
with respect to any Interest under any operating agreement, unit operating
agreement, or other similar agreements that will obligate Seller or Buyer
to pay, after the Effective Time, more than $25,000 for a single project,
operation, or expenditure. Except as set forth on Schedule 3.1(r), with
respect to authorizations for expenditure relating to any Interest, which
were executed on or after January 1, 1995 and obligate Seller or Buyer to
pay more than $25,000, (i) there are no outstanding calls under such
authorizations for expenditures for payments which are due or which Seller
has committed to make which have not been made; (ii) there are no material
operations with respect to which Seller has become a non-consenting party
where the effect of such non-consent is not disclosed on Exhibit A-2; and
(iii) there are no commitments for the expenditure of funds for drilling or
other capital projects other than projects with respect to which the
operator is not required under the applicable operating agreement to seek
consent.
(s) To Seller's Knowledge, Schedule 3.1(s) contains a true and correct
list identifying (1) all Data displaying seismic information to which
Seller has the unrestricted right to convey an interest to a third party or
to which Seller has the unrestricted right to permit a third party to
utilize ("Proprietary Data") and (2) all other Data displaying seismic
information relating to the Interests ("Third Party Data"), provided,
however, Schedule 3.1(s)(2) shall be delivered within 20 days of the date
hereof. At Closing, Seller has no further right to any Proprietary Data,
or Third Party Data which has been assigned or licensed to Buyer.
(t) Except as set forth in Schedule 3.1(t), (i) there are no
contractual obligations to engage in continuous development operations in
order to maintain any producing Lease in force; (ii) there are no
provisions applicable to the Leases which increase the royalty percentage
of the lessor thereunder (other than sliding scale royalties under federal
leases); and (iii) the Leases do not have terms (other than primary terms)
fixed by a certain number of years.
Purchase and Sale Agreement
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(u) All (1) ad valorem, property, production, severance, and other
similar taxes and assessments on the Interests based on or measured by the
ownership of property or the production of hydrocarbons or the receipt of
proceeds from the hydrocarbons and (2) personal property, sales, use,
transfer, excise, income (federal, state, local, and foreign), capital
stock, employees' withholding, social security, and other taxes and levies
relating to the Interests for all years before 1995 have been paid, and
all such taxes, assessments, and levies that become due and payable before
Closing shall be paid, by Seller; except for such matters identified on
Schedule 3.1(u) that Seller is contesting in good faith by appropriate
action.
(v) Except as disclosed in Schedule 3.1(v), no Interest is subject to,
or considered to be held by, any partnership for federal income tax
purposes, including tax partnerships under joint operating agreements.
(w) Except for the Leases, Wells and Gas Plants (the representation
and warranty for which is set forth above and in Section 5 below) and as
otherwise disclosed in the Schedules, the Seller is the owner of all
Interests included on Exhibit A, which Interests are reflected on the June
30, 1995 Balance Sheet or were acquired by the Seller after such date,
except for Equipment and Facilities scrapped or salvaged after such date in
the ordinary course of business and for acquisitions, sales, swaps,
renewals and other dispositions of the type that have not materially
adversely affected the value of the Interests. Except as disclosed in the
Schedules, all such Interests are free and clear of any liens or
encumbrances, except Permitted Encumbrances (as defined in Section 5.1(c)).
(x) Seller has not incurred any liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated by
this Agreement for which Buyer shall have any responsibility whatsoever.
(y) To Seller's Knowledge, with respect to Netherland, Sewell &
Associates, Inc. and DeGolyer and MacNaughton (the "Engineers") in
connection with their preparation of their respective reports dated
February 21, 1995 as of January 1, 1995 and February 28, 1995 as of
December 31, 1994, respectively, the information and data furnished by
Seller were true and correct in all material respects. To Seller's
Knowledge, no fact or circumstance has occurred since the dates of such
reports that should reasonably cause Seller to conclude that there has been
any material adverse change, in the aggregate, in Seller's reserves,
otherwise than from normal depletion by subsequent production or general
economic conditions in the oil and gas industry.
(z) Seller has been and is, with respect to Operated Interests, and to
Seller's Knowledge, all operators of Nonoperated Interests have been and
are, in material compliance with OSHA and all related regulations other
than such instances of noncompliance that do not have an adverse effect on
an Interest in excess of $15,000. There are no Actions seeking money
damages, injunctive relief, remedial action, penalties, or any other remedy
for which Seller has received written notice, or, to Seller's Knowledge,
threatened against Seller or
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to Seller's Knowledge the Interests and relating to the violation of,
liability under, or noncompliance with OSHA other than such Actions that do
not have an adverse affect on an Interest in excess of $15,000.
(aa) Except as set forth on Schedule 3.1(aa), since July 1, 1995,
the Operated Interests and, to Seller's Knowledge, the Nonoperated
Interests have been operated in accordance with standard oilfield
practices.
(bb) Consummation of the transactions contemplated by this
Agreement and the Related Agreements does not require any approval or
compliance with nor result in the violation of the Federal Power Act, as
amended (the "FPA") or Public Utility Holding Company Act of 1935, as
amended ("PUHCA").
(cc) Seller has delivered to Buyer the unaudited historical
December 31, 1994 Balance Sheet (the "December 31, 1994 Balance Sheet") and
unaudited historical June 30, 1995 Balance Sheet (the "June 30, 1995
Balance Sheet," together with the December 31, 1994 Balance Sheet, the
"Balance Sheets"), and the unaudited historical statement of operating
revenue and direct expenses of the business of Seller (the "Business")
covering each year in the three year period prior to December 31, 1994 and
the six month period ended June 30, 1995 (collectively, the "Financial
Statements"). The December 31, 1994 Balance Sheet presents fairly the
financial position of the Business as of December 31, 1994. The remaining
Financial Statements present fairly the operating revenue and direct
expenses for the periods covered. To the Knowledge of the Seller, Seller
did not have, as of the date of each of the Balance Sheets, except to the
extent reflected, any material unrecorded liabilities or obligations
(absolute or contingent) of a nature customarily reflected in a balance
sheet.
(dd) The payout balances with respect to any of the Interests that
are subject to future change on account of reversionary interests,
non-consent penalties or similar agreements or arrangements set forth on
Schedule 3.1(dd) are correct as of the dates shown on such statements.
(ee) To Seller's Knowledge, all payments of any kind required to be
made by Seller to third persons or any affiliate of Seller under any
Contract or otherwise with respect to the Interests and attributable to the
period after the Effective Time have been properly and timely paid, except
for any such payments (i) which are being contested in good faith by
appropriate action or (ii) which do not exceed, in the aggregate, $100,000.
(ff) Except as set forth in Schedule 3.1(ff), from the Effective
Time through the date hereof, Seller:
(1) has maintained and operated the Operated Interests as a
reasonably prudent operator consistent with prevailing oil and gas
industry practice;
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(2) has used reasonable efforts consistent with Seller's past
practices to cause the Nonoperated Interests to be maintained and
operated in a good and workmanlike manner and in substantially the
same manner as theretofore operated;
(3) has maintained books of account and records with regard to the
Interests in accordance with Seller's past practices;
(4) has paid timely its share of all costs and expenses
attributable to the Interests, except for such costs and expenses that
Seller was contesting in good faith by appropriate action;
(5) has not entered into any material agreements with respect to
any Interest, including any agreement affecting Production, not
terminable without penalty or other liability upon one (1) month's
notice or less, and has not amended or terminated any material
existing agreements relating to the Interests;
(6) except in the ordinary course of business consistent with past
practices, has not encumbered, sold, or otherwise disposed of any
Lease, Well, Gas Plant or the Houston Office since the Effective Time;
(7) has not encumbered, sold, or otherwise disposed of any
Equipment and Facilities since the Effective Time, except in the
ordinary course of business and consistent with past practice;
(8) has sold or otherwise disposed of, but has not otherwise
encumbered, Buyer's Production in the ordinary course of business and
consistent with past practice except as otherwise directed by Buyer,
and has performed all accounting, royalty disbursement, and reporting
requirements, as applicable, related thereto for such Buyer's
Production;
(9) has not participated in the drilling of any new well on or
relating to the Interests;
(10) has not taken any action that is reasonably expected to
result in any termination of a Lease;
(11) has not failed to take any action that is reasonably
expected to maintain a Lease;
(12) has not entered into or assumed, since the Effective Time,
any commitment that involves payments, receipts, or potential
liabilities with respect to the Interests of more than $25,000,
excluding emergency expenditures and a commitment terminable in one
(1) month or less regarding the sale of Buyer's Production; and
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(13) has not canceled, released, or waived any debt, claim, or
right of value relating to the Interests, which, in the aggregate,
exceeded $25,000.
3.2 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES OF SELLER. THE
REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR
IMPLIED, AND SELLER HEREBY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES,
EXPRESS, IMPLIED, OR STATUTORY, INCLUDING WITHOUT LIMITATION (I) ANY EXPRESS OR
IMPLIED WARRANTY OF MERCHANTABILITY, (II) ANY EXPRESS OR IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (III) ANY EXPRESS OR IMPLIED WARRANTY AS TO
CONDITION, OR (IV) ANY EXPRESS OR IMPLIED WARRANTY OF CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS.
3.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as of the date hereof and as of the Closing Date that:
(a) Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware. Buyer is duly
qualified to carry on its business in each state where the nature of its
business requires qualification. Schedule 3.3(a) lists each jurisdiction
where Buyer is qualified to do business.
(b) Buyer has all requisite corporate power and authority to carry on
its business as presently conducted, to execute and deliver this Agreement
and the Related Agreements, to purchase the Interests on the terms of this
Agreement, and to perform its other obligations under this Agreement and
the Related Agreements.
(c) The execution, delivery, and performance of this Agreement and the
Related Agreements, and the consummation of the Acquisition and the
transactions contemplated hereunder and thereunder:
(1) have been duly and validly authorized by all requisite
corporate action (including any necessary shareholder approval) of
Buyer and Apache Marketing, Inc. ("AMI");
(2) do not and will not violate, conflict with or require the
consent of any person under any provision of Buyer's or AMI's
certificate of incorporation or bylaws;
(3) do not and will not, except as set forth on Schedule 3.3(c),
violate, conflict with, constitute a default under, accelerate, or
permit the acceleration of any obligation, or require consent under
any mortgage, indenture, loan, credit agreement, or other instrument
or agreement
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evidencing indebtedness for borrowed money, or any other agreement
or instrument to which Buyer or AMI is a party, or by which Buyer
or AMI or any of their assets are bound;
(4) do not and will not violate any Applicable Law or, except for
the HSR Act, requirements under federal, state and foreign securities
laws in connection with Section 7.2(g) and routine Governmental
consents typically received after the consummation of transactions of
the nature of the Acquisition, require the consent of any Government.
(d) This Agreement has been duly executed and delivered by Buyer. This
Agreement is and, upon execution and delivery thereof, the Related
Agreements, instruments, agreements, and other documents required to be
executed and delivered by Buyer and AMI under Section 7.1(f) shall be the
legal, valid, and binding obligations of Buyer and AMI, enforceable in
accordance with their terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, and similar laws for the
protection of creditors and the application of general principles of
equity.
(e) Except as provided in Schedule 3.3(e), Buyer has received no
written notice of any Action and, to Buyer's Knowledge, no Action is
threatened, which might in any way impede the consummation of the
Acquisition or the transactions contemplated by the Related Agreements.
(f) No filing or registration with, and no permit, authorization,
consent, or approval of, any Government or any third party has to be
obtained by Buyer or AMI for consummation of the transactions contemplated
by this Agreement and the Related Agreements except as may be required
under the HSR Act, federal, state and foreign securities laws in connection
with Section 7.2(g) and routine Governmental consents typically received
after the consummation of transactions of the nature of such transactions.
(g) Buyer has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated herein
for which Seller shall have any responsibility whatsoever.
(h) The Interests to be acquired by Buyer under this Agreement are
being acquired by it for its own account for investment purposes and not
for distribution within the meaning of any securities law.
(i) Buyer is an experienced and knowledgeable investor in the oil and
gas business. Prior to entering into this Agreement, Buyer was advised by
its own legal, tax, and other professional counsel concerning this
Agreement, the Interests, and the value thereof.
(j) Buyer (i) will have received as of the Closing Date (to the extent
required by Applicable Law) all federal approvals required for the transfer
of those Leases which are situated on the outer continental shelf and
administered
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by the Minerals Management Service of the United States Department of the
Interior pursuant to the regulations promulgated under the Outer
Continental Shelf Lands Act, 43 U.S.C. Section 1331 et seq., as amended,
(ii) will have complied with as of the Closing Date (to the extent required
by Applicable Law) all necessary governmental bonding requirements arising
from its ownership of the Interests, (iii) will qualify as of the Closing
Date as a foreign corporation (to the extent required by Applicable Law) in
any jurisdiction necessary for Buyer to own and operate the Interests and
(iv) will have, as of the Closing Date, obtained all third party consents
or authorizations, if any, necessary to purchase, own and operate the
Interests other than such consents and authorizations required to be
obtained by Seller.
(k) Buyer has delivered to Seller true and complete copies of Buyer's
Annual Report on Form 10-K/A for the year ended December 31, 1994, its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 (with
all amendments), its Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (with all amendments) (other than exhibits) and any Form 8-K
filed since the quarter ended December 31, 1994 (the "Buyer SEC Filings").
The Buyer SEC Filings did not as of the date they were filed contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
4. COVENANTS AND AGREEMENTS.
4.1 COVENANTS AND AGREEMENTS OF SELLER. Seller covenants and agrees with
Buyer as follows:
(a) During the period beginning on the date hereof and until the
Closing Date (the "Post-Signing Period"), Seller will make available to
Buyer for examination at a location designated by Seller, all Data,
including all title information, production information, corporate,
partnership and personnel records, accounting files, production files,
litigation files, land files, lease files, well files, division order
files, contract files, marketing files, and other information relating to
the Interests, except as prohibited by Applicable Laws, legal constraints
or any obligation of confidence or other contractual commitment of Seller
to a third party. Subject to the consent and cooperation of operators and
other third parties, Seller will, at Buyer's expense, assist Buyer in
Buyer's efforts to obtain such additional information about the Interests
as Buyer may reasonably desire, to the extent in each case that Seller may
do so without violating legal constraints or any obligation of confidence
or other contractual commitment of Seller to a third party; provided,
however, that such access will not be required to the extent it would
operate to cause the waiver of any attorney-client, work product or like
privilege.
(b) Seller shall, with respect to the Operated Interests, or in the
case of any Nonoperated Interest, shall use its best reasonable efforts to
cause the
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operator thereof to, permit Buyer's authorized representative to
conduct, at Buyer's sole risk and expense, on-site inspections of the
Interests. In connection with Seller's granting such access, Buyer agrees
to indemnify, defend, and hold harmless Seller, its employees, agents,
contractors and all other representatives ("Seller's Representatives") from
and against all claims, losses, damages, demands, suits, costs, expenses,
liabilities and sanctions of every kind and character, including reasonable
attorneys' fees, court costs and costs of investigation arising from or
related to the activities of Buyer, its contractors, agents,
representatives, or employees on the Interests, other than to the extent
resulting from Seller's or Seller's Representatives' negligence or
misconduct.
(c) During the Post-Signing Period, Seller agrees, unless Buyer
otherwise agrees in writing or unless Seller is presently obligated
otherwise pursuant to a binding contractual obligation disclosed on
Schedule 4.1(c), which Schedule shall be provided within 10 days of the
date hereof:
(1) to maintain and operate the Operated Interests as a reasonably
prudent operator consistent with prevailing oil and gas industry
practices;
(2) to use reasonable efforts consistent with Seller's past
practices to cause the Nonoperated Interests to be maintained and
operated in a good and workmanlike manner and in substantially the
same manner as heretofore operated;
(3) to maintain books of account and records with regard to the
Interests in accordance with Seller's past practices;
(4) to use best reasonable efforts to pay timely its share of all
costs and expenses attributable to the Interests, except for such
costs and expenses that Seller is contesting in good faith by
appropriate actions;
(5) not to enter into any material agreements with respect to any
Interest, including any agreement affecting Production, not terminable
without penalty or other liability upon one (1) month's notice or
less, and not to amend or terminate any material existing agreements
relating to the Interests;
(6) not to encumber (other than Permitted Encumbrances), sell, or
otherwise dispose of any Lease, Well, or Gas Plant during the
Post-Signing Period;
(7) not to encumber, sell, or otherwise dispose of any Equipment
and Facilities during the Post-Signing Period, except in the ordinary
course of business and consistent with past practice;
(8) to sell or otherwise dispose of, but not otherwise encumber,
Buyer's Production in the ordinary course of business and consistent
with past practice except as otherwise directed by Buyer, and to
perform all
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services, including accounting, royalty disbursement, and
reporting requirements related thereto for such Buyer's Production;
(9) not to participate in the drilling of any new well on or
relating to the Interests or to fail to participate in operations on
or relating to the Interests proposed by other parties without the
advance written consent of Buyer, which consent or nonconsent must be
given by Buyer within three (3) business days (unless earlier response
is required by applicable contract) of the receipt of written notice
from Seller, but if Buyer fails to respond, Buyer shall be deemed to
have not consented;
(10) not to take any action that is reasonably expected to
result in any termination of a Lease;
(11) not to fail to take any action that is reasonably expected
to maintain a Lease;
(12) not to enter into or assume any commitment that involves
payments, receipts, or potential liabilities with respect to the
Interests of more than $25,000, excluding emergency expenditures and a
commitment terminable in less than one (1) month regarding the sale of
Buyer's Production during the Post-Signing Period;
(13) not to cancel, release, or waive any debt, claim, or right
of value relating to the Interests, which, in the aggregate, exceed
$10,000; and
(14) if any approval or consent by any Government or third
party is required to vest Defensible Title (as defined in Section
5.1(a)), or ownership, as applicable, to any Interest in Buyer at
Closing, exercise its best reasonable efforts, as reasonably requested
by Buyer, to obtain all such required approvals or consents before
Closing, at Buyer's expense for any Government, and at Seller's
expense for any third party;
provided, however, Seller agrees that any obligation or matter disclosed on
Schedule 4.1(c) shall not, unless Buyer has otherwise agreed, be deemed (i) a
waiver by Buyer of any adjustment to the Purchase Price or (ii) the acceptance
by Buyer of any liability or obligation described therein and shall be subject
to the option of Buyer to reduce the Purchase Price.
(d) Seller shall promptly notify Buyer, if, during the Post-Signing
Period, Seller receives notice of any Action of the type referred to in
Sections 3.1(f) or 3.1(i), but not listed on Schedules 3.1(f) or 3.1(i), or
any material adverse change in the status of any Action described in
Schedules 3.1(f) or 3.1(i).
(e) Seller shall cooperate with Buyer and use best reasonable efforts
to assist Buyer in obtaining the votes or consents necessary for Buyer to
succeed Seller as operator of all Operated Interests.
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(f) Seller shall use its best reasonable efforts to obtain the
consents and waivers referred to in Section 1.3(p) or listed on Schedules
3.1(d) and 3.1(j) before Closing, and, upon Buyer's request and at Buyer's
cost, for Third Party Data listed on Schedule 3.1(s)(2), including access
to such Data.
(g) Prior to the Closing Date or until termination of this Agreement,
Seller shall not, without the prior written approval of Buyer, directly or
indirectly solicit or initiate inquiries or proposals with respect to, or
furnish any information relating to, or participate in any negotiations or
discussions concerning, any merger, consolidation, share exchange, business
combination, or other similar transaction (other than the Acquisition), or
any sale, lease, transfer, or other disposition of all or substantially all
of the assets of Seller, including the Interests, or any acquisition by any
person or group of the beneficial ownership of 10% or more of any class of
capital stock of Seller; and Seller shall cause its officers, directors,
agents, subsidiaries, and affiliates to refrain from doing any of the
above, and will notify Buyer immediately if any such inquiries or proposals
are received by, or any such information is requested from, or any such
negotiations or discussions are sought to be initiated with, Seller or any
of its officers, directors, agents, subsidiaries, or affiliates.
(h) Seller shall not assign, market or transfer or otherwise utilize,
except in the ordinary course of business, Proprietary Data or Third Party
Data.
(i) Seller shall be responsible for any required notifications under
the Worker Adjustment and Retraining Notification Act to employees, and
Seller shall indemnify and hold harmless Buyer from and against any
liability under such Act arising from failure to comply with such Act.
(j) Seller shall use its best reasonable efforts to gather and
transport gas from the Wells in the same manner and for the same
consideration as such gathering and transportation was done during the
period prior to the Effective Time.
(k) During the period from the date hereof through 2 years after the
Closing, Seller shall, at Buyer's expense, use its best reasonable efforts
to provide Buyer financial and other data as may be required by securities
laws applicable to Buyer. Buyer shall hold such information confidential
except as required by law.
(l) Seller shall use its best reasonable efforts to cause Buyer to be
named as an additional insured on each of the insurance policies maintained
by Seller with respect to the Interests effective retroactively, if
possible, to the Effective Time, and for which Buyer shall be provided
notice prior to cancellation of such insurance, provided that any
additional premiums or charges incurred in connection therewith (if any)
shall be paid by Buyer. No such coverage afforded to Buyer, however, shall
give rise to subrogation rights of any third party against Seller. Any
amounts recovered by Buyer pursuant to
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such insurance coverage (net of Buyer's reasonable actual out-of-pocket
costs and expenses of collection) with respect to any matter for which
Seller is otherwise obligated to indemnify or reimburse Buyer hereunder
shall be credited towards the satisfaction of the applicable maximum
payment obligations of Seller set forth in Sections 5, 6 and 9 hereof, as
the case may be; provided that other than as set forth in Section 9.7(d)
nothing in this Agreement shall be interpreted as limiting Buyer's rights
to recover under such insurance coverage, other than the terms of such
insurance policy.
4.2 COVENANTS AND AGREEMENTS OF BUYER. Buyer covenants and agrees with
Seller that:
(a) Buyer shall, subject to the applicable terms of existing operating
agreements, take over operations of Operated Interests as of 7:00 a.m.
local time at the Leases and Wells on the Closing Date. Upon taking over
operations, Buyer will have posted all necessary state, federal, and local
bonds (or shall make such other arrangements as permitted by Applicable
Laws) and shall assist Seller in having Seller's existing bonds released,
or in the alternative, having the Wells operated by Buyer released from
Seller's existing bonds.
(b) Notwithstanding the terms of the Confidentiality Agreement dated
April 18, 1995 between Buyer and AEC, during the Post-Signing Period, the
Buyer shall interview all regular full time employees of the Seller who
complete Buyer's Application for Employment ("Employees"). Buyer shall
have the right, but not the obligation, to offer employment to and hire any
such Employees. Buyer agrees that it shall give the Seller notice by
September 25, 1995 of all the Employees of the Seller that the Buyer
intends to offer employment to and hire. If Buyer hires any Employees, the
terms of employment shall be at the Buyer's discretion; provided, however,
that Buyer shall provide such Employee the employee rights, benefits, and
other arrangements that are provided to other employees of Buyer on
substantially the same terms.
(c) As soon as practicable, but in no event more than five (5)
business days after the date of this Agreement, Buyer will file with the
Securities and Exchange Commission (the "SEC") a registration statement
relating to Buyer's securities (the "Registration Statement") and the
condition of Closing contained in Section 7.2(g). Buyer agrees to use its
best reasonable efforts to respond to any comments of the SEC and to
promptly select underwriters to market the securities. Subject to the
occurrence of (i) any legal requirements which, in the opinion of Buyer's
counsel, would require a delay in the offering, (ii) Buyer's sole
determination, after consultation with Buyer's underwriter, that the
then-current market is not favorable to such offering or (iii) Buyer's
reasonable determination that this Agreement will be terminated as a result
of Seller's inability to fulfill Seller's Conditions or that the conditions
in Section 7.1(b) and (c) or Section 7.2(b) and (c) will not be satisfied
("Non-Marketing Events"), Buyer agrees to use its best reasonable efforts
to (x) execute an underwriting agreement covering the securities and (y)
cause the Registration Statement to
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be declared effective. Subject to any Non-Marketing Events, Buyer agrees
to instruct the underwriters to proceed with the offering as expeditiously
as possible. Buyer agrees to use its best reasonable efforts to notify
Seller of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for amendments of or supplements to the
Registration Statement and further to use its best reasonable efforts to
notify Seller of any effectiveness of the Registration Statement.
(d) At the Closing, Buyer shall cease to use any trademarks, symbols,
or trade names containing "Aquila," "Aquila Energy Resources," "PSI,"
"UtiliCorp," "UtiliCorp United" or any other similar or related derivations
or use or applications of such trademarks, symbols or trade names, as well
as the four prong UtiliCorp logo associated with Seller. Notwithstanding
anything to the contrary herein, Buyer shall have ninety (90) days after
the Closing Date to remove, replace, cover, or paint over any
identifications and signs.
(e) Subject to the provisions of Section 6 of this Agreement, Buyer
hereby assumes and agrees to pay, perform and discharge all liabilities and
obligations to properly plug and abandon all Wells and remove all related
Equipment and Facilities now or hereafter located on the Interests and
clean up and restore the Interest (including all obligations to clean,
close and abandon all pits and impoundments) in accordance with applicable
laws (regardless of whether any such obligation to plug, abandon, remove,
clean up and restore is attributable to periods of time prior to or after
the Effective Time); except to the extent, however, that any such
liabilities and obligations are attributable to the failure by Seller to
properly plug and abandon (in accordance with Applicable Laws and
Environmental Laws) any Wells located on the Interests that (i) have been
plugged and abandoned by Seller prior to the Effective Time, or (ii) any
wells permanently abandoned by Seller prior to the Effective Time, for
which clauses (i) and (ii) Seller retains liability.
(f) Buyer waives any and all requirements of any bulk sales law
applicable to the Acquisition, provided however, that Seller agrees to
indemnify and hold Buyer harmless from any and all claims, damages or
losses sustained by Buyer as a result of any non-compliance with any
applicable bulk sales law.
4.3 MUTUAL COVENANTS AND AGREEMENTS. Buyer and Seller agree that each
will:
(a) file, or cause to be filed on its behalf, all necessary filings
and notifications under the HSR Act, including any required additional
information or documents, as soon as practicable; and
(b) cooperate with the other and use its best reasonable efforts, to:
(1) procure upon reasonable terms and conditions all necessary
consents and approvals to the Acquisition, this Agreement and the
Related Agreements,
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(2) complete all necessary filings, registrations, and
certificates,
(3) satisfy all requirements prescribed by Applicable Law and
Environmental Law for, and all conditions to, the consummation of the
Acquisition and the transactions contemplated hereby and in the
Related Agreements, and
(4) effect the Acquisition and the transactions contemplated
hereby and in the Related Agreements.
Notwithstanding the foregoing, Section 4.3 shall not modify Buyer's obligations
and rights under Section 4.2(c).
4.4 ACKNOWLEDGEMENT AGREEMENT. Buyer and Seller acknowledge that Buyer
is negotiating and executing this Agreement and is acting on behalf of itself
and certain of its subsidiaries. Accordingly, Seller acknowledges that Buyer
may request Seller to convey directly to certain of Buyer's subsidiaries title
to certain of the Interests, which Seller shall so convey pursuant to the terms
of this Agreement.
4.5 TAX MATTERS.
(a) Like-Kind Exchange. Buyer and certain of its subsidiaries,
including MW Petroleum Corporation and Apache Energy Resources Corporation
(the "Exchanging Subsidiaries") desire to exchange other property of
like-kind and qualifying use within the meaning of Section 1031 of the
Internal Revenue Code of 1986, as amended (the "Code") and the Regulations
promulgated thereunder, for the property which is the subject of this
Agreement. In order to effect such an exchange, Buyer and each of its
subsidiaries, including such Exchanging Subsidiaries, expressly reserve the
right to assign their rights, but not their obligations, hereunder to a
Qualified Intermediary as provided in Treasury Regulation Section
1.1031(k)-1(g)(4) on or before the Closing Date, and Seller hereby agrees
to recognize any such assignment. Notwithstanding any other provision of
this Agreement, such an assignment shall not require prior written consent
from Seller. Seller shall not be obligated to pay any additional costs or
incur any additional obligations in its sale of the property which is the
subject of this Agreement and Buyer shall indemnify and hold Seller
harmless from and against all claims, expense, loss and liability, if any,
resulting from Buyer's, its subsidiaries or any Exchanging Subsidiaries
participation in such an exchange.
(b) Payment and Apportionment of Real Property Taxes and Personal
Property Taxes. With respect to Taxes:
(1) Real and Personal Property Taxes. All ad valorem taxes, real
property taxes and personal property taxes ("Real and Personal
Property Taxes") for the year in which the Effective Time occurs shall
be apportioned as of the Effective Time between Seller and Buyer.
Seller
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shall be liable for the portion of such Real and Personal Property
Taxes based upon the number of days in the year occurring prior to the
Effective Time, and Buyer shall be liable for the portion of such
taxes based upon the number of days in the year occurring on and after
the Effective Time. For any year in which an apportionment is
required, Buyer shall file all required reports and returns incident
to these taxes and shall remit to the appropriate taxing authorities
all such taxes assessed for the year in which the Effective Time
occurs that are not paid by Seller as of the Closing Date. Seller
shall pay to Buyer, at the time of Buyer's remittance, Seller's share
of such taxes to the extent such amounts were not credited to Buyer in
calculating adjustments in the Purchase Price in Sections 2.3 or 9.1
(the "Adjusted Purchase Price").
(2) Liability and Right to Purchase Claims. Seller shall retain
liability for all adjustments, examinations or claims relating to
taxes that are paid by Seller and that are allocated to Seller
pursuant to this Section 4.5. Buyer shall retain liability for all
adjustments, examinations or claims relating to taxes that are paid by
Buyer and that are allocated to Buyer pursuant to this Section 4.5.
Seller shall administer and defend any examination, claim or
adjustments, including the claims listed on Schedule 3.1(u), arising
in connection with taxes to be paid by Buyer but which are allocated
to Seller pursuant to this Section 4.5.
(c) Other Taxes. All excise, production, severance, gross receipts,
conservation, marginally producing oil and gas (MPOG) fee, Kiowa Indian
Tribe of Oklahoma oil and gas severance and other similar taxes relating to
production of hydrocarbons attributable to the Interests prior to the
Effective Time shall be allocated to Seller, and all such taxes relating to
Buyer's Production on or after the Effective Time shall be allocated to
Buyer. Buyer shall file any reports or returns not filed as of the
Closing, and shall remit to the proper taxing authorities any such taxes
allocated to Seller, but not paid as of the Closing. Seller shall pay
Seller's share of such taxes at the time Buyer remits such taxes to the
extent such amounts were not credited to Buyer in the Adjusted Purchase
Price.
(d) Sales Taxes. The Purchase Price does not include any sales taxes
or other transfer taxes imposed in connection with the sale of the
Interests. Buyer shall pay any sales tax or other transfer tax, as well as
any applicable conveyance, transfer and recording fee, and real estate
transfer stamps or taxes imposed on the transfer of the Interests pursuant
to the Agreement. If Buyer is of the opinion that it is exempt from the
payment of any such sales tax or other transfer tax, Buyer shall furnish to
Seller the appropriate tax exemption certificate.
(e) Tax Proceedings. In the event Buyer or any of Buyer's affiliates
receives notice of any examination, claim, adjustment or other proceeding
relating to the liability for taxes of or with respect to Seller for any
period Seller is or may be liable under Section 4.5(b)(2), Buyer shall
notify Seller in writing
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within thirty (30) days of receiving notice thereof. As to any such taxes
for which Seller is or may be liable under Section 4.5(b)(2), Seller shall,
at Seller's expense, control or settle the contest of such examination,
claim, adjustment, or other proceeding, and shall indemnify Buyer against
all losses, damages, costs, expenses, liabilities, claims, demands,
penalties, fines, assessments, settlements, and any related expenses in
connection therewith. In the event Seller or any of Seller's affiliates
receives notice of any examination, claim, adjustment, or other proceeding
relating to the liability for taxes of or with respect to Buyer for any
period Buyer is or may be liable under Section 4.5(b)(2), Seller shall
notify Buyer in writing within thirty (30) days of receiving notice
thereof. As to any such taxes for which Buyer is or may be liable under
Section 4.5(b)(2), Buyer shall, at Buyer's expense, control or settle the
contest of such examination, claim, adjustment, or other proceeding, and
shall indemnify Seller against all losses, damages, costs, expenses,
liabilities, claims, demands, penalties, fines, assessments, settlements,
and any related expenses in connection therewith. The Parties shall
cooperate with each other and with their respective affiliates in the
negotiations and settlement of any proceeding described in this Section
4.5. Each Party shall provide, or cause to be provided, to the other Party
necessary authorizations, including powers of attorney, to control any
proceeding which such Party is entitled to control.
(f) Purchase Price Allocation. The allocation of Purchase Price in
accordance with Exhibit A is intended to comply with the allocation method
required by Section 1060 of the Code. Buyer and Seller shall cooperate to
comply with all substantive and procedural requirements of Section 1060 and
regulations thereunder, including without limitation the filing by Buyer
and Seller of an IRS Form 8594 with their federal income tax returns for
the taxable year in which the Closing occurs. Buyer and Seller agree that
each will not take for income tax purposes, or permit any affiliate to
take, any position inconsistent with the allocation of Purchase Price
prescribed in Section 2.2. Further, Buyer's reasonable allocation of the
Purchase Price between real and personal property shall determine the
allocation of such matters.
(g) Tax Partnerships. For each partnership, joint venture or tax
partnership to which any of the Interests are subject or considered to be a
partnership for federal income tax purposes, Seller shall, at Buyer's
election (i) assist Buyer with Seller's best reasonable efforts to cause
each partnership, joint venture or tax partnership to elect under Section
754 of the Code to adjust the basis of its Interests with respect to the
transfer of the partnership interest, effective for the taxable year of the
transfer, or (ii) use its best reasonable efforts to cause the relevant
Interest to be conveyed free of such partnership, joint venture or tax
partnership. With respect to each such partnership, joint venture or tax
partnership of Seller, Seller shall exercise its best reasonable efforts in
making available to Buyer all financial and tax data necessary or
reasonably helpful to determine whether a Section 754 election would be
advantageous to Buyer for the taxable year of the Closing.
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5. TITLE MATTERS.
5.1 DEFINED TERMS.
(a) "Defensible Title" means, for each Lease or Well, as applicable,
such title that:
(1) is deducible (A) in the case of fee leases, from a review of
the records of the applicable county or parish, (B) in the case of
federal leases, from a review of records of the applicable office of
the Bureau of Land Management or Minerals Management Service, (C) in
the case of Indian leases, from a review of the records of the Bureau
of Indian Affairs or the applicable tribal records, (D) in the case of
state leases, from a review of the records of the applicable state
land office or the records of the applicable county or parish, or (E)
in the case of state-mandated pooling orders, in the office of the
applicable Government;
(2) for each Lease or Well, as applicable, will entitle Buyer, as
Seller's successor in title, to receive not less than the "Net Revenue
Interest" set forth in Exhibit A of all Production from the Lease or
Well, without reduction, suspension, or termination throughout the
productive life of such Lease or Well, except as set forth on Exhibit
A attached hereto, and Schedule 3.1(dd) if said reduction, suspension,
or termination arises by virtue of a payout, nonconsent, or other
similar agreement or arrangement;
(3) will obligate Buyer, as Seller's successor in title, to bear
costs and expenses in an amount not greater than the "Working
Interest" set forth in Exhibit A for the Lease or Well, as applicable,
without increase for the respective productive life of such Lease or
Well, except as set forth on Exhibit A attached hereto, and Schedule
3.1(dd) if said increase arises by virtue of a payout, nonconsent or
other similar agreement or arrangement; and
(4) is free and clear of all Encumbrances (as defined in Section
5.1(b)), except for Permitted Encumbrances.
(b) "Encumbrance" means a mortgage, deed of trust, lien, security
interest, pledge, charge, or burden, in, to, or on the Lease or Well, as
applicable, but excluding Permitted Encumbrances.
(c) "Permitted Encumbrance" means the following, provided that such
Permitted Encumbrances do not operate to reduce the Net Revenue Interest or
increase the Working Interest with respect to any Well or Lease from the
figure set forth on Exhibit A attached hereto, except for increases arising
by virtue of a payout, nonconsent or other similar agreement or arrangement
as specifically set forth in Exhibit A attached hereto and Schedule
3.1(dd):
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(1) royalties, overriding royalties, net profits interests,
reversionary interests, production payments and other similar
obligations and burdens payable out of production;
(2) rights of reassignment which arise prior to abandonment,
surrender, expiration or release in any of the Leases;
(3) rights to consent by, required notices to, filings with, or
other actions by any Government or any other person in connection with
the sale or conveyance of any Lease or the assumption of operatorship
for any Lease or Well, as applicable, if the same are customarily
obtained subsequent to such sale or conveyance and which, if not
obtained, do not result in less than Defensible Title with respect to
any Well or Lease;
(4) easements, rights-of-ways, servitudes, permits, surface
leases, other rights relative to surface operations (including
pipeline operations, grazing, logging, canals, ditches, and
reservoirs) and similar rights and conditions, covenants or other
restrictions on or over the surface of the Leases or Wells that do not
interfere materially with the current operation, value or use of the
affected Lease or Well and that do not affect production from the
affected Lease or Well;
(5) easements for streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other easements and rights-of- way,
on, over or in respect to the Leases and Wells that do not interfere
materially with the current operation, value or use of the affected
Interest and that do not affect production from the affected Lease or
Well;
(6) all leases, subleases, operating agreements (including the
non-consent provisions of applicable operating agreements and the
elections thereunder and the payout status thereof but only to the
extent disclosed on Schedule 3.1(dd)), unit, communitization and
pooling agreements, farmout and farmin agreements (including
reversionary interests arising under farmout and farmin agreements and
the payout status thereof to the extent disclosed on Schedule
3.1(dd)), and Contracts which do not have a material adverse effect on
the operation, value or use of any of the Wells or Leases, or result
in less than Defensible Title with respect to any Well or Lease;
(7) all Applicable Laws of any Government, and all rights reserved
to or vested in any Government to control or regulate the Leases or
Wells in any manner, including, without limitation, any adjustment in
the Net Revenue Interest or Working Interest of a particular Lease or
Well caused by any action of a Government and with respect to such
action, Seller has not received written notice thereof prior to the
Closing Date or such action is not the result of any negligent act or
omission of Seller or any other party acting as operator of any such
Lease or Well;
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(8) liens for all taxes or assessments not yet due or not yet
delinquent, or if delinquent, that are beingcontested in good faith by
appropriate action brought in the normal course;
(9) liens imposed by law (such as carriers', warehousemen's and
mechanics' liens) and other similar liens, operator liens and working
interest owner liens, arising in the ordinary course of business
incidental to construction, maintenance or operation of the Interests
(A) if they have not been filed pursuant to Applicable Law and the
time for filing them has expired, (B) if filed, they have not yet
become due and payable or payment is being withheld as provided by
Applicable Law, or (C) if their validity is being contested in good
faith by appropriate action;
(10) changes in the Net Revenue Interest or Working Interest
resulting from non-consent elections under unit, operating or similar
agreements made by Buyer or third parties after the Effective Time,
but only to the extent set forth on Exhibit A and Schedule 3.1(dd);
and
(11) other minor defects or irregularities in title generally
waived by prudent purchasers of oil and gas properties;
provided further that any reference to Well and/or Lease in Sections 5.1(c)(1)
- - (11) above shall be deemed to refer to an "Interest" when the term Permitted
Encumbrance is utilized in any provision of this Agreement other than this
Section 5.
(d) "Title Defect" means anything which causes (i) Seller's title to
any Lease or Well to be less than Defensible Title, (ii) Buyer to receive
less than the interest in the Gas Plants described on Exhibit A, including,
without limitation, as to (i) and (ii): (1) Seller's inability to receive a
required consent to assign; (2) Seller's inability to obtain a waiver of
maintenance of uniform interest provision; or (3) any fact or circumstance
that would cause a Lease not to be in full force and effect; or (iii)
Seller not to receive or obtain a required consent to assign to Buyer any
Interest by November 30, 1995, such lack of consent shall be deemed to be
an automatically timely asserted Title Defect as of November 30, 1995 by
Buyer without further action by Buyer; but excluding any matter caused by,
through or under Buyer or resulting from Buyer's omissions on or after the
Effective Time. A "Title Defect" shall also mean any fact, circumstance, or
occurrence that causes any of the following statements to be untrue in any
material respect:
(1) For each Lease:
(A) the Lease has been maintained in force and effect
according to its terms, in compliance with the Contracts to which
the Lease is subject;
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(B) Seller has paid or caused to be paid all royalties, delay
rentals, shut-in royalties, minimum royalties, and other payments
due under the Lease;
(C) no party to the Lease is in breach or default of its
obligations under the Lease or the Contracts to which the Lease is
subject;
(D) no event, fact, or circumstance has occurred that, with
the lapse of time, the giving of notice, or both, would constitute
a breach of the Lease or the Contracts to which the Lease is
subject;
(E) neither Seller nor any other party to the Lease has given
or hreatened to give notice of an action to terminate, cancel,
rescind, or procure a judicial reformation of the Lease or any
Contract to which the Lease is subject;
(F) other than as set forth on Schedule 3.1(t), there are no
obligations to engage in continuous development operations to
maintain the Lease in force or to retain all rights to the Lease;
(G) other than as set forth on Schedule 3.1(t), no provision
of the Lease or any Contract to which the Lease is subject will
increase the royalty share of the lessor;
(H) no provision of the Lease (except provisions permitting
lessor to takeProduction in kind) requires payment of royalties on
any basis other than on the basisof market value of production or
the proceeds actually received by lessee; and
(I) the Seller has obtained all required consents to
assignment except those constituting "Permitted Encumbrances"
under Section 5.1(c)(3).
(2) Seller is not obligated under a "take-or-pay" arrangement,
prepayment arrangement, production payment, gas balancing arrangement,
or other similar arrangement to deliver Production, or permit another
person to take Production, at any time in the future without then or
thereafter receiving full payment for the Production.
In addition, if either of the following statements is true with respect to a
Lease, Well, or Gas Plant, Buyer may elect to treat as a Title Defect the fact,
circumstance, or occurrence that causes the statement to be true:
(3) other than as set forth on Schedule 5.1(d)(3), there has been
substantial non-compliance with the material Applicable Laws of any
Government having jurisdiction over the Interests, resulting in
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substantial risk of loss of the Leases, Wells or Gas Plants or the
value thereof; or
(4) other than as set forth on Schedule 5.1(d)(4), an Action
exists that will or reasonably may result in loss, diminution, or
impairment of Seller's title to any Lease, Well or Gas Plant or the
use, operation, or value thereof.
Notwithstanding anything herein to the contrary, Seller's failure to
include on Exhibit A-2 "Probable Only" any depth limitations with respect
to any "Reservoir" listed therein for any Well set forth under the heading
"Lease Name" shall not be deemed to be less than Defensible Title or form
the basis for Buyer's assertion of a Title Defect. Any breach of Section 5
with respect to such Well, except as set forth in the preceding sentence,
may be asserted as a Title Defect by Buyer hereunder.
5.2 TITLE DEFECTS.
(a) Buyer shall use its best reasonable efforts to notify Seller of
each Title Defect as soon as practical after discovery. Buyer shall
conclusively be deemed to have waived any Title Defect not asserted on or
prior to November 30, 1995, except as otherwise provided in Section 5.3(c).
On or prior to November 30, 1995, Buyer shall give Seller notice of all
Title Defects which it has the right to assert. Such notice shall be in
writing and shall include:
(1) a description of the Title Defect,
(2) the Allocated Value of the Lease, Well, or Gas Plant affected
by the Title Defect, and
(3) Buyer's good faith estimate of the Defect Value (as defined
below).
For purposes of this Agreement:
(i) "Defect Value" shall mean the amount by which the Allocated
Value of a Lease, Well, or Gas Plant has been reduced as a result of a
Title Defect.
(ii) "Allocated Value" means the value allocated in Exhibit A to a
Lease, Well, or Gas Plant.
Buyer shall not have the right to object to or assert a Title Defect,
other than a Definitive Defect (as defined in Section 5.3 below), which has
a Defect Value of $15,000 or less.
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(b) Failure by Buyer to assert a Title Defect under Section 5.2(a)
shall not limit or affect Buyer's right to invoke the special warranty of
title in the Conveyance to the extent it may apply to the Title Defect.
(c) If, within sixty (60) days after receipt by Seller of a notice
from Buyer of a Title Defect which Buyer has the right to assert under
Section 5.2(a), Seller cures such Title Defect asserted by Buyer to the
reasonable satisfaction of Buyer, Seller shall have no further liability to
Buyer for that Title Defect.
(d) If, within sixty (60) days after receipt by Seller of a notice
from Buyer of a Title Defect which Buyer has the right to assert under
Section 5.2(a), Seller does not cure such Title Defect asserted by Buyer to
the reasonable satisfaction of Buyer, the Parties shall upon the expiration
of such sixty (60) day period elect among the following remedies, if both
Parties agree:
(1) Seller shall pay, at the later of the Final Settlement Date or
the expiration of the 60 day cure period for Title Defects, an amount
agreed upon by the Parties by which the Allocated Value of the Lease,
Well, or Gas Plant has been reduced, subject to the conditions and
limitations set forth in Section 5.4, as a Title Indemnity Payment (as
hereinafter defined); or
(2) Seller shall agree in writing to indemnify Buyer on terms and
conditions acceptable to Buyer against all losses, expenses and
liabilities arising from or related to the Title Defect.
If the Parties fail to elect to proceed under (1) or (2) above, then
the Parties shall submit the dispute as to the Title Defect to
arbitration in accordance with Section 11.14, provided, however, Buyer
and Seller shall each submit their determination of the Defect Value
to the arbitrator, and the arbitrator must accept and award the Defect
Value of the prevailing Party, with no ability or authority of the
arbitrator to modify the position of the prevailing Party. The
liability of Seller with respect to any arbitration award shall be
subject to the conditions and limitations set forth in Section 5.3
below.
5.3 TITLE INDEMNITY PAYMENTS.
(a) Payments for Title Defects ("Title Indemnity Payments") shall be
made by Seller to Buyer consistent with the time frames and terms set forth
in Sections 5.2 and 5.3. The amount of the Title Indemnity Payment for a
particular Title Defect shall be paid regardless of the amount of Defect
Value, if the Defect Value is certain in amount and the Title Defect is a
reduction in the Seller's Net Revenue Interest set forth in Exhibit A for
Production from any Lease, Well, or Gas Plant, or an increase in the
Seller's Working Interest set forth on Exhibit A for any Lease, Well, or
Gas Plant (without a corresponding increase in the Net Revenue Interest
therefor) which reduction or increase is also certain in amount (a
"Definitive Defect"). As to all Title Defects that are
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not Definitive Defects ("Non-Definitive Defects"), Seller shall be
obligated to make a Title Indemnity Payment only if the individual Title
Defect is in excess of $15,000 and then only to the extent that the
aggregate Defect Value of all Non-Definitive Defects exceeds a deductible
of $500,000 (the "Title Indemnity Deductible"). Seller shall not be liable
for any Title Indemnity Payments, other than with respect to Definitive
Defects, in excess of $3,500,000 in the aggregate (the "Maximum Title
Indemnity Payments"). For purposes of this Section 5, all amounts
pertaining to Non-Definitive Defects which are agreed upon under this
Section 5 (but for the fact that the Title Indemnity Deductible has not
been met) shall be counted toward the satisfaction of the Title Indemnity
Deductible. In addition, all such agreed upon amounts and such reductions
shall, once the Title Indemnity Deductible has been exceeded, be deemed to
be Title Indemnity Payments for all purposes under this Agreement,
including without limitation for purposes of determining when the Maximum
Title Indemnity Payments have been exceeded. For Non-Definitive Defects,
the Defect Value shall be the amount necessary to compensate Buyer for the
adverse economic effect on the Lease, Well, or Gas Plant, taking into
account all relevant factors, including without limitation, the Allocated
Value of the Lease, Well, or Gas Plant, the time value of money, the
practical and legal effect of the Title Defect, and the amount of reduction
in Net Revenue Interest and/or increase in the Working Interest of the
affected Lease or Well. For all purposes under this Section 5, in no event
shall the aggregate Defect Values with respect to an Interest ever exceed
the Allocated Value of such Lease, Well or Gas Plant.
(b) Total adjustments from Title Defects may be offset by the
aggregate value of all Interest Additions (as hereinafter defined),
asserted by Seller on or prior to November 30, 1995. If the parties cannot
agree on the Interest Addition or the amount such Interest Addition
increases the Allocated Value of the Leases, Wells, and Gas Plants within
30 days of Buyer's receipt of Seller's notice of such Interest Addition,
such matter shall be submitted to arbitration in the same manner as set
forth in Section 5.2(d) above to determine the value, if any, of the offset
for any Interest Addition. "Interest Addition" means any interest that
entitles Seller to receive more than the Net Revenue Interest set forth on
Exhibit A for a particular Lease, Well, or Gas Plant or obligates Seller to
bear a Working Interest for a particular Lease, Well, or Gas Plant less
than the Working Interest set forth on Exhibit A, provided that the
reduction in royalty payable on federal Leases due to obtaining a stripper
well exemption or on account of sliding scale royalties shall not be
considered an Interest Addition. There shall be no adjustment for Interest
Additions with respect to any "Reservoirs" listed on Exhibit A-2 "Probable
Only." Seller shall conclusively be deemed to have waived any Interest
Additions not asserted within the period referred to in this Section
5.3(b). In no event may Seller assert Interest Additions in excess of the
total adjustments from Title Defects. Not later than ten (10) days prior
to Closing, Buyer shall use its best reasonable efforts to notify Seller of
all Interest Additions Buyer has discovered, or of which it becomes aware,
prior to such date. In addition, for all Interest Additions Buyer
discovers or of which it becomes aware after such date, Buyer shall use its
best reasonable efforts to notify Seller of all such Interest Additions
within
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the earlier to occur of (i) fifteen (15) days of discovering or becoming
aware of same or (ii) November 30, 1995. Such obligations shall continue
until November 30, 1995.
(c) It is the agreement and intention of the parties that (i) any
matter constituting a Title Defect shall be addressed solely under Sections
5.1, 5.2 and 5.3 and not under any other provision of this Agreement, and
(ii) to the extent that any representation or warranty herein covers a
matter which is included in the definition "Title Defect" such
representation or warranty shall be enforced only to the extent provided in
Sections 5.1 through 5.3; provided that this provision shall not limit
Buyer's right to invoke the special warranty of title in the Conveyance.
Notwithstanding the foregoing, nothing in this Section 5.3(c) shall be
construed to or have the effect of modifying the rights and obligations of
the Parties with respect to representations, warranties, covenants and
agreements contained in this Agreement that generally relate to and affect
title other than with respect to matters included in the definition of
Title Defect. In addition, notwithstanding the inclusion of Sections
5.1(d)(3) and 5.1(d)(4) in the definition of Title Defect, Buyer shall be
permitted to assert such matters and the Actions on Schedules 3.1(f) and
3.1(i) pursuant to Section 9.5(a).
(d) In the event there is a dispute between the Parties under Section
5.3(a) concerning whether the Defect Value and the Title Defect is a
Definitive Defect or a Non-Definitive Defect, such matter shall be
submitted to arbitration in accordance with Section 11.14.
5.4 PREFERENTIAL RIGHTS.
(a) Some Leases, Wells, or Gas Plants may be subject to preferential
rights to purchase in favor of third parties. Preferential rights shall be
handled under this Section 5.4 and shall not be treated as Title Defects,
either before or after Closing. The determination as to whether to send
and the form and content of all notices to the holders of preferential
purchase rights shall be determined by Seller, subject to Buyer's
reasonable approval, but shall not be inconsistent with the terms of this
Agreement. In the event of a disagreement between Buyer and Seller under
this paragraph, Buyer's decision shall be final.
(b) If a preferential right to purchase all or part of a Lease, Well,
or Gas Plant remains outstanding at or is exercised prior to Closing, the
affected Interest or portion of the Interest shall be removed from this
Agreement, and the Purchase Price shall be reduced by the Allocated Value
of the Interest or portion of the Interest in accordance with Exhibit A;
provided that Buyer shall have the right, by giving written notice to
Seller at least five (5) days prior to Closing, to elect to accept the
conveyance of the affected Interest or portion of the Interest subject to
such preferential right to purchase, in which case such affected Interest
or portion of the Interest shall remain subject to this Agreement and shall
be conveyed to Buyer at Closing subject to such preferential right to
purchase, and no reduction shall be made to the Purchase Price on account
of the outstanding preferential right.
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(c) Upon the expiration or termination after Closing of any
preferential right that remained outstanding at Closing with respect to any
Lease, Well, or Gas Plant which was not conveyed to Buyer at Closing,
Seller shall convey the affected Interest or portion of the Lease, Well, or
Gas Plant to Buyer, and Buyer shall pay Seller in cash the Allocated Value
of the affected Lease, Well, or Gas Plant or portion of the Lease, Well, or
Gas Plant.
(d) If, after Closing, a third party exercises a preferential right to
purchase all or part of a Lease, Well, or Gas Plant that was conveyed to
Buyer at Closing, then:
(1) Buyer shall convey such affected Lease, Well, or Gas Plant or
portion of the Lease, Well, or Gas Plant to the third party on the
terms and conditions and by the form of conveyance required by the
instrument or agreement under which such third party claims its
preferential right to purchase;
(2) Buyer shall retain, free of any claim by Seller, all amounts
paid by the third party exercising such preferential right to
purchase; and
(3) no financial adjustment shall be made between Buyer and Seller
on account of the exercise of the preferential purchase right.
5.5 CASUALTY LOSS. If, during the Pre-Closing Period, all or any
material portion of any Interest is destroyed by fire or other casualty, or is
taken in condemnation or under the right of eminent domain, or if, during such
period, condemnation or eminent domain proceedings are pending or threatened
against all or a material portion of any Interest, Buyer shall have the
following options:
(a) Buyer may reject the affected Interest, in which case the Purchase
Price shall be reduced by the Allocated Value in Exhibit A (or the
replacement cost of property of like condition and age, if no Allocated
Value) of the affected Interest. When applicable, if the Parties cannot
agree on the "replacement cost" such amount shall be referred to
arbitration in accordance with Section 11.14; provided, however, Buyer and
Seller shall each submit their determination of the replacement cost to the
arbitrator, and the arbitrator must accept and award the replacement cost
of the prevailing Party, with no ability or authority of the arbitrator to
modify the position of the prevailing Party; or
(b) Buyer may elect to purchase such Interest or portion of the
Interest, notwithstanding the destruction, taking, or pending or threatened
taking, in which case:
(1) the Purchase Price shall not be adjusted; and
(2) Seller shall, at Closing, pay to Buyer all sums paid to Seller
by an insurer, Government, or other third party by reason of the
destruction
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or taking of such Interests to be assigned to Buyer, and shall assign,
transfer, and set over unto Buyer all of the right, title, and
interest of Seller in and to any unpaid insurance recoveries,
condemnation awards, and other payments arising out of the
destruction, taking, or pending or threatened taking.
Seller shall not voluntarily compromise, settle, or adjust any material amounts
payable by reason of any destruction, taking, or pending or threatened taking
as to the affected Interest without first obtaining the written consent of
Buyer, unless Buyer rejects the affected Interest pursuant to Section 5.5(a)
above.
6. ENVIRONMENTAL MATTERS.
6.1 INSPECTION RIGHT. Before Closing, subject to necessary third-party
approvals, Seller shall permit Buyer and its representatives at reasonable
times and at their sole risk, cost, and expense, to conduct reasonable
inspections of the Interests. Buyer shall repair any damage to the Interests
resulting from such inspections. Buyer agrees to indemnify, defend, and hold
harmless Seller and Seller's Representatives from and against all losses,
damages, claims, demands, suits, costs, expenses, liabilities, and sanctions of
every kind or character, including reasonable attorneys' fees, court costs, and
costs of investigation arising from or related to the activities of Buyer, its
employees, agents, contractors, and other representatives in connection with
such inspections other than to the extent resulting from Seller's or Seller's
Representative's negligence or misconduct. Notwithstanding the foregoing, this
Section 6.1 is not intended to modify the Parties' rights and obligations under
Sections 6.2 through 6.5.
6.2 ENVIRONMENTAL DEFECTS.
(a) Buyer shall use its best reasonable efforts to notify Seller of
each Environmental Defect (as defined below) discovered prior to Closing.
At any time within the applicable time stated in this Section 6, Buyer
shall use its best reasonable efforts to give notice in writing to Seller
of each Environmental Defect discovered by Buyer or of which Buyer becomes
aware and with respect to which Buyer intends to seek an adjustment under
Section 6.4. Buyer agrees to provide in a timely manner any information
reasonably requested by Seller in order to file and process any and all of
Seller's insurance claims and matters, except as prohibited by Applicable
Laws, legal constraints or any obligation of confidence or other
contractual commitment of Buyer to a third party. If so restricted from
providing such information, Buyer shall use its best reasonable efforts to
remove the restriction.
(b) "Environmental Defect" shall mean any fact, circumstance, or
condition present in or with respect to the Interests as of the Closing
Date (1) that constitutes, as of the Closing Date, a breach of any
environmental representation or warranty in Section 3.1(i) of this
Agreement or would have been a breach but for being listed as an
"Environmental Matter" on
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Schedule 3.1(i); (2) that violates any Environmental Law as of the Closing
Date; (3) that results in any liability, as of the Closing Date, to any
person or Government, contingent or otherwise, under any Environmental Law;
or (4) that results from a spill of any Hazardous Substance, petroleum or
brine, on or before the Closing, which spill constitutes a violation of
Environmental Law or Leases or Contracts, as such Leases or Contracts are
in effect as of the Closing Date.
(c) All notices to be given under Section 6.2(a) shall describe the
Environmental Defect, describe the evidence of the Environmental Defect
relied upon by Buyer, and state the Costs to Address the Environmental
Defect, as reasonably estimated by Buyer, and the amount of any Third
Party-Initiated Claim to the extent known ("Third Party Claim Amount").
The "Costs to Address" an Environmental Defect shall be the actual
reasonable out-of-pocket costs of addressing the Environmental Defect,
including the cost expended under a plan to reasonably address the
Environmental Defect, and amounts expended to determine the extent of the
Environmental Defect, and to determine the appropriate means to address the
Environmental Defect, but shall not include Buyer's investigation expenses
(including costs of surveys, audits or analyses) prior to Buyer notifying
Seller of the Environmental Defect. Costs to Address shall not include any
matters not directly related to addressing the Environmental Defect, and
shall not, for example, include consequential damages, loss of opportunity,
losses due to business interruption, and other similar losses.
(d) "Third Party Liability Amount" is the amount of any liability to a
third party resulting from an Environmental Defect and all reasonable
attorneys' fees and other costs incurred by Buyer in connection with such
liability. "Total Cost" with respect to an Environmental Defect, means the
sum of (i) the Costs to Address such defect and/or (ii) the Third Party
Liability Amount with respect to such Environmental Defect, as the case may
be.
(e) "Buyer-Initiated Claims" means all claims by Buyer asserted under
Section 6.4 against Seller with respect to Environmental Defects other than
"Third Party-Initiated Claims." "Third Party-Initiated Claims" means
solely any Action asserted by a third party (including Government agencies
and private parties, but not including any successor in interest to Buyer,
Buyer or any affiliate of Buyer) against Buyer as a result of an
Environmental Defect; excluding, however, any action asserted by a third
party to whom Buyer has given notice of the Environmental Defect in
question other than notices to Governments that are required by law and
with respect to which Buyer has complied with Section 6.3.
(f) Buyer shall be entitled to an adjustment under Section 6.4 as to
any Environmental Defect only under the following conditions:
(i) Buyer must submit notice to Seller of any Buyer-Initiated
Claims within one (1) year following the Closing;
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(ii) Buyer must submit notice to Seller of any Third
Party-Initiated Claims within two (2) years following the Closing;
(iii) No claim may be submitted to Seller for any Environmental
Defect unless the Costs to Address such Environmental Defect (or, as
the case may be, the Third Party Claim Amount) is reasonably estimated
by Buyer to be at least $25,000;
(iv) Except to the extent this Section 6 specifically governs,
all Third Party-Initiated Claims shall be handled in accordance with
the procedures set forth in Sections 9.5(c), (d), (e), and (f),
subject in all cases to the limits on liability set forth in Section
6.2(f)(v); and
(v) Seller shall have no liability hereunder for any
Buyer-Initiated Claims or Third Party-Initiated Claims for which the
Total Cost is less than $25,000. As to any such claim for which the
Total Cost is at least $25,000 (a "Qualifying Claim"), Seller shall be
liable hereunder for the entire amount of such Qualifying Claim, but
only to the extent that the aggregate Total Cost for all such
Qualifying Claims exceeds $1,000,000 (the "Deductible"). If the
aggregate Total Cost of Qualifying Claims exceeds the Deductible by up
to $1,000,000, Seller shall be liable for the amount by which such
aggregate Total Cost exceeds the Deductible, up to $1,000,000. In
addition, Seller shall be liable for 50% of the amount by which the
aggregate Total Cost of Qualifying Claims exceeds $2,000,000 up to a
total aggregate Total Cost of Qualifying Claims of $4,000,000. Seller
shall also be liable for the aggregate Total Cost of Qualifying Claims
in excess of $4,000,000; provided that Seller's aggregate liability
under this Section 6 shall not exceed $12,000,000 (the "Maximum
Environmental Indemnity Payment").
(g) Notwithstanding any other provision of this Agreement, Buyer may
not assert any claim against Seller relating to any Environmental Defect or
other environmental liability or matter that is attributable to ownership
or operation of the Interests after the Closing.
6.3 CONFIDENTIALITY. Before the Closing Date, Buyer shall treat all
information about adverse environmental conditions as confidential and shall
not make any contact with any Government regarding the same without Seller's
written consent, except as required by law; provided that if Buyer believes it
is required to make such disclosure, Buyer shall provide a written opinion of
its outside legal counsel regarding the same to Seller and shall provide
Seller, to the fullest extent practicable, the opportunity to satisfy the
requirements of law concerning such required disclosure. After the Closing
Date, as to any Environmental Defect for which a claim for indemnity is to be
asserted, Buyer and Seller agree to consult with each other and to cooperate to
the maximum extent practicable regarding notification to any Government of such
Environmental Defect.
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6.4 ENVIRONMENTAL DEFECT ADJUSTMENTS. Once the Deductible has been met
and paid by Buyer, as supported by reasonable documentation provided to Seller,
for each Qualifying Claim, the following procedure shall apply to each claim
for adjustment asserted by Buyer hereunder:
(a) Buyer shall submit its proposed plan to remedy the Environmental
Defect to Seller, together with a proposed schedule of the Costs to Address
for such plan. If Seller accepts Buyer's plan, Seller shall be responsible
for payment of the Costs to Address actually incurred in the performance of
such plan, at the time such costs are incurred, if such Costs to Address
are at least $25,000, and subject to the limitations on liability set forth
in Section 6.2(f).
(b) Seller and Buyer may agree on the estimated Costs to Address such
Environmental Defect (discounted to present value as appropriate) and, in
the event of such agreement, Seller shall pay at the time of such agreement
such estimated Costs to Address to Buyer (which payment shall be counted
towards satisfaction of the liability limitations set forth in Section
6.2(f)) and Buyer shall become fully responsible for and indemnify Seller
from and against any and all future costs, losses and expenses arising out
of such Environmental Defect.
(c) If Buyer and Seller cannot reach agreement under either (a) or (b)
above,
(i) Seller may elect to remedy the Environmental Defect and to
indemnify and hold Buyer harmless from and against any and all future
costs, losses and expenses arising out of such Environmental Defect;
provided that Seller's Costs to Address the Environmental Defect shall
be counted towards satisfaction of the liability limitations set forth
in Section 6.2(f); or, if Seller does not so agree,
(ii) such dispute shall be referred to binding arbitration
pursuant to Section 11.14 of this Agreement in which the Costs to
Address the Environmental Defect and the manner in which it is to be
addressed as provided under Sections 6.4(a) and 6.4(b) shall be
determined. If the Costs to Address such Environmental Defect is at
least $25,000, Seller shall pay such Costs to Address (and as may be
applicable Buyer shall have the responsibilities identified in Section
6.4(b)) in the same manner as provided under, and in compliance with,
Sections 6.4(a) or (b), as determined in the arbitration, subject to
the limitations on liability set forth in Section 6.2(f).
6.5 LIMITATION OF CLAIMS. Except as otherwise specifically set forth in
this Section 6, Seller expressly retains responsibility for all of its
obligations and liabilities, if any, accruing or arising from or relating to
any Environmental Matter (as defined below) related to the ownership or
operation of the Interests and attributable to the period prior to Closing.
Nothing in this Agreement shall be deemed to constitute an assumption by Buyer
of liability for an Environmental
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Matter attributable to the period prior to Closing other than as set forth in
Section 6 and only to the extent as expressly set forth pursuant to Section 6.
It is the agreement and intention of the Parties that, other than with respect
to Actions listed on Schedule 3.1(i), (i) any matter constituting an
Environmental Defect shall be addressed solely under Sections 6.1 through 6.4,
and not under any other provision of this Agreement (except and only to the
extent such other Section is specifically referred to in this Section 6), (ii)
to the extent that any representation or warranty covers a matter arising out
of or relating to pollution of the environment (including, without limitation,
violation of Environmental Laws, or the spilling of any Hazardous Substance),
Buyer's sole and exclusive remedy against Seller shall be the remedy set forth
in this Section 6, (iii) neither Party, nor its affiliates, successors or
assignees shall, and each of Buyer and Seller covenants on behalf of itself and
its affiliates, successors and assigns not to assert or bring against the other
Party or any of such other Party's affiliates, successors and assigns any
claim, action, liability or other Action with respect to any matter arising out
of or relating to pollution of the environment (including, without limitation,
violation of Environmental Laws, or the spilling of any chemical or other
material or any emission (collectively, an "Environmental Matter")) relating to
the ownership or operation of the Interests prior to Closing (including,
without limitation, any cross claim, claim for contribution, claim for
indemnity or other similar claim) which such other Party or any of such other
Party's affiliates, successors and assigns otherwise might have under any law
or legal theory other than as expressly provided for in this Section 6, and
(iv) as to any matter that is an Environmental Matter Buyer's sole and
exclusive remedy against Seller shall be the remedy set forth in this Section 6
except as expressly set forth in Section 9.5(a); provided, however, that with
respect to the provisions of clause (iii) of this Section 6.5, in the event
that Buyer and Seller are both defendants in an Action, which has not been
initiated by either Buyer or Seller, in which claims are asserted against Buyer
and Seller for Environmental Matters relating to the ownership and operation of
the Interests prior to Closing, then either Party may assert affirmative
defenses against the other Party and may assert such affirmative defenses only
to the extent necessary to establish the respective liabilities of the Parties.
If the liability of a Party (the "Liable Party") is established in such Action
with respect to such a pre-Closing Environmental Matter, and the other Party
(the "Other Party") is required to perform or pay all or part of such
liability, then the Liable Party shall reimburse the Other Party for the
reasonable costs of such performance or such payment. To the extent any such
reimbursement by Seller relates to a matter that Seller is obligated to
indemnify Buyer pursuant to Section 6 hereunder, then Seller shall be credited
towards satisfaction of the Maximum Environmental Indemnity Payment; provided,
however, any ability to recover reimbursement under clause (iii) of this
Section 6.5 shall not be limited by the Maximum Environmental Indemnity
Payment. The foregoing shall not modify the Parties' rights and obligations
under Sections 9.5 or 9.7(c).
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7. CONDITIONS TO CLOSING.
7.1 SELLER'S CONDITIONS. The obligations of Seller at the Closing are
subject, at the option of Seller, to the satisfaction at or prior to the
Closing of the following conditions:
(a) All representations and warranties of Buyer contained in this
Agreement and the Related Agreements were true and complete when made, and
shall be true and complete at and as of the Closing, as if such
representations and warranties were made at and as of the Closing; Buyer
shall have performed and satisfied in all material respects all covenants
and agreements required by this Agreement to be performed and satisfied by
Buyer at or prior to the Closing; and Seller shall have received a
certificate, signed by an authorized officer of Buyer, certifying all such
matters.
(b) No order shall have been entered by any Government having
jurisdiction over the Parties or the subject matter of this Agreement or
the Related Agreements that restrains or prohibits the consummation of the
transactions contemplated hereunder or thereunder and that remains in
effect at the time of such Closing.
(c) All necessary filings and notifications under the HSR Act shall
have been made, including any required additional information or documents,
and the waiting period under the HSR Act for the Acquisition shall have
expired or been terminated.
(d) Seller shall have received from Zurab S. Kobiashvili, counsel for
Buyer, an opinion, in form reasonably acceptable to Seller, dated as of the
Closing Date, with respect to Sections 3.3(a), (b), (c), (e) and (f) of
this Agreement, and with respect to AMI.
(e) Seller shall have received from Andrews & Kurth L.L.P., counsel
for Buyer, an opinion, in form reasonably acceptable to Seller, dated as of
the Closing Date, with respect to Section 3.3(d) of this Agreement.
(f) Each of Buyer and AMI shall have executed and delivered the
Related Agreements to which it is a party prior to or on the Closing Date.
7.2 BUYER'S CONDITIONS. The obligations of Buyer at the Closing are
subject, at the option of Buyer, to the satisfaction at or prior to the Closing
of the following conditions:
(a) All representations and warranties of Seller, AEC and AEM
contained in this Agreement and the Related Agreements were true and
complete when made, except for such inaccuracies as do not, in the
aggregate, have a material adverse effect on the Interests taken as a whole
in an aggregate amount in excess of $10,000,000, and shall be true and
complete at and as of the Closing, except for such inaccuracies as do not,
in the aggregate, have a
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material adverse effect on the Interests taken as a whole in an aggregate
amount in excess of $10,000,000 as if such representations and warranties
were made at and as of the Closing; Seller shall have performed and
satisfied all covenants and agreements in all material respects required by
this Agreement to be performed and satisfied by Seller at or prior to the
Closing; and Buyer shall have received a certificate, signed by the chief
executive officer and chief financial officer of Seller, certifying all
such matters.
(b) No order shall have been entered by any Government having
jurisdiction over the Parties or the subject matter of this Agreement or
the Related Agreements that restrains or prohibits the consummation of the
transactions contemplated hereunder or thereunder and that remains in
effect at the time of such Closing.
(c) All necessary filings and notifications under the HSR Act shall
have been made, including any required additional information or documents,
and the waiting period established by the HSR Act applicable to the
transaction contemplated hereby have expired or been terminated.
(d) Buyer shall have received from respective counsel for Seller
opinions, in forms reasonably acceptable to Buyer, dated as of the Closing
Date, (i) with respect to Sections 3.1(a), (b), (c), (d)(1), (d)(2), (e),
(f), (i)(5) and (bb) and, with respect to Seller's affiliates in connection
with the Related Agreements, (ii) to the effect that the Bill of Sale,
Assignment and Conveyance (the "Conveyance") is sufficient in form to vest
in Buyer or its designated subsidiaries title to all of the Interests and
(iii) with respect to such other matters as Buyer shall reasonably request.
(e) Seller, AEC, AEM and AOG (as hereinafter defined) shall each have
executed and delivered the Related Agreements to which it is a party prior
to or on the Closing Date.
(f) From the Effective Time to the Closing, there shall not have been
(1) a material adverse change in the Interests in the aggregate excepting
(x) depletion due to normal production, (y) depreciation of equipment
through ordinary wear and tear and (z) conditions or changes generally
affecting the oil and gas industry; or (2) a change in the business,
financial condition or results of operations of Seller, AEC or AEM, which
change was not the result of industry-wide conditions that also affected
other similarly situated companies in the oil and gas business, and which
change had a material and adverse effect on (i) the Interests or (ii)
Buyer's or AEM's rights or remedies under this Agreement and the Related
Agreements; provided that adverse changes in, or effects on, the Interests
shall not be deemed material for purposes of clause (1) and (2)(i) of this
Section 7.2(f) unless the adverse effect thereof (determined without
duplication) aggregates in excess of $15,000,000.
(g) Buyer shall have received sufficient proceeds from the securities
offering referred to in Section 4.2(c) to pay the Purchase Price.
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8. CLOSING.
8.1 DATE OF CLOSING. Unless the Parties agree otherwise in writing and
subject to the conditions stated in Sections 7.1 and 7.2 of this Agreement, the
consummation of the Acquisition (the "Closing") shall be held on September 29,
1995 or on such other date and at such time that is as soon as practicable or
concurrently with the time when the conditions set forth in Sections 7.1 and
7.2 have been or may be satisfied or waived. The date when the Closing actually
occurs is called the "Closing Date."
8.2 PLACE OF CLOSING. The Closing shall be conducted at the offices of
Andrews & Kurth L.L.P. at 4200 Texas Commerce Tower in Houston, Texas, or at
such other place as Buyer and Seller may agree in writing.
8.3 CLOSING OBLIGATIONS. At or prior to the Closing, the following
events shall occur, each being a condition precedent to the others and all
being deemed to have occurred simultaneously (other than the Seller Guaranty,
the AMI Guaranty and the Aquila Gas Purchase Agreement):
(a) The appropriate parties shall execute, acknowledge, and deliver
the following agreements (collectively, the "Related Agreements"):
(1) the Agreement to Convey Net Profits Royalty Interest in
substantially the form of Exhibit B, relating to the net profits
royalty interest;
(2) one or more Conveyances by Seller (in sufficient counterparts
to facilitate recording) in substantially the form of Exhibit C,
conveying the Interests to Buyer, the Exchanging Subsidiaries or
Buyer's designated subsidiaries;
(3) the Seller Guaranty executed by AEC and the AMI Guaranty
executed by Buyer, in the forms of Exhibits D-1 and D-2; provided,
however, that the parties acknowledge that each of the Seller Guaranty
and the AMI Guaranty will be executed and delivered by each of AEC and
Buyer simultaneously with the execution and delivery of this
Agreement;
(4) the Aquila Gas Purchase Agreement ("AGPA"), in the form of
Exhibit E, between AEM and AMI, regarding a gas purchase agreement;
provided, however, that the parties acknowledge that the AGPA will be
executed and delivered by the parties thereto simultaneously with the
execution and delivery of this Agreement; and
(5) Gas and Condensate Gathering Agreement for High Island 262
substantially in the form of Exhibit F between Aquila Offshore Gas
Systems Corporation ("AOG") and Buyer.
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(b) Seller and Buyer shall execute and deliver a settlement statement,
prepared in accordance with this Agreement (the "Preliminary Settlement
Statement"), prepared by Seller, that shall set forth the Preliminary
Adjusted Purchase Price and each adjustment and the calculation of such
adjustments used to determine such amount, using estimates thereof in each
case in which the actual amount may not then be known. Seller shall provide
Buyer with the Preliminary Settlement Statement, which has been reasonably
prepared by Seller in good faith, five (5) days prior to Closing for
Buyer's review and approval. Buyer shall advise Seller of any proposed
changes or objections to the Preliminary Settlement Statement no less than
two (2) days prior to Closing and the Parties shall thereafter diligently
attempt to resolve all issues in regard to the Preliminary Settlement
Statement on or before Closing. If such matters cannot be resolved by the
Parties using their best reasonable efforts, the determination of the
Preliminary Adjusted Purchase Price shall be made by the Seller and the
dispute will be resolved in connection with the Final Settlement Statement.
"Preliminary Adjusted Purchase Price" means the Purchase Price, adjusted
under Section 2.3, using for such adjustments the best information then
available.
(c) Buyer shall pay the Preliminary Adjusted Purchase Price, less
Deposit and plus or minus interest, if any, pursuant to Section 2.1, to
Seller by wire transfer of immediately available federal funds pursuant to
Seller's written instructions.
(d) Subject to the provisions of this Agreement, Seller shall deliver
to Buyer exclusive possession of the Interests.
(e) Seller and Buyer shall execute, acknowledge and deliver transfer
orders or letters in lieu thereof, in a form reasonably acceptable to
Buyer, directing all purchasers of Production to pay Buyer all proceeds
attributable to Buyer's Production.
(f) Buyer shall prepare, subject to approval of the form by Seller,
such notices to third-party operators of the change in ownership of the
Interests and such notices of change in operatorship for those
Seller-operated Wells for which Buyer has taken over operations as are
reasonable and customary in the industry.
(g) The Parties shall execute such other documents, notices, waivers,
agreements, and writings as are necessary or appropriate to consummate the
Acquisition and carry out the intents and purposes of this Agreement.
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9. OBLIGATIONS AND AGREEMENTS AFTER CLOSING.
9.1 POST-CLOSING ADJUSTMENT PROCEDURE.
(a) Commencing on the 25th day of the first month (or the first
business day following the 25th calendar day if the 25th is not a business
day) following Closing, and on the 25th day of each month (or the first
business day following the 25th calendar day if the 25th is not a business
day) until the Final Settlement Date (as defined in Section 9.1(b)) (each
an "Interim Settlement Date"), Seller shall (1) deliver to Buyer a
statement (the "Interim Settlement Statement") setting forth the amounts
described in Section 2.3 hereof that were received or paid by Seller or
Buyer for the applicable periods set forth in such section and not taken
into account in the Preliminary Settlement Statement or prior Interim
Settlement Statements, and (2) pay to Buyer, via wire transfer of
immediately available federal funds to an account designated by Buyer, the
net balance of such amounts, which net balance shall be shown as the
"Interim Settlement" on the Interim Settlement Statement. Buyer shall
provide to Seller, not later than five (5) days prior to each Interim
Settlement Date, the amounts described in Section 2.3 that were paid or
received by Buyer and are attributable to the period prior to the Effective
Time and were not taken into account in the Preliminary Settlement
Statement or prior Interim Settlement Statements, which amounts shall be
considered by Seller in its preparation of the Interim Settlement
Statement.
(b) On or before 90 days after Closing, Seller shall prepare and
deliver to Buyer, in accordance with this Agreement, a statement (the
"Final Settlement Statement") setting forth each Purchase Price adjustment
or payment that was not finally determined as of the Closing Date and
Interim Settlement Dates and showing the calculation of such adjustments
(the "Final Adjusted Purchase Price"). Within thirty (30) 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 of all post-closing adjustments no later than one
hundred thirty-five (135) days after Closing. The date upon which such
agreement is reached or upon which the Final Adjusted Purchase Price is
established shall be called the "Final Settlement Date." If the Final
Adjusted Purchase Price is more than the Preliminary Adjusted Purchase
Price, as adjusted by the Interim Settlements, Buyer shall pay in
immediately available federal funds the amount of such difference to Seller
or to Seller's account (as designated by Seller). If the Final Adjusted
Purchase Price is less than the Preliminary Adjusted Purchase Price, as
adjusted by the Interim Settlements, Seller shall pay in immediately
available federal funds the amount of such difference to Buyer or to
Buyer's account (as designated by Buyer). In either case, the payment shall
be made within five days after the Final Settlement Date.
9.2 FILES AND RECORDS. Following Closing, and until November 30, 1995,
Buyer shall cause all originals of the Data related to the land files for the
Leases,
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Wells and Gas Plants, including land, land administration and division order
files, for purposes of identifying Title Defects (the "Land Files") to be
stored in their original files and locations in the Houston Office and shall
allow Seller, and Buyer shall retain the right, to have full and reasonable
access to such Data during such period. After November 30, 1995, Seller shall
immediately deliver all originals of such Land Files to Buyer's office at 2000
Post Oak, Houston, Texas (the "Post Oak Office"), except that Seller may retain
until February 5, 1995 such data in the Land Files that relates specifically to
Title Defects asserted by Buyer as determined in Seller's reasonable judgment.
After February 5, 1995, Seller shall return all the remaining Land Files to
Buyer at the Post Oak Office. As soon as practical following Closing, all
other Data shall be delivered to the Post Oak Office excluding any Data that
cannot be transferred because of prior contractual restrictions. Seller shall
use its best efforts to obtain waivers of prior contractual restrictions in
order to transfer all Data to Buyer. Seller shall retain and make available to
Buyer for ten (10) full calendar years following the Closing Date all tax and
accounting records pertaining to the Interests prior to the Effective Time.
Following the Closing Date, Buyer agrees to afford Seller, during normal
business hours, upon reasonable request, at any time, full access to Data to
the extent that such access may be requested for satisfaction of any obligation
Seller may be responsible for hereunder or otherwise, at no cost to Seller
(other than Seller's payment of Buyer's out-of-pocket expenses); provided,
however, that such access will not be permitted to the extent that it would
operate to cause the waiver of any attorney- client, work product or like
privilege. Buyer agrees to retain and make available to Seller such records
for ten (10) full calendar years following the Closing Date. Buyer shall have
the same rights, and Seller the same obligations, as are set forth above in
this Section 9.2 with respect to any material records of Seller pertaining to
the Interests that are retained by Seller, provided that such access will not
be permitted to the extent that it would operate to cause the waiver of any
attorney-client, work product or like privilege.
9.3 FURTHER ASSURANCES. After Closing, Seller and Buyer shall execute,
acknowledge, and deliver, or cause to be executed, acknowledged and delivered,
such instruments, agreements, and other documents, and shall take such other
action as may reasonably be necessary or advisable to effectuate the intent of
this Agreement or to carry out their respective obligations under this
Agreement or under any other instrument, agreement, certificate, or other
document delivered pursuant hereto.
9.4 ASSUMPTION AND RETENTION OF OBLIGATIONS.
(a) Except with respect to Taxes (to the extent covered by Section
4.5), Title Defect matters for the Leases, Wells and Gas Plants (which are
fully covered by Section 5) and Environmental Matters (which are fully
covered by Section 6) and all matters expressly assumed by Buyer under
Section 9.4(b), Seller expressly retains responsibility for, and agrees to
pay, perform, fulfill, and discharge, all claims, costs, expenses,
liabilities, and obligations accruing or arising from or relating to (i)
the ownership or operation of the Interests (including those arising under
operating agreements, products and sales agreements and other Contracts)
and attributable to periods prior to Closing (except for obligations for
which Seller would have been entitled to an upward
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price adjustment under Section 2.3(a) had Seller paid such obligations
(such obligations being referred to as "Post Effective Time Matters"));
(ii) all Actions (including those listed in Schedule 3.1(f)) pending as of
the Closing and relating to or affecting the Interests (such Actions being
referred to herein as "Pending Matters"); and (iii) all other obligations
of Seller not assumed by Buyer hereunder, including those arising under its
employee benefit plans, employment and consulting agreements to which it is
a party, welfare plans, pension plans, and profit-sharing plans for its
employees.
(b) Assignment of the Interests to Buyer shall constitute an express
assumption by Buyer of, and only of, and Buyer expressly agrees to pay,
perform, fulfill, and discharge only
(i) all claims, costs, expenses, liabilities and obligations
(including tax obligations) accruing or arising from or relating to
the ownership or operation of the Interests conveyed to Buyer and
attributable to periods after Closing, including without limitation
all obligations arising under the Contracts (including all operating
agreements, product sales agreements, and other Contracts) and the
Leases other than such Contracts terminated pursuant to the terms of
this Agreement or listed on Schedule 9.4(b);
(ii) all Post Effective Time Matters;
(iii) the lease agreement for the Houston Office, subject to
Seller obtaining all required consents to assignment as required by
this Agreement at Seller's expense;
(iv) all claims or liabilities for overproduction or
underproduction related to the Operated Interests and the Non-Operated
Interests under applicable gas balancing agreements, oil lifting
agreements, co-tenancy arrangements, and other instruments,
agreements, and arrangements;
(v) all plugging and abandonment obligations and liabilities
expressly assumed by Buyer as referred to in Section 4.2(e);
(vi) all liabilities to holders of preferential rights arising
as a result of Seller's conveyance of Interests to Buyer pursuant to
Buyer's instructions under Section 5.4 or Seller's observance of
Buyer's instructions as to whether to send notices to such holders of
such preferential rights; and
(vii) all liabilities in connection with all funds held by
Seller for the account of any other person in suspense accounts or
otherwise relative to the Interests for which Buyer received a
downward credit to the Purchase Price under Section 2.3(b)(5) and
Seller did not retain as indicated on Schedule 3.1(k)(2).
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9.5 INDEMNIFICATION. From and after the Closing Date, Buyer and Seller
shall indemnify each other as follows:
(a) Except with respect to Taxes (to the extent covered by Section
4.5), Title Defect matters for the Leases, Wells and Gas Plants (which are
fully covered by Section 5 except as otherwise expressly provided in
Section 5), and Environmental Matters (which are fully covered by Section 6
except with respect to Schedule 3.1(i), clause (1)(vi) and clause (3) of
this Section 9.5(a), as expressly addressed in this Section), Seller shall
defend, indemnify, and save and hold harmless Buyer, its officers,
directors, employees, and agents, against all losses, damages, claims,
demands, suits, costs, expenses, liabilities, and sanctions of every kind
and character, including reasonable attorneys' fees, court costs, and costs
of investigation, arising from or related to (1) (i) any claim, cost,
expense, liability, or obligation retained by Seller under Section 9.4(a)
("Retained Obligations"), (ii) Actions described in Schedule 3.1(i) and
those matters listed on Schedule 9.5(a), (iii) properties, rights and
interests previously owned or former operations conducted by Seller or its
affiliates other than the Interests, (iv) all liabilities of Seller for
state, federal or tribal royalties or taxes with respect to the Interests
for any period prior to the Closing, except to the extent of Buyer's
obligation with respect to taxes in Section 4.5, (v) all liabilities
including costs, expenses and capital expenditures for which Seller
received a positive adjustment to the Purchase Price, as provided for in
the determination of Adjusted Purchase Price, for having paid such
liabilities but which Seller failed to pay timely, (vi) liabilities to the
extent attributable to a fraudulent or criminal activity of Seller or its
respective affiliates, or (vii) related to the Reserved Interests ((i)
through (vii) are referred to collectively, as the "Retained Indemnities"),
(2) during the applicable survival period thereof, any breach of the
representations and warranties of Seller in this Agreement, (3) all
plugging and abandonment obligations and liabilities retained by Seller as
referred to in Section 4.2(e), (4) any dispute or claim in connection with
preferential purchase rights as a result of Seller's conveyances of
Interests to Buyer contrary to Buyer's written instructions under Section
5.4, or (5) any breach by Seller of the covenants, agreements and
indemnities in this Agreement; provided, however, (x) Seller shall have no
obligation under this Section 9.5(a) with respect to matters set forth in
Section 9.5(a)(1)(i) with respect to which Buyer does not assert a claim
for indemnification under this Section 9.5 within 30 months of the Closing
Date, other than Actions listed on Schedule 3.1(f) and Pending Matters; and
(y) Seller shall have no obligation under this Section 9.5(a) with respect
to matters set forth in Section 9.5(a)(2) with respect to which Buyer does
not assert a claim for indemnification under this Section 9.5(a) within one
(1) year of the Closing Date; and (z) Seller's maximum aggregate liability
under this Section 9.5 for claims under Sections 9.5(a)(1)(i) and 9.5(a)(2)
(other than Actions listed on Schedule 3.1(f) and Pending Matters) shall
not exceed $5,000,000.
(b) Buyer shall defend, indemnify, and save and hold harmless Seller
against all losses, damages, claims, demands, suits, costs, expenses,
liabilities, and sanctions of every kind and character, including
reasonable attorneys' fees,
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court costs, and costs of investigation, arising from or related to (1) any
claim, cost, expense, liability, or obligation assumed by Buyer under
Section 9.4(b), (2) during the applicable survival period thereof, any
breach of the representations and warranties of Buyer in this Agreement for
which Seller must assert a claim for indemnification hereunder within one
(1) year of the Closing, (3) any breach by Buyer of the Buyer's covenants
and agreements in this Agreement or (4) any breach by Buyer of its
obligations referred to in Section 11.11.
(c) Each Party shall promptly notify the other Party of the making of
any demand, the assertion of any claim, the commencement of any Action by
any Government or other third party, or of any other condition or
circumstance for which indemnity may be sought under this Section 9.5 prior
to expending or committing to expend funds for which indemnity may be
sought or admitting liability or entering into any form of agreement with a
Government or other third party with regard to a claim for which indemnity
may be sought.
(d) Upon receipt of a claim notice from the Party seeking
indemnification (the "Indemnified Party") to the Party from whom
indemnification is sought (the "Indemnifying Party") with respect to any
claim, the Indemnifying Party or its designated agent or representative may
assume the defense thereof with counsel selected by the Indemnifying Party
and reasonably satisfactory to the Indemnified Party. The Indemnified Party
shall cooperate in all reasonable respects in such defense. Where a claim
or action involves both claims for which Buyer has indemnified Seller and
claims for which Seller has indemnified Buyer, each Party shall have the
right to assume the defense of and hire counsel for that portion of the
claim or action for which it has liability. In such circumstances, the
Indemnified Party shall have the right to employ separate counsel in any
action or claim and to participate in the defense, but the Indemnifying
Party shall be responsible for the fees and expenses of counsel employed by
the Indemnified Party only if the Indemnifying Party has authorized the
employment and payment of such counsel.
(e) If the Indemnifying Party does not notify the Indemnified Party
within 60 days after receipt of the claim notice that it elects to
undertake the defense thereof, the Indemnified Party shall have the right
to defend the claim, at the expense of the Indemnifying Party, with counsel
of its choosing reasonably satisfactory to the Indemnifying Party, but the
Indemnifying Party shall have the right to assume the defense of any claim
at any time prior to settlement or final determination thereof. In such
event, the Indemnified Party shall notify the Indemnifying Party as to any
proposed settlement of any claim. The Indemnifying Party may reject the
settlement proposal, in its reasonable judgment, within 14 days of receipt
of such notice. Failure to accept or reject the settlement proposal within
the 14-day period shall be deemed to be a rejection of the settlement
proposal. The Indemnified Party may settle any case over the objection of
the Indemnifying Party, but shall, in so doing, waive any right to
indemnity therefor, but only for liabilities with respect to which the
Indemnifying Party has recognized its liability.
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(f) After the Closing Date, each Party shall cooperate fully with the
other Party in receiving, appraising, and responding to claims that may be
subject to an indemnity under this Agreement, shall make available to the
other Party as reasonably requested all information, records, and documents
relating to the claims (except to the extent such disclosure would destroy
a Party's attorney-client privilege, work-product privilege, or other
privilege), and shall preserve all such information, records, and documents
until the claims are resolved. Each Party shall make available to the
other Party, as reasonably requested, its employees and consultants
(including technical and scientific employees and consultants), agents, and
other representatives who are responsible for preparing or maintaining
relevant information, records, or other documents, or who may have relevant
knowledge about any claim.
(g) EACH OF THE AGREEMENTS TO INDEMNIFY, DEFEND OR HOLD HARMLESS
CONTAINED IN THIS AGREEMENT SHALL APPLY, IN ACCORDANCE WITH ITS TERMS,
IRRESPECTIVE OF WHETHER THE SUBJECT CLAIM IS BASED IN WHOLE OR IN PART UPON
THE SOLE OR CONTRIBUTORY NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR GROSS),
BREACH OF WARRANTY, STRICT LIABILITY, OR BREACH OR VIOLATION OF ANY DUTY
IMPOSED BY ANY LAW OR REGULATION, ON THE PART OF THE BENEFICIARY OF THE
AGREEMENT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.
9.6 CORPORATE EXISTENCE. Seller will maintain its corporate existence for
six months after the Closing Date.
9.7 CERTAIN POST-CLOSING MATTERS.
(a) Following Closing, Seller and Buyer shall settle the adjustments
to the Purchase Price for the transactions arising during the Pre-Closing
Period on an interim basis and at post-closing in accordance with
procedures set forth in Sections 9.1(a) and (b), respectively.
(b) Following preparation and review of the Final Settlement Statement
as provided in Section 9.1(b) as to pre-Closing transactions and following
Closing as to other transactions, Buyer and Seller agree to handle items in
accordance with Section 9.7(c) hereof.
(c) Revenues received by either Party that belong to the other Party
as determined by this Agreement shall be paid to the other Party within ten
(10) days of receipt. Invoices received by a Party that are the obligation
of the other Party as determined by this Agreement shall be forwarded to
the other Party within ten (10) days of receipt of the invoice and promptly
paid.
(d) For purposes of this Agreement, "Covered Losses" means losses or
liabilities with respect to the Interests, with respect to which losses and
liabilities Seller has a right to be indemnified by an unaffiliated third
party (a
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"Third Party"), make a warranty or loss claim against a Third Party, or
make an insurance or indemnity claim on insurance maintained for Seller or
the Interests with a Third Party. With respect to Covered Losses suffered
by Buyer:
(i) Seller will use and cause its Affiliates to use their best
reasonable efforts to assign to Buyer the right to collect any amounts
such Third Parties are obligated to pay to Seller in respect of such
Covered Losses, but only to the extent that such amounts are in excess
of Seller's losses and liabilities, if any, in respect of such Covered
Losses.
(ii) Any reasonable out-of-pocket costs and expenses incurred
by Seller in connection with assigning rights to collect to Buyer at
Buyer's request under (i) above shall be promptly paid by Buyer.
(iii) Any amounts collected by Buyer from Third Parties under
the terms of this Section 9.7(d) (net of Buyer's reasonable actual
out-of-pocket costs and expenses of collection) with respect to any
matter for which Seller is otherwise obligated to indemnify or
reimburse Buyer hereunder, shall be credited towards satisfaction of
the applicable, if any, maximum payment obligations of Seller set
forth in Sections 5, 6 or 9 hereof, as the case may be; provided that
other than as set forth in this Section 9.7(d), nothing in this
Agreement shall be interpreted as limiting Buyer's rights to collect
under this Section 9.7(d).
(e) Seller agrees that after the Closing Date it will hold, and cause
its affiliates to hold, in strict confidence and not disclose, except as
required by applicable law, to anyone other than its directors, officers,
employees or representatives the Information (as defined in the
Confidentiality Agreement between Buyer and AEC dated April 18, 1995)
related to the Interests, the ownership of which is transferred to Buyer
hereunder.
(f) To the extent both Parties have claims against third parties or
any Government that may overlap the applicable period of such claim for the
benefit of each Party, the Parties will cooperate with each other to
coordinate such claims.
(g) Seller shall market all of the crude oil production attributable
to the Interests from the Effective Time through October 31, 1995. Seller
shall market all natural gas and associated liquids production attributable
to the interests from the Effective Time through October 31, 1995. Buyer
shall market all of the crude oil production attributable to the Interests
after October 31, 1995. Buyer shall market all natural gas and associated
liquids production attributable to the Interests after October 31, 1995.
Buyer and Seller shall coordinate on all issues regarding nominations and
scheduling of deliveries. Notwithstanding the foregoing, if Closing is
delayed, the above timing shall be appropriately adjusted to reflect the
timing of the transitional periods for marketing crude oil, natural gas and
associated liquids.
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10. TERMINATION OF AGREEMENT.
10.1 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated in the following instances:
(a) By Seller if any condition in Section 7.1 or 7.2(g) is not
satisfied or waived on or before December 31, 1995.
(b) By Buyer if any condition in Section 7.2 is not satisfied or
waived on or before December 31, 1995.
(c) At any time by the mutual written agreement of Buyer and Seller.
10.2 LIABILITIES UPON TERMINATION OR BREACH.
(a) Other than as described in Section 10.2(b), if Seller terminates
this Agreement under Section 10.1(a), Seller shall have no liability of any
nature whatsoever to Buyer, including any liability for damages. Other
than as described in Section 10.2(b), if Buyer terminates this Agreement
under Section 10.1(b), Buyer shall have no liability of any nature
whatsoever to Seller, including any liability for damages.
(b) If Closing has not occurred by December 31, 1995 solely by reason
of Buyer's failure (i) to comply with Section 4.2(c) or (ii) to consummate
the transactions contemplated under the terms of the Agreement after
satisfaction of all the conditions to Buyer's obligation to close as set
forth in Section 7.2, then Seller shall retain the Deposit and all interest
thereon. If the Agreement is terminated for any reason other than the
failure of Buyer to close under the circumstances set forth in the
preceding sentence, Seller shall return the Deposit to Buyer within two (2)
business days following such termination with interest thereon at the LIBOR
Rate from the date of the Agreement to the date of return to the Buyer.
(c) Except as provided in Section 10.2(a), nothing in this Section 10
shall limit Seller's or Buyer's legal or equitable remedies in the event of
a breach of this Agreement by the other Party; provided that except as
otherwise specifically provided herein, the Parties hereto shall not be
entitled to assert any claim for incidental, consequential or punitive
damages. Any damages resulting from a breach of this Agreement by either
Party shall be limited to actual damages incurred by the Party claiming
such damages.
11. MISCELLANEOUS.
11.1 EXHIBITS AND SCHEDULES. The Exhibits and Schedules referred to in
this Agreement have been separately bound and executed for identification by
the duly authorized representatives of Buyer and Seller. All of such Exhibits
and Schedules
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are hereby incorporated in this Agreement by reference and constitute a part of
this Agreement. Each Party has received a complete set of Exhibits and
Schedules prior to and as of the execution of this Agreement. References to
Exhibit A in this Agreement shall mean references to any or all of Exhibits A-1
through A-5.
11.2 EXPENSES. Except as otherwise specifically provided in this
Agreement, all fees, costs, and expenses incurred by Buyer or Seller in
negotiating this Agreement or in consummating the transactions contemplated by
this Agreement shall be paid by the Party incurring the same, including legal
and accounting fees, costs, and expenses.
11.3 NOTICES. All notices, demands, and other communications required or
permitted under this Agreement shall be in writing, shall be properly addressed
to the appropriate individual named below, shall be delivered at the expense of
the Party giving notice, and shall be deemed to have been duly delivered when
personally delivered to the individual indicated below, or if mailed, when
received by the Party charged with such notice:
If to Buyer:
APACHE CORPORATION
2000 Post Oak Boulevard, Suite 100
Houston, Texas 77056-4400
Attention: James R. Bauman
Senior Vice President -
Business Development
With a copy to:
General Counsel
If to Seller:
AQUILA ENERGY RESOURCES CORPORATION
10370 Richmond Ave., Suite 700
Houston, Texas 77042
Attention: John Shealy
Vice President
Business Development
With a copy to:
AQUILA ENERGY CORPORATION
2533 North 117 Avenue
Omaha, Nebraska 68164
Attention: Lawrence Clayton
Chief Financial Officer
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and
Robin Foster
Blackwell Sanders Matheny Weary & Lombardi L.C.
2300 Main Street, Suite 1100
Kansas City, Missouri 64108
Any Party may, by written notice so delivered to the other Party, change the
address or individual to which delivery shall thereafter be made.
11.4 AMENDMENTS. This Agreement may not be amended and no rights under
this Agreement may be waived except by a 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.
11.5 ASSIGNMENT. Neither Party may assign all or any portion of its
rights or delegate all or any portion of its duties under this Agreement,
unless it continues to remain liable for the performance of its obligations
under this Agreement and obtains the prior written consent of the other Party,
which consent shall not be unreasonably withheld. Buyer may assign and delegate
all or any portion of its rights, duties and obligations hereunder to the
Exchanging Subsidiaries, one or more of its majority owned subsidiaries or
affiliated entities, without such prior written consent, but Buyer shall remain
primarily liable for the performance of Buyer's obligations under this
Agreement. In addition, an assignment to a Qualified Intermediary shall not
require prior written consent from the Seller. Nothing in this Agreement,
express or implied, shall confer on any person other than the Parties and their
respective successors and permitted assigns, any rights, remedies, obligations,
or liabilities under or by reason of this Agreement. Notwithstanding any other
provision in this Agreement to the contrary, in no event shall Buyer assign to
any other person its rights to indemnification or adjustments under Sections 5,
6 or 9, without Seller's written consent, which consent Seller may withhold in
its sole discretion, except assignments may be made to Exchanging Subsidiaries
and one or more of Buyer's majority owned subsidiaries or affiliated entities
without Seller's consent provided that all assignees shall agree to not further
assign such rights to any other entity not qualified hereunder.
11.6 ANNOUNCEMENTS. Seller and Buyer shall consult with each other about
all press releases and other announcements issued during the Pre-Closing Period
about this Agreement or the Acquisition, and, except as may be required by
Applicable Law or the applicable rules and regulations of any recognized stock
exchange, neither Buyer nor Seller shall issue any such press release or other
public statement about such matters without the prior consent of the other
Party, which consent shall not be unreasonably withheld.
11.7 HEADINGS. The headings of the 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.
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11.8 COUNTERPARTS. 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.
11.9 CERTAIN RULES OF CONSTRUCTION. 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. The word
"including" and its syntactical variants shall be understood to mean
"including, but not limited to," and corresponding syntactical variants.
Examples shall not be understood to limit or restrict the matter they
illustrate. In construing this Agreement, no consideration shall be given to
the fact or presumption that one Party had a greater or lesser hand in
negotiating or drafting of this Agreement, each Party being represented by
legal counsel of its own selection in such negotiation and drafting. As used in
this Agreement, "Knowledge" means the actual knowledge of the officers and
employees of the Seller or Buyer, as applicable, who are responsible for the
matters to which such Knowledge limitation relates.
11.10 GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
State of Texas.
11.11 ENTIRE AGREEMENT. This Agreement (including the Exhibits hereto)
constitutes the entire understanding of the Parties with respect to the subject
matter hereof, superseding all negotiations, prior discussions, and prior
agreements and understandings relating to such subject matter; provided,
however the Confidentiality Agreement between AEC and Buyer dated April 18,
1995 shall terminate effective as of the Closing Date, except, as to Third
Party Data, for which Buyer shall continue to hold such information in
confidence in accordance with such April 18, 1995 agreement and termination
thereof shall not extinguish any rights of Seller with respect to breaches
prior to Closing thereof. The August 1, 1995 Confidentiality Agreement between
Buyer and AEC shall not terminate as of the Closing Date but shall continue.
11.12 PARTIES IN INTEREST. This Agreement shall bind and inure to the
benefit of the Parties and their respective successors and permitted assigns.
11.13 SURVIVAL. All representations and warranties contained in this
Agreement shall survive the Closing with respect to claims made on or before
one (1) year following the Closing Date. The covenants, agreements, and
indemnities in this Agreement shall survive the Closing and continue in
accordance with their respective terms. The representations, warranties,
covenants, agreements and indemnities in this Agreement shall not be
extinguished by the doctrine of merger by deed or any similar doctrine, and no
waiver, release, or forbearance of the application of those provisions in any
given circumstance shall operate as a waiver, release, or forbearance of those
provisions in any other circumstances.
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11.14 ARBITRATION.
(a) All disputes under this Agreement shall be resolved by
arbitration. The Parties shall jointly select an individual to serve as the
sole arbitrator to hear and decide all such disputes. Either Party may
invoke arbitration by notice to the other Party. If, within 15 days after
the receipt by a Party of a notice given under the preceding sentence, the
Parties have failed to select the arbitrator, then either Party may ask the
American Arbitration Association (the "AAA") to appoint the arbitrator in
accordance with the Commercial Arbitration Rules (the "Rules") of the AAA
then in effect. The arbitrator shall be generally knowledgeable about the
oil and gas industry and the nature of the issues to be arbitrated, and
shall be qualified by education, experience, and training to render a
decision upon the issues in dispute.
(b) Any arbitration hearing shall be held in Houston, Texas, unless
another place is determined to be mutually acceptable to the arbitrator,
Buyer, and Seller.
(c) The arbitrator shall settle all disputes under this Agreement in
accordance with the Rules, to the extent such Rules do not conflict with
the terms of this Agreement.
(d) The arbitrator promptly shall hear and determine (after giving the
Parties due notice of hearing and reasonable opportunity to be heard) the
questions submitted and shall render a decision within 60 days after
notifying the Parties that the arbitration hearings have been closed or, if
oral hearings have been waived, after the date of the AAA's transmittal of
the Parties final statements and proofs to the arbitrator. If the
arbitrator fails to commence the arbitration within 30 days after his
selection or to render a decision within the 60-day period described in the
preceding sentence, then either Party may, by notice to the other Party and
to the AAA, demand that the arbitrator be dismissed. Upon receiving that
demand, the AAA shall dismiss the arbitrator and shall appoint another
arbitrator who shall be selected and who shall conduct the arbitration
pursuant to the provisions of this Section 11.14.
(e) The arbitrator shall not have jurisdiction or authority to add to,
detract from, or alter in any way the provisions of the Agreement. Pending
the final decision of the arbitrator, both Parties will proceed diligently
with performance of all obligations, including the payment of all sums not
in dispute, required by this Agreement. Notwithstanding the foregoing, the
Parties reserve the right to apply to any court of competent jurisdiction
to obtain security or other provisional relief to satisfy or effectuate an
eventual arbitration award, including attachment and injunctive relief. The
commencement of any action for such relief in aid of arbitration shall not
constitute a waiver of the right to arbitration, nor shall it prejudice in
any way the right to proceed to arbitration.
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(f) If the arbitrator dies, resigns, or otherwise becomes unable to
perform his duties as an arbitrator, another arbitrator shall be selected
in accordance with the procedures in this Section 11.14.
(g) The written decision or award of the arbitrator shall be final and
binding upon the Parties, the Parties shall abide by and comply with such
decision, and a judgment may be rendered upon such decision or award in any
court of competent jurisdiction. Payment of any awards shall be made
within five (5) business days of the arbitrator's decision. Buyer and
Seller shall equally bear the cost of the services and expenses of the
arbitrator and all other costs of the arbitration proceedings, except that
each Party shall pay all attorneys' fees, consultants' fees, and other
costs of participating in the arbitration proceeding.
[Remainder of page intentionally left blank.]
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Executed as of the date first above mentioned.
SELLER:
AQUILA ENERGY RESOURCES
CORPORATION
By: /s/ CHRISTIAN WOESSNER
------------------------------
Christian Woessner
President
BUYER:
APACHE CORPORATION
By: /s/ JAMES R. BAUMAN
------------------------------
James R. Bauman
Senior Vice President
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Exhibits and Schedules Omitted
Copies of exhibits and schedules
provided to the Commission upon request.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated March 14, 1995
on the audited Statement of Combined Revenues and Direct Operating Expenses for
the Oil and Gas Properties of Texaco Exploration and Production Inc. Sold to
Apache Corporation and to the incorporation by reference in this registration
statement of our report dated May 17, 1995 on the audited restated consolidated
financial statements of Apache Corporation and subsidiaries included in Apache
Corporation's Annual Report on Form 10-K/A for the year ended December 31, 1994,
and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
-------------------------------------
ARTHUR ANDERSEN LLP
Houston, Texas
September 1, 1995
<PAGE> 1
EXHIBIT 23.2
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF COOPERS & LYBRAND
We consent to the incorporation by reference in Amendment No. 1 to the
registration statement of Apache Corporation on Form S-3 (Registration No.
33-62177) of our report dated February 13, 1995 on our audits of the
consolidated financial statements of DEKALB Energy Company as of December 31,
1994 and 1993 and for the years ended December 31, 1994, 1993 and 1992 and our
report dated February 13, 1995 on our audit of the associated financial
statement schedule of DEKALB Energy Company, which reports are incorporated by
reference herein. We also consent to all references to our firm included in
Amendment No. 1 to the registration statement of Apache Corporation on
Form S-3 (Registration No. 33-62177).
/s/ COOPERS & LYBRAND
--------------------------------------
Coopers & Lybrand
Chartered Accountants
Calgary, Alberta, Canada
September 1, 1995
<PAGE> 1
EXHIBIT 23.3
[RYDER SCOTT COMPANY PETROLEUM ENGINEERS LETTERHEAD]
CONSENT
As independent petroleum engineers, we hereby consent to the inclusion
and/or incorporation by reference in Amendment No. 1 to the registration
statement of Apache Corporation on Form S-3 (Registration No. 33-62177) of our
Firm's review of the proved oil and gas reserve quantities of Apache
Corporation, DEKALB Energy Company, and of certain properties acquired from
Texaco Exploration and Production Inc. as of January 1, 1995, and to all
references to our Firm's name and review included in Amendment No. 1 to
the registration statement of Apache Corporation on Form S-3 (Registration
No. 33-62177).
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
------------------------------------
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
September 1, 1995
