<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 30, 1997
CASTLE ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization)
0-10990 76-0035225
- ------------------------ -------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
One Radnor Corporate Center, Suite 250, 100 Matsonford Road, Radnor, PA 19087
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(610) 995-9400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
<PAGE>
Castle Energy Corporation ("Company") submits the following
information:
ITEM 2. Acquisition or Disposition of Assets
On May 30, 1997, the Company consummated the sale of its Rusk
County, Texas oil and gas properties and pipeline to Union Pacific Resources
Company ("UPRC") and Union Pacific Interstate Pipeline Company ("UPIPC"),
respectively. The assets sold include approximately 8150 net acres, 115
producing oil and gas wells and a 74 mile pipeline which gathers gas from the
producing wells and delivers to a pipeline owned by Lone Star Gas Company. The
reserves associated with the oil and gas properties that were sold comprise
approximately 84% of the Company's proved reserves. The Company still owns its
non-Texas oil and gas properties and its gas sales contract with Lone Star Gas
Company. That contract expires on May 31, 1999.
The purchase price received by the Company was $54,758,531 and
consisted of $50,183,531 cash, $1,575,000 of liabilities assumed by UPRC and
$3,000,000 of prepaid gas transportation. The gas transportation prepayment
relates to natural gas that the Company is required to supply to Lone Star Gas
Company through May 31, 1999. Although the purchase price will be increased or
decreased through post closing adjustments within the next 160 days, the net
amount of such post closing adjustments is not expected to be significant.
ITEM 7. Financial Statements and Exhibits
b. Pro forma Financial Information
See attached Pro Forma Consolidated Financial Statements of the
Company
c. Exhibits:
10a. Purchase and Sale Agreement by and among Castle Energy
Corporation, Castle Texas Production Limited Partnership and
Union Pacific Resources Company, dated May 16, 1997.
10b. Purchase and Sale Agreement by and among Castle Energy
Corporation, Castle Texas Pipeline Limited Partnership and
Union Pacific Intrastate Pipeline Company, dated May 16, 1997.
-1-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CASTLE ENERGY CORPORATION
Date: June 10, 1997 By: /s/ Richard E. Staedtler
------------------------ -------------------------
Richard E. Staedtler
Chief Financial Officer
-2-
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
The following pro forma consolidated balance sheet and statements of
operations of the Company illustrate the estimated effects of the sale (the
"Asset Sale") of the Company's Rusk County, Texas oil and gas properties and
pipeline to Union Pacific Resources Company ("UPRC") and Union Pacific
Intrastate Pipeline Company ("UPIPC"), respectively, as if the Asset Sale had
occurred on (i) March 31, 1997 for balance sheet purposes, (ii) October 1, 1996
for purposes of the statement of operations for the six months ended March 31,
1997, and (iii) October 1, 1995 for purposes of the statement of operations for
the year ended September 30, 1996. The pro forma consolidated financial
statements assume that the post closing adjustments to the purchase price will
not be significant.
THE PRO FORMA CONSOLIDATED STATEMENTS OF THE COMPANY DO NOT PURPORT TO
REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD
ACTUALLY HAVE BEEN IF THE ASSET SALE IN FACT HAD OCCURRED ON SUCH DATES OR TO
PROJECT THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS AS OF ANY
FUTURE DATE OR FOR ANY FUTURE PERIOD. The pro forma adjustments are based upon
available information and upon certain assumptions that the Company believes are
reasonable under the circumstances. The pro forma consolidated financial
statements and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company and notes thereto
and the other financial information regarding the Company included in filings
with the Securities and Exchange Commission made by the Company.
Page F-1
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
("000's" Omitted)
<TABLE>
<CAPTION>
Historical
-----------
ASSETS (Unaudited)
<S> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 5,298
Restricted cash.................................................................... 816
Accounts receivable................................................................ 9,793
Prepaid expenses and other current assets.......................................... 161
Deferred income taxes.............................................................. 2,373
Estimated realizable value of discontinued net refining assets..................... 6,288
--------
Total current assets............................................................. 24,729
Property, plant and equipment, net:
Natural gas transmission........................................................... 20,024
Furniture, fixtures and equipment.................................................. 199
Oil and gas properties, net............................................................ 14,381
Gas contracts, net..................................................................... 20,455
Deferred income taxes.................................................................. 2,609
Prepaid expense........................................................................
Other assets, net...................................................................... 479
Note receivable........................................................................ 10,000
--------
Total assets..................................................................... $92,876
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................. $ 6,000
Accounts payable................................................................... 4,189
Accrued expenses................................................................... 1,517
Other liabilities.................................................................. 3,829
Net refining liabilities retained.................................................. 9,220
--------
Total current liabilities........................................................ 24,755
Long-term debt......................................................................... 10,157
Other long-term liabilities............................................................ 83
--------
Total liabilities................................................................ 34,995
--------
Commitments and contingencies
Stockholders' equity:
Common stock; par value - $0.50; 25,000,000 shares authorized;
6,703,646 shares issued and outstanding.......................................... 3,352
Additional paid-in capital............................................................. 66,398
Retained earnings (deficit)............................................................ 2,194
--------
71,944
Treasury stock at cost - 1,264,100 shares........................................ (14,063)
--------
57,881
--------
Total liabilities and stockholders' equity....................................... $92,876
========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------------
Repayment
Asset Sale (a) of Debt (b) Tax Effects (c) Pro Forma
ASSETS --------------- ----------- --------------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................ $50,184 ($16,157) $39,325
Restricted cash.................................................. 816
Accounts receivable.............................................. 9,793
Prepaid expenses and other current assets........................ 1,500 1,661
Deferred income taxes............................................ 2,373
Estimated realizable value of discontinued net refining assets... 6,288
-------- --------- -------
Total current assets........................................... 51,684 (16,157) 60,256
Property, plant and equipment, net:
Natural gas transmission......................................... (20,024)
Furniture, fixtures and equipment................................ 199
Oil and gas properties, net.......................................... (12,080) 2,301
Gas contracts, net................................................... 20,455
Deferred income taxes................................................ 2,609
Prepaid expense...................................................... 1,500 1,500
Other assets, net.................................................... 479
Note receivable...................................................... 10,000
-------- --------- -------
Total assets................................................... $21,080 ($16,157) $97,799
======== ========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................ ($ 6,000)
Accounts payable................................................. $ 4,189
Accrued expenses................................................. $704 2,221
Other liabilities................................................ ($ 1,575) 2,254
Net refining liabilities retained................................ 9,220
-------- --------- ------ -------
Total current liabilities...................................... (1,575) (6,000) 704 17,884
Long-term debt....................................................... (10,157)
Other long-term liabilities.......................................... 83
-------- --------- ------ -------
Total liabilities.............................................. (1,575) (16,157) 704 17,967
-------- --------- ------ -------
Commitments and contingencies
Stockholders' equity:
Common stock; par value - $0.50; 25,000,000 shares authorized;
6,703,646 shares issued and outstanding........................ 3,352
Additional paid-in capital........................................... 66,398
Retained earnings (deficit).......................................... 22,655 (704) 24,145
-------- ------ -------
22,655 (704) 93,895
Treasury stock at cost - 1,264,100 shares...................... (14,063)
-------- ------ -------
22,655 (704) 79,832
-------- --------- ------ -------
Total liabilities and stockholders' equity..................... $21,080 ($16,157) $ - $97,799
======== ========= ====== =======
</TABLE>
Page F-2
<PAGE>
CASTLE ENERGY CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
UNAUDITED
("000's" Omitted)
General
- --------
Gives effect to the Asset Sale as though it occurred March 31, 1997.
(a) Reflects sale of Rusk County, Texas oil and gas properties and pipeline
for purchase price of $54,759 as follows:
Cash.................................................... $50,184
Prepaid transportation for natural gas contracts........ 3,000
Assumption of liabilities by purchaser.................. 1,575
-------
$54,759
=======
(b) Reflects assumed liquidation of bank debt from a portion of proceeds
from the Asset Sale.
(c) Reflects estimated additional tax provision, after application of the
Company's tax carryforwards, resulting from the Asset Sale. Consists
primarily of Federal Alternative Minimum Taxes.
As a result of the Asset Sale, the Company expects to realize a $21,951
gain net of taxes for book purposes. For regular tax purposes, the gain will
approximate $40,000. For alternative minimum taxes it will approximate $35,200.
Page F-3
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
("000's" Omitted)
<TABLE>
<CAPTION>
Historical
----------
<S> <C>
Revenues:
Natural gas marketing and transmission:
Gas sales........................................................................ $ 38,792
------------
38,792
------------
Exploration and production:
Oil and gas sales................................................................ 4,776
Well operations.................................................................. 235
------------
5,011
------------
43,803
------------
Expenses:
Natural gas marketing and transmission:
Gas purchases.................................................................... 24,075
Operating costs.................................................................. 368
General and administrative....................................................... 677
Depreciation and amortization.................................................... 5,684
Transportation...................................................................
------------
30,804
------------
Exploration and production:
Oil and gas production........................................................... 1,294
General and administrative....................................................... 615
Depreciation, depletion and amortization......................................... 899
------------
2,808
------------
Corporate general and administrative expenses...................................... 1,782
------------
35,394
------------
Operating income....................................................................... 8,409
------------
Other income (expense):
Interest income.................................................................... 435
Other income (expense)............................................................. (51)
Interest expense................................................................... (753)
------------
(369)
------------
Net income before provision for (benefit of) income taxes.............................. 8,040
------------
Provision for income taxes:
State.......................................................................... 80
Federal........................................................................ 2,814
------------
2,894
------------
Net income............................................................................. $ 5,146
============
Net income per share:
Primary........................................................................ $ .80
============
Fully diluted.................................................................. $ .80
============
Weighted average number of common and common equivalent shares outstanding:
Primary........................................................................ 6,429,848
============
Fully diluted.................................................................. 6,436,081
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------------------
Oil and Gas
Depreciation and Interest
Operations (1) Depletion (2) Expense (3) Pro Forma
-------------- ------------------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
Natural gas marketing and transmission:
Gas sales................................................. $ 3,190 (a) $ 41,982
---------- ----------
3,190 41,982
---------- ----------
Exploration and production:
Oil and gas sales.......................................... (3,344)(e) 1,432
Well operations............................................ (65)(b) 170
---------- ----------
(3,409) 1,602
---------- ----------
(219) 43,584
---------- ----------
Expenses:
Natural gas marketing and transmission:
Gas purchases.............................................. 3,190 (a) 27,265
Operating costs............................................ (368)(c)
General and administrative................................. (343)(c) 334
Depreciation and amortization.............................. ($ 937) 4,747
Transportation............................................. 750(d) 750
---------- ---------- ----------
3,229 (937) 33,096
---------- ---------- ----------
Exploration and production:
Oil and gas production..................................... (932)(c) 362
General and administrative................................. (324)(c) 291
Depreciation, depletion and amortization................... (663) 236
---------- ---------- ----------
(1,256) (663) 889
---------- ---------- ----------
Corporate general and administrative expenses................ 1,782
---------- ---------- ----------
1,973 (1,600) 35,767
---------- ---------- ----------
Operating income................................................. (2,192) 1,600 7,817
---------- ---------- ----------
Other income (expense):
Interest income.............................................. 435
Other income (expense)....................................... (51)
Interest expense............................................. $ 753
---------- ----------
753 384
---------- ---------- ---------- ----------
Net income before provision for (benefit of) income taxes........ (2,192) 1,600 753 8,201
---------- ---------- ---------- ----------
Provision for income taxes:
State.................................................... (22) 16 8 82
Federal.................................................. (767) 560 263 2,870
---------- ---------- ---------- ----------
(789) 576 271 2,952
---------- ---------- ---------- ----------
Net income.......................................................($ 1,403) $ 1,024 $ 482 $ 5,249
========== ========== ========== ==========
Net income per share:
Primary..................................................($ .22) $ .16 $ .08 $ .82
========== ========== ========== ==========
Fully diluted............................................($ .22) $ .16 $ .08 $ .82
========== ========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Primary.................................................. 6,429,848 6,429,848 6,429,848 6,429,848
========== ========== ========== ==========
Fully diluted............................................ 6,436,081 6,436,081 6,436,081 6,436,081
========== ========== ========== ==========
</TABLE>
Page F-4
<PAGE>
CASTLE ENERGY CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
UNAUDITED
("000's" Omitted)
General
- --------
Gives effect to the Asset Sale as though it occurred October 1, 1996.
1. Reflects changes in operating income items other than depletion and
depreciation as a result of the Asset Sale as follows:
(a) Reflects replacement of equity gas (sold in Asset Sale) with
purchased gas, i.e., the gas that was previously owned is now being
purchased from the buyer.
(b) Reflects loss of operating fees attributable to oil and gas
properties sold in Asset Sale.
(c) Reflects reduction in operating and general and administrative
costs attributable to assets sold.
(d) Reflects amortization of two years of prepaid gas transportation
received as part of the purchase price.
(e) Reflects loss of oil and gas sales from oil and gas properties
sold.
2. Reflects reduction in depletion for oil and gas properties and in
depreciation for pipeline as a result of the Asset Sale.
3. Reflects elimination of interest expense since a portion of the
proceeds from the Asset Sale were assumed used to liquidate the
Company's bank debt.
In accordance with the guidelines of the Securities and Exchange
Commission, interest or other income has not been imputed on the remaining cash
proceeds received by the Company in the Asset Sale nor have such cash proceeds
been assumed to have been spent for other purposes such as repurchasing shares
of the Company's stock or additional investments.
Page F-5
<PAGE>
CASTLE ENERGY CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
("000's" Omitted)
<TABLE>
<CAPTION>
Historical
----------
<S> <C>
Revenues:
Natural gas marketing and transmission:
Gas sales........................................................................ $ 59,471
----------
59,471
----------
Exploration and production:
Oil and gas sales................................................................ 8,782
Well operations.................................................................. 442
----------
9,224
----------
68,695
----------
Expenses:
Natural gas marketing and transmission:
Gas purchases.................................................................... 34,233
Operating costs.................................................................. 845
General and administrative....................................................... 1,231
Depreciation and amortization.................................................... 11,393
Transportation...................................................................
----------
47,702
----------
Exploration and production:
Oil and gas production........................................................... 2,045
General and administrative....................................................... 1,235
Depreciation, depletion and amortization......................................... 2,324
----------
5,604
----------
Corporate general and administrative expenses...................................... 3,499
----------
56,805
----------
Operating income....................................................................... 11,890
----------
Other income (expense):
Interest income.................................................................... 961
Other income ...................................................................... 2,923
Interest expense................................................................... (1,959)
----------
1,925
----------
Net income (loss) before provision for benefit of income taxes......................... 13,815
----------
Provision for (benefit of) income taxes:
State.......................................................................... (309)
Federal........................................................................ (10,950)
----------
(11,259)
----------
Net income............................................................................. $ 25,074
==========
Net income per share:
Primary........................................................................ $ 3.73
==========
Fully diluted.................................................................. $ 3.73
==========
Weighted average number of common and common equivalent shares outstanding:
Primary........................................................................ 6,719,000
==========
Fully diluted.................................................................. 6,719,000
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------------------------
Oil and Gas
Depreciation and Interest
Operations (1) Depletion (2) Expense (3) Pro Forma
-------------- ------------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Natural gas marketing and transmission:
Gas sales...................................................... $ 5,294 (a) $ 64,765
---------- ---------
5,294 64,765
---------- ---------
Exploration and production:
Oil and gas sales.............................................. (5,570) (e) 3,212
Well operations................................................ (125) (b) 317
---------- ---------
(5,695) 3,529
---------- ---------
(401) 68,294
---------- ---------
Expenses:
Natural gas marketing and transmission:
Gas purchases.................................................. 5,294 (a) 39,527
Operating costs................................................ (845) (c)
General and administrative..................................... (723) (c) 508
Depreciation and amortization.................................. ($ 1,872) 9,521
Transportation................................................. 1,500 (d) 1,500
---------- ---------- ---------
5,226 (1,872) 51,056
---------- ---------- ---------
Exploration and production:
Oil and gas production......................................... (1,453) (c) 592
General and administrative..................................... (457) (c) 778
Depreciation, depletion and amortization....................... (1,949) 375
---------- ---------- ---------
(1,910) (1,949) 1,745
---------- ---------- ---------
Corporate general and administrative expenses.................... 3,499
---------- ---------- ---------
3,316 (3,821) 56,300
---------- ---------- ----------
Operating income..................................................... (3,717) 3,821 11,994
---------- ---------- ----------
Other income (expense):
Interest income.................................................. 961
Other income .................................................... 2,923
Interest expense................................................. $ 1,959 -
--------- ---------
1,959 3,884
---------- ---------- --------- ---------
Net income (loss) before provision for benefit of income taxes....... (3,717) 3,821 1,959 15,878
---------- ---------- --------- ---------
Provision for (benefit of) income taxes:
State........................................................ (37) 38 20 (288)
Federal...................................................... (1,301) 1,337 686 (10,228)
---------- ---------- --------- ---------
(1,338) 1,375 706 (10,516)
---------- ---------- --------- ---------
Net income........................................................... ($ 2,379) $ 2,446 $ 1,253 $ 26,394
========== ========== ========= =========
Net income per share:
Primary...................................................... ($ .35) $ .36 $ .19 $ 3.93
========== ========== ========= =========
Fully diluted................................................ ($ .35) $ .36 $ .19 $ 3.93
Weighted average number of common and common ========== ========== ========= =========
equivalent shares outstanding:
Primary...................................................... 6,719,000 6,719,000 6,719,000 6,719,000
========== ========== ========= =========
Fully diluted................................................ 6,719,000 6,719,000 6,719,000 6,719,000
========== ========== ========= =========
</TABLE>
Page F-6
<PAGE>
CASTLE ENERGY CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
UNAUDITED
("000's" Omitted)
General
- ---------
Gives effect to the Asset Sale as though it occurred October 1, 1995.
1. Reflects changes in operating income items other than depletion and
depreciation as a result of the Asset Sale as follows:
(a) Reflects replacement of equity gas (sold in Asset Sale) with
purchased gas, i.e., the gas that was previously owned is now being
purchased from the buyer.
(b) Reflects loss of operating fees attributable to oil and gas
properties sold in Asset Sale.
(c) Reflects reduction in operating and general and administrative
costs attributable to assets sold.
(d) Reflects amortization of two years of prepaid gas transportation
received as part of the purchase price.
(e) Reflects loss of oil and gas sales from oil and gas properties
sold.
2. Reflects reduction in depletion for oil and gas properties and in
depreciation for pipeline as a result of the Asset Sale.
3. Reflects elimination of interest expense since a portion of the
proceeds from the Asset Sale were used to liquidate the Company's bank
debt.
In accordance with the guidelines of the Securities and Exchange
Commission, interest or other income has not been imputed on the remaining cash
proceeds received by the Company in the Asset Sale nor have such cash proceeds
been assumed to have been spent for other purposes such as repurchasing shares
of the Company's stock or additional investments.
Page F-7
<PAGE>
PURCHASE AND SALE AGREEMENT
by and among
CASTLE ENERGY CORPORATION
and
CASTLE TEXAS PRODUCTION LIMITED PARTNERSHIP
and
UNION PACIFIC RESOURCES COMPANY
<PAGE>
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
Page No.
ARTICLE I
DEFINITIONS................................ 1
1.1 Defined Terms............................................... 1
ARTICLE II
CLOSING DATE TRANSACTIONS; PURCHASE PRICE................. 5
2.1 Sale of Assets.............................................. 5
2.2 Purchase Price.............................................. 5
2.3 Adjustments to Purchase Price............................... 6
2.4 Payment and Calculation of Estimated Adjusted Purchase Price 7
2.5 Post Closing Adjustment..................................... 7
2.6 Reinvestment of Condemnation Proceeds....................... 7
ARTICLE III
TITLE MATTERS............................... 7
3.1 Title....................................................... 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER................. 7
4.1 Existence................................................... 8
4.2 Power....................................................... 8
4.3 Authorization............................................... 8
4.4 Brokers..................................................... 8
4.5 Foreign Person.............................................. 8
4.6 Intentionally Left Blank.................................... 8
4.7 Basic Document.............................................. 9
4.8 Commitment to Make Expenditures............................. 9
4.9 Sales Contract.............................................. 9
4.10 Production Imbalances....................................... 9
4.11 Litigation.................................................. 10
4.12 Inactive Wells.............................................. 10
4.13 Licenses and Permits........................................ 10
4.14 Tax Partnerships............................................ 10
4.15 Compliance with Laws........................................ 10
4.16 Operated Properties......................................... 11
4.17 Production Payment.......................................... 11
(i)
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER........ 11
5.1 Existence........................................... 11
5.2 Power............................................... 11
5.3 Authorization....................................... 11
5.4 Brokers............................................. 12
5.5 Further Distribution................................ 12
ARTICLE VI
PRE-CLOSING OBLIGATIONS OF SELLER............. 12
6.1 Operations.......................................... 12
6.2 Permissions......................................... 12
6.3 No Shop............................................. 12
6.4 Expenditures........................................ 12
6.5 Transfer of Assets.................................. 13
6.6 Payment of Bills.................................... 13
6.7 Contribution Agreement and Gas Purchase Agreement... 13
6.8 Preferential Purchase Rights........................ 14
6.9 Access to Assets.................................... 14
ARTICLE VII
PRE-CLOSING OBLIGATIONS OF PURCHASER........... 15
7.1 Confidentially...................................... 15
7.2 Return of Data...................................... 15
7.3 Indemnity Regarding Access.......................... 15
7.4 Transition Agreement Election....................... 15
ARTICLE VIII
SELLER'S CONDITIONS OF CLOSING.............. 16
8.1 Representations and Warranties...................... 16
8.2 Performance......................................... 16
8.3 Officer's Certificate............................... 16
8.4 Pending Matters..................................... 16
8.5 Operatorship Forms.................................. 16
8.6 Bonds............................................... 16
8.7 Certain Events...................................... 16
8.8 Intentionally Left Blank............................ 16
8.9 Pipeline Contract................................... 16
8.10 Opinion of Counsel.................................. 17
ARTICLE IX
PURCHASER'S CONDITIONS OF CLOSING............. 17
9.1 Representations and Warranties...................... 17
9.2 Performance......................................... 17
9.3 Attorney-in-Fact Certificate........................ 17
9.4 Pending Matters..................................... 17
9.5 Certain Events...................................... 17
9.6 Intentionally Left Blank............................ 17
9.7 Opinion of Counsel.................................. 17
9.8 Pipeline Contract................................... 18
9.9 Liens............................................... 18
(ii)
<PAGE>
ARTICLE X
CLOSING.......................... 18
10.1 Time and Place of Closing........................... 18
10.2 Closing Obligations................................. 18
ARTICLE XI
POST-CLOSING OBLIGATIONS................. 19
11.1 Calculation of Adjusted Purchase Price.............. 19
11.2 Suspended Funds..................................... 20
11.3 Receipts and Credits................................ 20
11.4 Assumption of Liabilities; Cross Indemnity.......... 20
11.5 Further Assurances.................................. 25
11.6 Termination of Contribution Agreement............... 25
ARTICLE XII
TERMINATION........................ 25
12.1 Right of Termination................................ 25
12.2 Effect of Termination............................... 26
ARTICLE XIII
TAXES........................... 26
13.1 Apportionment of Ad Valorem and Property Taxes...... 26
13.2 Sales Taxes......................................... 27
13.3 Other Taxes......................................... 27
13.4 Cooperation......................................... 27
13.5 Indemnification for Tax Obligations................. 28
ARTICLE XIV
DOCUMENT RETENTION.................... 29
14.1 Inspection.......................................... 29
14.2 Destruction......................................... 29
14.3 Access.............................................. 29
ARTICLE XV
INDEPENDENT INVESTIGATION AND DISCLAIMER......... 30
15.1 Independent Investigation and Disclaimer............ 30
ARTICLE XVI
MISCELLANEOUS....................... 30
16.1 Governing Law....................................... 30
16.2 Entire Agreement.................................... 31
16.3 Waiver.............................................. 31
16.4 Captions............................................ 31
16.5 Assignment.......................................... 31
16.6 Notices............................................. 31
16.7 DTPA Waiver......................................... 32
16.8 Expenses............................................ 32
16.9 Severability........................................ 32
(iii)
<PAGE>
16.10 Publicity........................................... 32
16.11 Use of Names........................................ 32
16.12 Consequential Damages............................... 33
16.13 No Third Party Beneficiary.......................... 33
16.14 Survival Limitation of Liability.................... 33
16.15 Counterparts; Exhibits.............................. 33
16.16 Operatorship........................................ 33
16.17 Environmental Investigation and Report.............. 33
16.18 Recordable Assignment............................... 34
16.19 Casualty and Condemnation........................... 34
(iv)
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is made and
entered into this 16th day of May, 1997, by and among CASTLE ENERGY CORPORATION,
a Delaware corporation ("CASTLE"), CASTLE TEXAS PRODUCTION LIMITED PARTNERSHIP,
a Texas limited partnership ("Production") (Castle and Production are jointly
referred to herein as "Seller") and UNION PACIFIC RESOURCES COMPANY, a Delaware
corporation ("Purchaser"). CASTLE EXPLORATION COMPANY, INC., a Pennsylvania
corporation ("Exploration") joins in this Agreement for the limited purposes
described herein.
RECITALS
Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain oil and gas properties and other assets on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises and of
the mutual covenants and agreements contained herein, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The following terms (which shall include both
the singular and plural of each term) shall have the following meanings when
used in this Agreement:
"Adjusted Purchase Price" shall have the meaning given that
term in Section 2.3.
"Affiliate" shall mean, with respect to any person or entity,
any other person or entity that directly or indirectly controls, is controlled
by or is under common control with, the person or entity in question. As used
herein, the term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person or entity, whether through ownership of voting securities, by contract or
otherwise.
"Allocated Value" shall mean, with respect to any Leasehold
Interest subject to a preferential purchase right, the amount set forth in
Exhibit 6.8 under the column entitled "Allocated Value".
"Assets" shall mean the Oil and Gas Assets, the Motor
Vehicles, Real Estate and Inventory, and the Gas Contracts.
"Assumed Obligations" shall have the meaning given that term
in Section 11.4(a).
"Basic Documents" shall have the meaning given that term in
Section 4.7(a).
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"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York, or Dallas, Texas, are
required or authorized by law to be closed.
"Claim Notice" shall have the meaning given that term in
Section 11.4(g).
"Claimant" shall have the meaning given that term in Section
13.5(b).
"Closing" shall have the meaning given that term in Section
10.1.
"Closing Date" shall have the meaning given that term in
Section 10.1.
"Code" shall mean the Internal Revenue Code as amended.
"Corrective Operations" shall have the meaning given that
term in Section 11.4(g)(ii).
"Documents" shall have the meaning given that term in Section
14.1.
"Effective Date" shall have the meaning given that term in
Section 2.1(a).
"Gas Contracts" shall mean all right, title and interest of
Seller in and to any gas sale agreements which relate solely to the Leasehold
Interests to which Seller is a party as of the Closing Date, together with
copies of all relevant files, documents and records relating thereto (other than
any of such files, documents and records that Sellers are unable to disclose to
Purchaser without waiver of an attorney-client privilege that any Seller deems
significant to its legal position or due to a third party restriction on
assignment or disclosure with respect to which Production is unable, after
reasonable efforts (which shall not include the payment of any funds or other
consideration) to secure a waiver).
"Indemnified Party" shall have the meaning given that term in
Section 11.4.
"Indemnifying Party" shall have the meaning given that term
in Section 11.4(g).
"Indemnitor" shall have the meaning given that term in
Section 13.5(b).
"Knowledge" shall mean the knowledge of an individual who is
an employee of a Seller or any Affiliate of a Seller and who has supervisory
responsibility over the matter in question.
"Lawsuit Liabilities" shall mean all claims, liabilities,
losses, costs and expenses (including, without limitation, court costs and
reasonable attorneys' fees) that are attributable to the lawsuits listed on
Exhibit 1.1 as the same may be amended or refiled (except to the extent any
claims raised in such amendments or refilings relate to periods of time
subsequent to the
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Effective Date and are covered by Purchaser's indemnity of Sellers pursuant to
Sections 11.4(a)(iii) or (d).
"Leasehold Interests" shall have the meaning given that term
in the definition of "Oil and Gas Assets."
"Losses" shall have the meaning given that term in Section
11.4(b).
"Motor Vehicles, Real Estate and Inventory" shall mean the
assets described in Exhibit B.
"Oil and Gas Assets" shall mean all right, title and interest
of each Seller in and to the following properties and assets:
(a) The oil, gas and mineral leasehold estates and other real
property and mineral interests described in Exhibit A; together with (i) all
rights of each Seller in respect of all presently existing and valid oil, gas
and/or mineral unitization, pooling, and/or communitization agreements,
declarations and/or orders in and to the properties covered and the units
created thereby (including, without limitation, all units formed under orders,
rules, regulations, or other official acts of any federal, state, or other
authority having jurisdiction, voluntary unitization agreements, designations
and/or declarations) and (ii) all other right, title and interest of each Seller
in and to the oil, gas and other minerals in and under or that may be produced
from the lands described in Exhibit A (including, without limitation, interests
in oil, gas and/or mineral leases covering such lands, overriding royalties,
production payments and net profits interests in such lands or such leases,
royalty interests and other interests in such oil, gas and other minerals),
whether such lands be described in a description set forth in such Exhibit A, be
covered by the oil, gas and mineral leasehold estates and other real property
and mineral interests described in Exhibit A or be described in such Exhibit A
by reference to another instrument (and without limitation by any depth
limitations that may be set forth in such Exhibit A or in any such instrument so
referred to for description), even though such Seller's interest in such oil,
gas and other minerals may be incorrectly described in, or omitted from, such
Exhibit A (the foregoing interests being collectively referred to herein as the
"Leasehold Interests");
(b) All presently existing and valid production sales (and
sales related) contracts, operating agreements, and other agreements and
contracts which relate solely to the Leasehold Interests or which relate to the
exploration, development, operation, or maintenance thereof or the treatment,
storage, transportation or marketing of production therefrom (or allocated
thereto);
(c) All materials, supplies, machinery, equipment,
improvements and other personal property and fixtures (including, but not by way
of limitation, all wells, wellhead equipment, pumping units, flowlines, tanks,
buildings, injection facilities, saltwater disposal facilities, compression
facilities, gathering systems, and other
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equipment), and all easements, rights-of-way, surface leases and other surface
rights, all permits and licenses, and all other appurtenances being used or held
solely for use in connection with the exploration, development, operation or
maintenance of any of the Leasehold Interests, or the treatment, storage,
transportation or marketing of production therefrom (or allocated thereto);
(d) 55,000 feet of 4 1/2 inch and 8,000 feet of 8 5/8 inch
casing;
(e) The contract to drill the Leath #5, Leath #6, Alford B-4,
Beck #5 and Busby #5 at $23.75 foot between Seller and FWA Drilling, Inc. dated
April 2, 1997 (the "FWA Contract"); and
(f) To the extent same relate to the properties described in
subsections (a)-(c) above and do not include any interpretive data prepared by
or for the benefit of Seller, tax returns or other confidential tax information,
all of each Seller's (i) lease files, abstracts and title opinions, production
records, well files, accounting records (but not including general financial
accounting records) and copies of computer records for revenue distribution and
joint interest billings, (ii) to the extent same are assignable pursuant to the
terms of the applicable contracts or instruments after the use by such Seller of
reasonable efforts (which shall not include the payment of any funds or other
consideration) to effect such assignment, copies of all non-proprietary
geophysical, geological and seismic data and records, surveys and electric logs,
(iii) copies of all proprietary geophysical, geological and seismic data and
records, surveys and electric logs to the extent such Seller may provide such
copies under such terms without accounting to any third party after the use by
such Seller of reasonable efforts (which shall not include the payment of any
funds or other consideration) to obtain such third party's approval, and (iv)
all other relevant files, documents and records;
(g) The compressor rental contracts dated January 3, 1997
with Hanover Compression Company for five compressors requiring payments of
$30,000 (in the aggregate) per month for a period of 18 months (the "Compressor
Contracts");
(h) The building referred to as the Castle Texas Production
Office Building as described in Exhibit B; and
"Performing Party" shall have the meaning given that term in
Section 11.4(g)(ii).
"Pipeline Contract" shall mean the contract dated of even
date herewith between Castle Texas Pipeline Limited Partnership, a Texas limited
partnership ("Castle Pipeline"), as seller and Union Pacific Intrastate Pipeline
Company as purchaser for the intrastate pipeline system owned by Castle Pipeline
in Rusk County, Texas.
"Property Taxes" shall have the meaning given that term in
Section 13.1.
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"Production Payment" means the production payment reserved by
Atlantic Richfield Company ("ARCO") pursuant to the Assignment and Bill of Sale
dated effective as of 7:00 a.m. Central Standard Time on February 1, 1992 from
ARCO to Castle as recorded in Volume 1799, Page 713 of the official records of
Rusk County, Texas, which production payment was subsequently assigned to
Exploration in 1994, as Castle's nominee.
"Property Condition Claim" shall have the meaning given that
term in Section 11.4(d).
"Purchase Price" shall have the meaning given that term in
Section 2.2.
"Purchaser Indemnified Parties" shall have the meaning given
that term in Section 11.4(c).
"Report" shall have the meaning given that term in Section
16.17.
"Seller Indemnified Parties" shall have the meaning given
that term in Section 11.4(b).
"Transition Agreement" shall have the meaning given that term
in Section 10.2(i).
ARTICLE II
CLOSING DATE TRANSACTIONS; PURCHASE PRICE
2.1 Sale of Assets.
(a) On the Closing Date, but effective as of 7:00 a.m.
Central Daylight Time on May 1, 1997, (the "Effective Date") and subject to the
terms and conditions of this Agreement, Seller agrees to sell and convey, or
cause to be sold and conveyed, the Assets to Purchaser, and Purchaser agrees to
purchase and pay for, the Assets and assume the Gas Contracts.
(b) On the Closing Date Exploration shall assign and
Purchaser shall receive the Production Payment.
(c) All amounts required to be paid by any party hereto to
another party hereto shall be made by wire transfer of immediately available
funds to an account designated by the payee thereof, which designation shall be
made not later than two Business Days prior to the Closing Date.
2.2 Purchase Price. The purchase price for the Assets shall be
Fifty Million Forty-Two Thousand and No/100 Dollars ($50,042,000.00) (the
"Purchase Price"), which amount shall be adjusted as provided in Section 2.3.
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2.3 Adjustments to Purchase Price. The Purchase Price shall be
adjusted as follows (the resulting amount being herein referred to as the
"Adjusted Purchase Price"):
(a) The Purchase Price shall be increased by an amount equal
to the sum of the following amounts (determined without duplication and in
accordance with generally accepted accounting principles consistently applied):
(i) the amount as determined on the accrual basis of
all expenses incurred by Seller, (other than amounts covered by clause (ii)
following and expenses incurred in violation of the $50,000 limitation contained
in Section 6.4) that are attributable to the Assets and to the period of time
between the Effective Date and the Closing Date, including without limitation,
lease operating expenses, capital expenditures, royalties, ad valorem, property
and similar taxes and assessments, severance, sales and production taxes (but
excluding income taxes and franchise taxes), rentals and similar charges,
amounts billed under applicable operating agreements and prepaid expenses; and
(ii) to the extent paid by Seller, the amounts paid by
Seller for (1) reworks not to exceed $276,773 as described on Exhibit
2.3(a)(ii); (2) the casing described in the definition of "Oil and Gas Assets"
not to exceed $345,000; (3) the amounts incurred and paid by Seller under the
FWA Contract prior to the Closing Date.
(iii)as a charge for administrative overhead incurred
by Seller in connection with the operation of the Assets during the period
beginning on the Effective Date and ending on the Closing Date, an amount equal
to the sum of $31,000 per month.
(b) The Purchase Price shall be decreased by an amount equal
to the sum of the following amounts (determined without duplication and on an
accrual basis in accordance with generally accepted accounting principles
consistently applied):
(i) the amount of all proceeds earned by Seller,
including outside interests' share of operating fees, (other than proceeds from
the exercise by third parties of preferential rights to purchase all or any
portion of the Leasehold Interests, but including proceeds received by Seller
that are owed to royalty owners) and by Exploration from the Production Payment
that are attributable to the ownership or operation of the Assets after the
Effective Date and to the period of time between the Effective Date and the
Closing Date;
(ii) an amount equal to the value of the Leasehold
Interests with respect to which preferential purchase rights have been exercised
in accordance with Section 6.8; and
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(iii) One Million Five Hundred Seventy Five Thousand
and No/100 Dollars ($1,575,000.00), in respect of amounts owed as of March 31,
1997 by Seller to any other party under gas balancing or similar written
arrangements affecting the Assets as the result of Seller being an overproduced
party in respect of the Assets as of March 31, 1997 (after deducting amounts
owed as of March 31, 1997 to Seller by any other party under any such gas
balancing arrangements as the result of Seller being an underproduced party in
respect of the Assets as of March 31, 1997), as more particularly set forth in
Exhibit 4.10 attached hereto. An amount shall also be deducted from or added to
the Purchase Price payable under Section 2.2 hereof representing an adjustment
from April 1, 1997 through the Closing Date in accordance with Section 11.1
hereof using the same methodology utilized in calculating this amount at March
31, 1997.
2.4 Payment and Calculation of Estimated Adjusted Purchase Price.
Seller shall prepare and deliver to Purchaser, at least five Business Days prior
to the Closing Date, Seller's estimate of the Adjusted Purchase Price to be paid
at Closing, together with a statement setting forth Seller's estimate of the
amount of each adjustment to the Purchase Price to be made pursuant to Section
2.3. The parties shall negotiate in good faith and attempt to agree on such
estimated adjustments prior to Closing. In the event any estimated adjustment
amounts are not agreed upon prior to Closing, the Adjusted Purchase Price
(calculated based on Seller's and Purchaser's agreed upon estimated adjustments
and Seller's estimation of any such disputed amounts) shall be paid at Closing,
subject to further post-Closing adjustment in accordance with Section 11.1.
2.5 Post Closing Adjustment. Within five Business Days after the
final determination of the Adjusted Purchase Price in accordance with Section
11.1 or otherwise, Purchaser shall pay to Seller or Seller shall pay to
Purchaser the amount by which such final Adjusted Purchase Price is greater than
or less than, respectively, the estimated Adjusted Purchase Price calculated
pursuant to Section 2.4.
2.6 Reinvestment of Condemnation Proceeds. Pursuant to Code
Section 1033(g), Purchaser intends to acquire the Assets as a reinvestment in
like-kind property for the 1994 disposition of its Wilmington Field, California
converted property.
ARTICLE III
TITLE MATTERS
3.1 Title. Seller does not warrant title to the Leasehold
Interests.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that:
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4.1 Existence. Castle is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly qualified to carry on its business in the State of Texas. Production is a
Texas limited partnership and is duly qualified to carry on its business in the
State of Texas. Exploration is a Pennsylvania corporation.
4.2 Power. Castle, Exploration and Production have the corporate
power and partnership power, respectively, and authority to enter into and
perform this Agreement and the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by each Seller and Exploration, and
the consummation by each such party of the transactions contemplated hereby,
will not violate (a) any provision of the certificate of incorporation or bylaws
of such party or partnership agreement, as the case may be, (b) except as set
forth on Exhibit 4.2, any material agreement or instrument to which such party
is a party or by which such party or any of the Assets are bound, (c) any
judgment, order, ruling, or decree applicable to such party as a party in
interest, or (d) any law, rule or regulation applicable to such party.
4.3 Authorization. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate and partnership action on the part
of Castle, Exploration and Production, respectively. This Agreement has been
duly executed and delivered on behalf of each Seller and Exploration, and at the
Closing all documents and instruments required hereunder to be executed and
delivered by each Seller and Exploration, shall have been duly executed and
delivered. This Agreement does, and such documents and instruments shall,
constitute legal, valid and binding obligations of each Seller and Exploration,
enforceable in accordance with their terms, subject, however, to the effect of
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect relating to the rights and remedies of creditors, as well as to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.4 Brokers. Seller has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Agreement that will be the responsibility of Purchaser; and
any such obligation or liability that might exist shall be the sole obligation
of Seller.
4.5 Foreign Person. Seller is not a "foreign person" within the
meaning of the Code, Sections 1445 and 7701 (i.e. Seller is not a non-resident
alien, foreign corporation, foreign partnership, foreign trust or foreign estate
as those terms are defined in the Code and any regulations promulgated
thereunder).
4.6 Intentionally Left Blank.
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4.7 Basic Document.
(a) To the knowledge of each Seller, the Gas Contracts and
the material contracts and agreements comprising a part of the Assets (other
than the oil, gas and/or mineral leases that comprise a part of the Oil and Gas
Assets)(such Gas Contracts and such material contracts and agreements being
herein called the "Basic Documents"), are in full force and effect and
constitute valid and binding obligations of the parties thereto, subject,
however, to the effect of bankruptcy, insolvency, reorganization, moratorium and
similar laws from time to time in effect relating to the rights and remedies of
creditors, as well as to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law); all
contracts and agreements which are Basic Documents are disclosed on Exhibit A or
4.9 and Seller has not transferred, assigned, conveyed or encumbered its
interest therein.
(b) No Seller is in breach or default of its obligations
under the Basic Documents, and to each Seller's knowledge no breach or default
by any third party exists, in either case to the extent such breach or default,
whether by a Seller or a third party, could materially and adversely affect,
after the Effective Date, the ownership, operation, value or use of any Asset by
the Purchaser.
(c) Seller have, pursuant to the terms of the Basic
Documents, the oil, gas and/or mineral leases that comprise a part of the Oil
and Gas Assets all rights material to the ownership or operation of the Assets
in the manner in which the same are presently being owned or operated.
4.8 Commitment to Make Expenditures. Since the Effective Date,
(a) except as permitted by Section 6.4 and Section 6.5, the Sellers have
incurred no expenses, and have made no commitments to make expenditures in
connection with the ownership or operation of the Assets after the Effective
Date, other than routine expenses incurred in the normal operation of the
Assets, and (b) Sellers have not plugged and abandoned any wells comprising any
part of the Oil and Gas Assets. No proposals are currently outstanding (whether
made by a Seller or by any other party) to drill additional wells, or to deepen,
plug back, or rework existing wells, or to conduct other operations for which
consent is required under the applicable operating agreement, or to conduct any
other operations other than normal operation of the Assets, or to plug and
abandon any wells on the Oil and Gas Assets.
4.9 Sales Contract. All Gas Contracts and all agreements or
arrangements for the purchase, sale or transportation of hydrocarbons relating
to the Assets are referenced in Exhibit 4.9 or Exhibit A hereto, other than
agreements or arrangements which are cancelable on 60 days' notice or less
without penalty or detriment.
4.10 Production Imbalances. Neither Seller, nor to Seller's
knowledge any other party, has received prepayments (including, but not limited
to, payments for gas not taken pursuant to "take-or-pay" arrangements) for any
oil or gas produced from the Oil and Gas
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Assets as a result of which the obligation does (or may) exist to deliver oil or
gas produced from the Oil and Gas Assets after the Effective Date without then
receiving full payment therefor or to make repayments in cash (and Seller has
not, since the Effective Date, so delivered any oil or gas from the Oil and Gas
Assets or so made any such repayment in cash). Except as reflected in Exhibit
4.10, there is no Oil and Gas Asset with respect to which Seller has, as of
March 31, 1997, taken more (referred to herein as "over-produced") or less
(referred to herein as "under-produced") production from the wells located on
such Oil and Gas Asset (or on the units in which such Oil and Gas Asset
participates) than the ownership of Seller in such Oil and Gas Asset would
entitle Seller (absent any gas balancing agreement or arrangement) to receive.
For each Oil and Gas Asset listed in Exhibit 4.10, such exhibit reflects the
following information as of March 31, 1997: (a) whether Seller is in an
over-produced or under-produced position and (b) the amount (expressed in terms
of volume) of such over-production or under-production.
4.11 Litigation. Except as set forth on Exhibit 1.1, there are no
judicial or administrative suits, actions, investigations, inquiries or
proceedings with respect to which a Seller has received service of process, or
that have been threatened and, if adversely determined, would materially and
adversely affect the ownership or operation of the Assets, that affect the
Assets or the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
4.12 Inactive Wells. Except for wells listed in Exhibit 4.12, as
of the Effective Date, there were no wells located on the Oil and Gas Assets or
on lands pooled or unitized therewith that have not produced oil, gas or other
hydrocarbon minerals for a period of 90 consecutive days immediately prior to
such date.
4.13 Licenses and Permits. Except as set forth on Exhibit 4.13,
Sellers have all governmental licenses and permits material to the ownership or
operation of the Assets as presently being owned and operated and, to the
knowledge of each Seller, such licenses, permits and filings are in full force
and effect. As of the Effective Date, there were no uncured violations in
respect of such licenses or permits with respect to which Sellers received
written notice prior to the Effective Date and since the Effective Date, Sellers
have not received written notice of any violations in respect of any such
licenses or permits.
4.14 Tax Partnerships. Seller has no knowledge of the existence
of any tax partnership agreements affecting or governing the Assets. Seller is
not filing any tax partnership returns with respect to the Assets and has not
received any notices of delinquency from the Internal Revenue Service in
connection with any federal returns of partnership income for the Assets.
4.15 Compliance with Laws. The ownership and operation of those
Assets operated by each Seller and, to the best of such Seller's knowledge, the
ownership and operation of Assets not operated by such Seller, to the extent
that non-conformance could materially and adversely affect the ownership,
operation, value or use thereof after the Effective Date, has been in
conformity, in all material respects, with all applicable laws, and all
applicable rules, regulations and orders of all governmental agencies having
jurisdiction, relating to the Assets. In addition, as to Assets operated by each
Seller, and (to such Seller's knowledge) as to Assets operated by others, all
oil and gas wells comprising a part of the Assets have been drilled and
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completed within the boundaries of the applicable leases or within limits
otherwise permitted by applicable law or a valid and enforceable pooling, unit
or other agreement or contract. No well comprising a part of the Assets is or
was subject to any penalty on allowables after the Effective Date because of any
over-production (or any other judgments, orders or decrees of any court or
governmental authority or agency) which would (or did) prevent such well from
being entitled to its full legal and regular allowable (as prescribed by any
court or governmental body or agency) from and after the Effective Date.
4.16 Operated Properties. Sellers are the operator of all of the
wells and units listed in Exhibit A.
4.17 Production Payment. Exploration hereby represents and
warrants that it has not transferred, assigned, mortgaged, pledged or otherwise
disposed of or encumbered all or any portion of its interest in the Production
Payment other than to CNB Bank.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
5.1 Existence. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and is
duly qualified to carry on its business in the State of Texas and in any other
jurisdiction where the nature of its operations or properties requires it to be
so qualified.
5.2 Power. Purchaser has the corporate power and authority to
enter into and perform this Agreement and the transactions contemplated hereby.
Subject to rights to consent by, required notices to, and filings with or other
actions by governmental entities where the same are customarily obtained
subsequent to the assignment of oil and gas interests and leases, the execution,
delivery and performance of this Agreement by Purchaser, and the transactions
contemplated hereby, will not violate (a) any provision of the certificate of
incorporation or bylaws of the Purchaser, (b) any material agreement or
instrument to which Purchaser is a party or by which Purchaser is bound, (c) any
judgment, order, ruling, or decree applicable to Purchaser as a party in
interest, or (d) any law, rule or regulation applicable to Purchaser.
5.3 Authorization. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of Purchaser.
This Agreement has been duly executed and delivered on behalf of Purchaser, and
at the Closing all documents and instruments required here under to be executed
and delivered by Purchaser shall have been duly executed and delivered. This
Agreement does, and such documents and instruments shall, constitute legal,
valid and binding obligations of Purchaser enforceable in accordance with their
terms, subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect relating
to the rights and remedies of creditors, as well as to general principles of
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equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
5.4 Brokers. Purchaser has incurred no obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Agreement that will be the responsibility of Seller; and
any such obligation or liability that might exist shall be the sole obligation
of Purchaser.
5.5 Further Distribution. Purchaser is acquiring the Leasehold
Interests for its own account and not with a view to, or for offer or resale in
connection with, a distribution thereof within the meaning of the Securities Act
of 1933, as amended, and the rules and regulations pertaining to it or a
distribution thereof in violation of any applicable securities laws.
ARTICLE VI
PRE-CLOSING OBLIGATIONS OF SELLER
6.1 Operations. From the date of execution of this Agreement
until Closing (the "Interim Period"), except as otherwise approved by Purchaser,
Seller shall operate the Oil and Gas Assets as would a reasonably prudent
operator of similar properties and shall cause the Gas Contracts to be performed
in accordance with past practices, and in each case, in conformity (in all
material respects) with all applicable laws, and all applicable rules,
regulations and orders of all governmental agencies having jurisdiction, and in
conformity in all material respects with all Basic Documents.
6.2 Permissions. During the Interim Period, Seller will use
reasonable efforts to obtain all permissions, approvals, and consents of
federal, state and local governmental authorities and others as may be required
to consummate the transactions contemplated here under (excluding governmental
permissions, approvals and consents which are customarily obtained after the
consummation of transactions of the type contemplated hereunder).
6.3 No Shop. From April 23, 1997, until the earlier of Closing or
termination of this Agreement, Seller, shall not, directly or indirectly,
initiate discussions with, or otherwise solicit from, any person or entity any
proposals or offers relating to, or deliver information to any person or entity
for purposes of evaluating, one or more transactions of the type contemplated
hereunder involving the Assets, except as may be contemplated by this Agreement
or required by applicable law.
6.4 Expenditures. Each Seller will not expend any funds, or make
any commitments to expend funds (including, without limitation, entering into
new agreements which would obligate Seller to expend funds), or otherwise
voluntarily incur any other obligations or liabilities, in connection with the
ownership or operation of the Assets after the date hereof, other than (i) the
contract to drill five wells at pursuant to the FWA Contracts, (ii) the reworks
described in 2.3(a)(ii), and (iii) as required by law or governmental order or
regulation, in connection with an emergency or as a part of routine expenses
incurred or commitments made
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in the normal operation of the Assets (it being agreed that expenditures or
commitments with respect to a particular operation or matter of less than
$50,000, and expenditures or commitments with respect to a particular operation
or matter in excess of $50,000 to which Purchaser has consented, shall be deemed
to have been made as a part of routine expenses in the normal operation of the
Assets). Except as required by law or governmental order or regulation or in
connection with an emergency, each Seller will not, without the prior written
consent of Purchaser, which consent shall not be unreasonably withheld, propose
the drilling of any additional wells, or propose the deepening, plugging back or
reworking of any existing wells, or propose the conducting of any other
operations which require consent under the applicable operating agreement, or
propose the conducting of any other operations other than the normal operation
of the existing properties comprising the Assets, or propose the plugging and
abandonment of any wells on the Oil and Gas Assets; each Seller will advise
Purchaser of any such proposals made by third parties (and will respond to each
such proposal made by a third party in the manner requested by Purchaser).
6.5 Transfer of Assets. During the Interim Period, each Seller
will not sell, mortgage, encumber, transfer or abandon any portion of the Assets
other than in the ordinary course of business consistent with past practices or
in connection with the exercise by third parties of preferential rights to
purchase any of the Assets. Each Seller will not, without Purchaser's consent,
voluntarily release (or to the extent within such Seller's control, permit to
terminate), or modify or reduce its rights under, any oil, gas and/or mineral
lease forming a part of the Oil and Gas Assets or (except as provided below with
respect to production sales contracts) any other Basic Document, or enter
(except as provided below with respect to production sales contracts) into any
new agreements which would be Basic Documents, or (except as provided below)
modify any existing production sales contracts or enter into any new production
sales contracts (even if the same are not, or, if new, would not be, Basic
Documents); provided that, if the same would not cause the representations set
forth in Section 4.9 to be untrue, and so long as it does so in the ordinary
course of business and as would a prudent operator, each Seller may (without
Purchaser's consent) enter into new production sales contracts (such Seller's
rights under which would then become part of the Assets) in addition to (or in
replacement of) existing production sales contracts and may modify existing
production sales contracts. Each Seller will advise Purchaser of any requests or
proposals for any such modifications, or any such new agreements that require
Purchaser's consent.
6.6 Payment of Bills. Each Seller will cause all undisputed
expenses (including, without limitation, all bills for labor, materials and
supplies used or furnished for use in connection with the Assets and all
severance, production, windfall profit and similar taxes) and liabilities
relating to the ownership or operation of the Assets prior to the date of
Closing to be promptly paid and discharged.
6.7 Contribution Agreement and Gas Purchase Agreement. Seller
shall use its reasonable best efforts to terminate before the Closing Date (i)
the Contribution Agreement dated as of August 1, 1993 between, among others,
Seller and MG Natural Gas Corporation, and (ii) the May 1, 1993 Gas Purchase
Contract between Castle Production Corporation and MG Natural Gas Corp., as
amended.
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6.8 Preferential Purchase Rights. (a) Promptly following the date
hereof, Seller shall send letters to the parties shown in Seller's records as
holding preferential purchase rights covering the Leasehold Interests listed on
Exhibit 6.8, requesting a waiver of such rights as they may apply to the
transactions contemplated by this Agreement. With respect to each such
preferential purchase right for which no waiver is received on or before the
Closing Date, Seller shall send to the holder of such right a notice offering to
sell to such holder, in accordance with the contractual provisions applicable to
such right, those Leasehold Interests covered by such right on the terms hereof
and for the Allocated Value of such Leasehold Interests, subject to adjustments
in price in the same manner that the Purchase Price is adjusted pursuant to
Article II of this Agreement. Promptly following the sending of same, Seller
shall deliver to Purchaser a copy of any letters and notices delivered to the
holders of preferential purchase rights pursuant to this Section 6.8(a).
(b) All Leasehold Interests for which a preferential
purchase right has not been asserted prior to the Closing by the holder of such
right shall be sold to Purchaser at the Closing pursuant to the provisions of
this Agreement. If, prior to June 30, 1997, any holder of a preferential
purchase right notifies Seller that it intends to consummate the purchase of the
Leasehold Interests to which its preferential purchase right applies, then
Purchaser shall convey such Leasehold Interest to Seller, free and clear of all
liens, claims, encumbrances and title defects that arise by, through or under an
act of Seller, and the Purchase Price shall be reduced by the Allocated Value of
such Leasehold Interests; provided, however, that if the holder of such
preferential right fails to consummate the purchase of the Leasehold Interests
covered by such right, then within 90 days following the Closing Date, Seller
may so notify Purchaser, and within 15 days after Purchaser's receipt of such
notice from Seller, subject to the terms hereof (to the extent applicable),
Seller shall sell to Purchaser, and Purchaser shall purchase from Seller, the
Leasehold Interests to which the preferential purchase right applied for a price
equal to the Allocated Value of such Leasehold Interests adjusted pursuant to
the provisions of Section 2.3 above).
6.9 Access to Assets. Prior to the Closing Date, each Seller
shall grant the Purchaser access during Seller's normal business hours, upon
reasonable notice, to the Assets and to all records relating to the Assets
except those records that Seller is unable to make available to the Purchaser
without waiver of an attorney-client privilege that Seller deems significant to
its legal position or due to a third party restriction on disclosure with
respect to which Seller is unable, after reasonable efforts (which shall not
include the payment of funds or other consideration), to secure a waiver. Such
Assets and records will be made available at their present locations. Prior to
the Closing Date, Seller agrees to cooperate with Purchaser should Purchaser
desire to contact individuals presently employed by Sellers in connection with
the Assets for possible employment by Purchaser after the Closing.
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ARTICLE VII
PRE-CLOSING OBLIGATIONS OF PURCHASER
7.1 Confidentially. Except with respect to any disclosure that
may be required by applicable law or by the applicable rules or regulations of
any governmental body or stock exchange, Purchaser shall cause (a) any
information relating to the terms of the transactions contemplated hereunder,
and (b) the information and data furnished or made available by Seller to
Purchaser and its officers, employees, and representatives in connection with
this Agreement or Purchaser's investigation of the Assets, to be maintained in
confidence and not to be used or disclosed for any purpose other than in
connection with this Agreement or Purchaser's investigation of the Assets;
provided, however, that solely with respect to information of the type described
in clauses (a) and (b) preceding, the foregoing obligation shall terminate on
the earlier to occur of (i) the Closing, (ii) such time as the information or
data in question is disclosed to Purchaser by a third party that is not
obligated to Seller to maintain same in confidence, or (iii) such time as the
information or data in question becomes generally available to the oil and gas
industry other than through the breach of the foregoing obligation.
7.2 Return of Data. Purchaser agrees that if this Agreement is
terminated for any reason whatsoever, Purchaser shall, at Seller's request,
promptly return to Seller all information and data furnished by or on behalf of
Sellers to Purchaser, its officers, employees and representatives in connection
with this Agreement or Purchaser's investigation of the Assets, and Purchaser
agrees not to retain any copies of any such information or data (except to the
extent Purchaser reasonably believes that the retention of copies of any such
information or data may be relevant to the resolution of any then existing
disputes between Purchaser and Seller regarding the rights of such parties under
this Agreement).
7.3 Indemnity Regarding Access. Purchaser agrees to protect,
indemnify, defend and hold harmless the Seller Indemnified Parties from and
against any and all claim, liabilities, losses, costs and expenses (including,
without limitation, court costs and reasonable attorneys' fees) in connection
with personal injuries, including death or property damage arising out of or
relating to the access granted to Purchaser, its officers, employees, and
representatives to the Assets and to any records and other information relating
thereto as permitted under this Agreement, regardless of whether such injuries,
death or damages are caused in whole or part by the sole, partial or concurrent
negligence of the Seller Indemnified Parties. It is the expressed intention of
parties hereto that the indemnity provided for by this Section 7.3 constitutes
an agreement by Purchaser to indemnify and protect the Seller Indemnified
Parties from the consequences of their own negligence, regardless of whether
that negligence is the sole or a concurring cause of the injury, death or
damage. Purchaser further agrees that access to certain of the Assets shall be
conditioned upon Purchaser, its agents, employees, representatives or
contractors executing appropriate request for access forms as may be required by
Seller.
7.4 Transition Agreement Election. Purchaser may elect to not
enter into the Transition Agreement provided that it notifies Seller of such
election no later than three Business Days prior to the Closing Date.
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ARTICLE VIII
SELLER'S CONDITIONS OF CLOSING
Each Seller's obligation to consummate the transactions provided
for herein is subject to the satisfaction or waiver on or before the Closing
Date of the following conditions:
8.1 Representations and Warranties. The representations and
warranties of Purchaser contained in Article V shall be true and correct in all
material respects on the Closing Date as though made on and as of that date;
provided, however, for the purposes of this Section 8.1, in determining whether
this condition has been satisfied, any representation and warranty of Purchaser
contained in this Agreement which is qualified by (i) materiality shall be read
and interpreted as if such qualification was not included therein (it being the
intent of the parties not to apply a double materiality threshold), and (ii)
knowledge shall be read and interpreted as if such qualification was not
included therein.
8.2 Performance. Purchaser shall have performed in all material
respects the obligations, covenants and agreements required hereunder to be
performed by it at or prior to the Closing Date.
8.3 Officer's Certificate. Purchaser shall have delivered to
Seller a certificate of a corporate officer, dated the Closing Date, certifying
on behalf of Purchaser that the conditions set forth in Sections 8.1 and 8.2
have been fulfilled.
8.4 Pending Matters. No suit, action or other proceeding by a
third party or a governmental authority shall be pending or threatened which
seeks substantial damages from Seller in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of the transactions contemplated
by this Agreement.
8.5 Operatorship Forms. Change of operatorship forms as may be
required by applicable governmental authorities shall have been prepared and
executed by Purchaser.
8.6 Bonds. To the extent same are required by applicable law,
Purchaser shall have delivered to Seller either: (a) copies of any bonds, in
form and substance and issued by a corporate surety satisfactory to the
applicable governmental authorities, covering any Leasehold Interests; or (b) a
commitment by a surety company, satisfactory to the applicable governmental
authorities, to issue such bonds upon Closing.
8.7 Certain Events. There shall not have occurred an explosion,
fire, blowout, earthquake or adverse geophysical event that has materially and
adversely affected the operation or value of the Oil and Gas Assets.
8.8 Intentionally Left Blank.
8.9 Pipeline Contract. The transactions contemplated by the
Pipeline Contract shall be consummated concurrent with the transactions
contemplated by this Agreement.
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8.10 Opinion of Counsel. Seller shall have received the opinion
Kerry R. Brittain, Assistant General Counsel for the Purchaser, as to the
matters covered by Sections 5.1, 5.2 and 5.3, subject to normal and customary
qualifications and exceptions.
ARTICLE IX
PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transactions provided
for herein is subject to the satisfaction or waiver on or before the Closing
Date by Purchaser of the following conditions:
9.1 Representations and Warranties. The representations and
warranties of Seller contained in Article IV shall be true and correct in all
material respects on the Closing Date as though made on and as of that date;
provided, however, for the purposes of this Section 9.1, in determining whether
this condition has been satisfied, any representation and warranty of Seller
contained in this Agreement which is qualified by (i) materiality shall be read
and interpreted as if such qualification was not included therein (it being the
intent of the parties not to apply a double materiality threshold), and (ii)
knowledge shall be read and interpreted as if such qualification was not
included therein.
9.2 Performance. Seller shall have performed in all material
respects the obligations, covenants and agreements required hereunder to be
performed by it at or prior to the Closing Date.
9.3 Attorney-in-Fact Certificate. Seller shall have delivered to
Purchaser a certificate of each Seller, dated the Closing Date, certifying on
behalf of Seller that the conditions set forth in Sections 9.1 and 9.2 have been
fulfilled.
9.4 Pending Matters. No suit, action or other proceeding by a
third party or a governmental authority shall be pending or threatened which
seeks substantial damages from Purchaser in connection with, or seeks to
restrain, enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement.
9.5 Certain Events. There shall not have occurred an explosion,
fire, blowout, earthquake or adverse geophysical event that has materially and
adversely affected the operation or value of the Oil and Gas Assets. Seller
agrees to promptly provide notice to Purchaser of the occurrence of any such
event.
9.6 Intentionally Left Blank.
9.7 Opinion of Counsel. Purchaser shall have received an opinion
of Akin, Gump, Strauss, Hauer & Feld, L.L.P., for Seller, as to the matters
covered by Sections 4.1, 4.2 and 4.3, subject to normal and customary
qualifications and exceptions.
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9.8 Pipeline Contract. The transactions contemplated by the
Pipeline Contract shall be consummated concurrent with the transactions
contemplated by this Agreement.
9.9 Liens. All liens, claims and encumbrances on the Oil and Gas
Interests and the Production Payment shall be released.
ARTICLE X
CLOSING
10.1 Time and Place of Closing. Subject to the conditions stated
in this Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall occur on May 30, 1997; provided, however, that if all of the
conditions to Closing set forth in Articles VIII and IX have not been satisfied
or waived by such date for Closing, the party whose obligations are subject to
the conditions that have not been satisfied or waived shall have the right to
extend the date of Closing for successive periods of up to seven days each until
such conditions shall have been satisfied or waived. The date Closing actually
occurs is herein called the "Closing Date". The Closing shall be held at Akin,
Gump, Strauss, Hauer & Feld, L.L.P.'s offices located at One Liberty Place,
Suite 3600, 1650 Market Street, Philadelphia, Pennsylvania 19103, or at such
other location as may be mutually agreed upon by Castle and Purchaser.
10.2 Closing Obligations. At the Closing, the following events
shall occur:
(a) Seller and Purchaser shall execute, acknowledge and
deliver the Assignment, Assumption and Bill of Sale in the form of Exhibit 10.2
conveying the Assets to Purchaser;
(b) Purchaser shall provide executed change of operatorship
forms to Seller and Seller shall execute same;
(c) Production and Purchaser shall execute, acknowledge and
deliver transfer orders or letters in lieu thereof directing all purchasers of
production to make payment to Purchaser of proceeds attributable to production
after the Closing Date from the Leasehold Interests;
(d) Seller shall make arrangements to deliver to Purchaser
(such delivery to occur not later than the 30th day following the Closing Date),
at Purchaser's cost and at a location selected by Seller, originals of all
records, as required by this Agreement, pertaining to the Assets;
(e) Seller shall provide an officer's certificate to
Purchaser confirming no event described in Section 8.7 has occurred;
(f) Purchaser shall make the payments described in Section
2.2;
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(g) Purchaser shall deliver to Seller the certificate and
opinion referred to in Sections 8.3 and 8.12, respectively, and Seller shall
deliver to Purchaser the certificate and opinion referred to in Sections 9.3 and
9.8, respectively;
(h) Seller and Purchaser shall each execute and deliver to
the other a Transition Agreement ("Transition Agreement") substantially in the
form attached hereto as Exhibit D pursuant to which Seller agrees, for a period
of up to six months following the Closing Date, to perform accounting services
with respect to the Assets for the benefit of Purchaser in exchange for the
payment by Purchaser to Seller $31,000 a month.
(i) Exploration shall execute, acknowledge and deliver the
Assignment in the form attached hereto as Exhibit 10.2(i) conveying the
Production Payment to Purchaser.
(j) Seller shall execute such other instruments and take
such other action as may be necessary to carry out its obligations under this
Agreement; and
(k) Purchaser shall execute such other instruments and take
such other action as may be necessary to carry out its obligations under this
Agreement.
ARTICLE XI
POST-CLOSING OBLIGATIONS
11.1 Calculation of Adjusted Purchase Price. Within 120 days
after the Closing, Seller shall prepare, in accordance with this Agreement and
with generally accepted accounting principles consistently applied, and deliver
to Purchaser a statement setting forth each adjustment to the Purchase Price and
showing the calculation of such adjustments. From and after Closing and until
the Adjusted Purchase Price is finally determined pursuant to this Section 11.1,
Seller shall make available to Purchaser such accounting records and other
information as may be reasonably necessary for Purchaser to verify the accuracy
of the adjustments set forth on such statement. Within 25 days after receipt of
such statement from Seller, Purchaser shall deliver to Seller a written report
describing all changes (together with explanations there for) that Purchaser
proposes be made to such statement, it being agreed that Purchaser's failure to
deliver such report to Seller within such time period shall constitute
acceptance by Purchaser of Seller's statement. From and after the expiration of
such 25-day period, no additional changes to the statement provided by Seller
shall be considered by the parties. The parties shall then undertake to agree on
the Adjusted Purchase Price no later than 160 days after the Closing. At any
time thereafter, any adjustments remaining in dispute or not finally determined
and agreed upon may, at the request of either Seller or Purchaser, be submitted
for determination to a firm chosen by lot from the following: Ernst & Young and
Coopers & Lybrand. Such firm shall make such determination within 30 days
following such submission and such determination shall be final and binding upon
Seller and Purchaser, with the fees and expenses of such firm to be shared
equally by Seller and Purchaser. Following the final determination of the
Adjusted Purchase
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Price pursuant to this Section 11.1, Seller or Purchaser, as the case may be,
shall make the payment required pursuant to Section 2.5.
11.2 Suspended Funds. As soon as practicable after the Closing
but in no event later than 30 days after the Closing Date, Seller shall provide
to Purchaser a listing showing all proceeds from production attributable to the
Leasehold Interests which are currently held in suspense and shall transfer to
Purchaser all those suspended proceeds. Purchaser shall be responsible for all
obligations relating to such suspended funds, including the accrual of interest
(with respect to the period of time from and after the Closing Date) as may be
required by law or contract and the proper distribution of all the suspended
proceeds to the parties lawfully entitled to them. In addition, Purchaser hereby
agrees to indemnify, defend and hold harmless Seller from and against any and
all claims, liabilities, losses, costs and expenses (including, without
limitation, court costs and reasonable attorneys' fees) arising out of or
relating to Purchaser's improper distribution or handling of such suspended
proceeds.
11.3 Receipts and Credits. Subject to Section 11.4 and except to
the extent same have already been taken into account as an adjustment to the
Purchase Price, all monies, proceeds, receipts, credits and income attributable
to the Assets and to the period of time (a) subsequent to the Effective Date,
shall be the sole property and entitlement of the Purchaser and, to the extent
received by Seller shall promptly disclose, account for and transmit same to
Purchaser and (b) prior to the Effective Date, shall be the sole property and
entitlement of Seller, and, to the extent received by Purchaser, Purchaser shall
promptly disclose, account for and transmit same to Seller. Except as provided
otherwise in this Agreement and except to the extent same have already been
taken into account as an adjustment to the Purchase Price (i) all costs,
expenses, disbursements, obligations and liabilities attributable to the Assets
and to the period of time prior to the Effective Date, regardless of when due or
payable, shall be the sole obligation of Seller, and Seller shall promptly pay
same, or if paid by Purchaser, promptly reimburse Purchaser for the amount paid,
and (ii) all costs, expenses, disbursements, obligations, and liabilities
attributable to the Assets and to the period of time subsequent to the Effective
Date, regardless of when due or payable, shall be the sole obligation of the
Purchaser, and Purchaser shall promptly pay same, or if paid by Seller, promptly
reimburse Seller for the amount paid. Except as provided otherwise in this
Agreement and except to the extent same have already been taken into account as
an adjustment to the Purchase Price, all uncollected accounts receivable as of
the Closing Date attributable to the Assets after the Effective Date shall be
assigned to Purchaser, and all uncollected accounts receivable as of the Closing
Date attributable to the Assets prior to the Effective Date shall be retained by
Seller.
11.4 Assumption of Liabilities; Cross Indemnity. If the Closing
occurs, each Seller and Purchaser agree as follows:
(a) Except for the Lawsuit Liabilities, Purchaser hereby
assumes and agrees to pay, perform and discharge the following liabilities and
obligations (collectively, the "Assumed Obligations"):
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(i) all liabilities and obligations, that are
attributable to the ownership or operation of the Assets on or after the Closing
Date;
(ii) subject to the terms of Sections 11.4(c) and (d),
all liabilities and obligations to properly plug and abandon all wells and
remove all related facilities and equipment now or hereafter located on the
Leasehold Interests and clean up and restore the Leasehold Interests (including
all obligations to clean, close and abandon all pits and impoundments) in
accordance with applicable laws; and
(iii)any and all obligations to make up, deliver or pay
for oil, gas or other hydrocarbons under any gas balancing or similar
arrangements affecting the Assets in respect of amounts owed thereunder by
Seller as of the Effective Date.
(b) Subject to the terms of Article XIII, which shall
control with respect to the tax matters covered thereby, and Section 11.4(d),
which shall control with respect to the matters covered thereby, Purchaser
agrees to indemnify, defend and hold harmless Seller and its agents and
representatives (the "Seller Indemnified Parties") from and against any and all
claims, liabilities, losses, costs and expenses (including, without limitation,
court costs and reasonable attorneys' fees, but excluding any amounts reimbursed
from third party insurance) (collectively, "Losses") that are attributable to
(i) the Assumed Obligations, (ii) a breach by Purchaser of its representations,
warranties, covenants and agreements here under, (iii) any lawsuits brought or
claims made after the date hereof and claims made in lawsuits listed on Exhibit
1.1 and amendments or refilings of such lawsuits but only to the extent
Purchaser is made a party thereto and the claims raised therein relate to
periods of time subsequent to the Closing by or on behalf of any person or
entity in its capacity as the owner of either (A) a royalty interest burdening
the Oil and Gas Assets or (B) a Working Interest in a unit or well comprising a
part of the Oil and Gas Assets, to the extent such lawsuit or claim seeks
additional royalty with respect to the period from and after the Closing Date or
damages for failure to properly pay royalty and/or arises out of or relates to
the purchase, sale or transportation of oil, gas or other hydrocarbon minerals
(including the contractual relationships relating or giving rise to any such
purchase, sale or transportation) produced from the Leasehold Interests after
the Closing Date (excluding, however, any such claims to the extent same are
based on the payment of royalties on incorrect volumes), (iv) the ownership or
operation of the Assets on or after the Closing Date, in each case without
regard to the sole, partial or concurrent negligence of the Seller Indemnified
Parties, or (v) Loss resulting from or attributable to the failure of Seller,
other than by breach of Section 6.2 hereof, to obtain the consent of a third
party to the assignment or conveyance of any Asset to Purchaser;
(c) Subject to the terms of Article XIII, which shall
control with respect to the tax matters covered thereby, and the terms of
Section 11.4(d), which shall control with respect to the matters covered
thereby, Seller agrees to indemnify, defend and hold harmless Purchaser and its
agents and representatives (the "Purchaser Indemnified Parties") from and
against any and all Losses that are attributable to (i) a breach by any Seller
of its representations, warranties, covenants and agreements hereunder, (ii)
except
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to the extent assumed by Purchaser, the Lawsuit Liabilities, or (iii) the
ownership or operation of the Assets before the Closing Date (other than any
matter with respect to which Purchaser has agreed to indemnify, defend and hold
harmless Seller pursuant to clause (b) above), in each case without regard to
the sole, partial or concurrent negligence of the Purchaser Indemnified Parties;
(d) With respect to any claims made after the Closing Date
(whether brought by Purchaser, its Affiliates, third parties or governmental
entities or authorities) that involve damage to property, environmental matters
(including environmental remediation and restoration costs), injury to or death
of persons, or fines or penalties relating to the foregoing and are attributable
to the condition of the Assets on the Closing Date ("Property Condition
Claims"), Seller and Purchaser agree as follows:
(i) Seller shall indemnify, defend and hold harmless
Purchaser from and against any and all Losses arising out of any Property
Condition Claims, to the extent such Losses accrued prior to the Closing Date
and are attributable to the violation of any environmental or other laws or
regulations in effect on the Closing Date (including, as to environmental laws
and regulations in effect on the Closing Date, any such laws or regulations
that, as of the Closing Date, establish final, specific and identifiable
compliance standards that will become effective on or after the Closing Date);
and
(ii) Purchaser shall indemnify, defend and hold Sellers
harmless from and against any and all Losses arising out of any Property
Condition Claims to the extent that such Losses are not covered by the
indemnification by Seller set forth in clause (i) preceding; (by way of example,
if a release of a hazardous substance in violation of applicable law commences
prior to the Closing Date and continues thereafter, and such release results in
a Property Condition Claim, Seller would be liable for all Losses resulting from
such Property Condition Claim relating to releases occurring prior to the
Closing Date and Purchaser would be liable for all Losses relating to releases
occurring after the Closing Date);
(e) The indemnity, defense and hold harmless obligations set
forth in Sections 11.4(b), (c) and (d) above shall not apply to (i) any amount
that was taken into account as an adjustment to the Purchase Price pursuant to
the provisions here of, and (ii) either party's costs and expenses with respect
to the negotiation and consummation of this Agreement and the transactions
contemplated hereby;
(f) Upon request of Seller, Purchaser agrees to execute and
deliver specific assumption agreements with respect to the Assumed Obligations;
and
(g) The party making a claim under this Section 11.4 is
hereinafter referred to as the "Indemnified Party" and the party against whom
such claims are asserted under
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this Section 11.4 is hereinafter referred to as the "Indemnifying Party." All
claims by any Indemnified Party under this Section 11.4 shall be asserted and
resolved as follows:
(i) In the event that any claim or demand for which an
Indemnifying Party would be liable to an Indemnified Party hereunder is asserted
against or sought to be collected from such Indemnified Party by a third party,
said Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the nature of and
specific basis for such claim or demand and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim and demand) (the "Claim Notice"); provided,
however, that any failure to give such notice will not waive any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
actually prejudiced. The Indemnifying Party, upon request of the Indemnified
Party, shall retain counsel to represent the Indemnified Party and any others
the Indemnifying Party may designate in connection with such claim or demand (to
the extent they are covered by the Indemnifying Party's indemnity) and shall pay
the fees and disbursements of such counsel with regard thereto; provided,
however, that any Indemnified Party is hereby authorized prior to the date on
which it receives written notice from the Indemnifying Party designating such
counsel to retain counsel (but Indemnified Party shall promptly notify the
Indemnifying Party that the Indemnified Party has retained such counsel) whose
reasonable fees and expenses shall be at the expense of the Indemnifying Party
to file any motion, answer or other pleading and take such other action which it
shall reasonably deem necessary to protect its interests or those of the
Indemnifying Party until the date on which the Indemnified Party receives such
notice from the Indemnifying Party, whereupon the Indemnifying Party's counsel
shall be substituted for the counsel of the Indemnified Party. In the event that
an Indemnifying Party shall retain counsel as provided above, the Indemnified
Party shall have the right to retain its own counsel but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (A) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (B) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one such firm for all such Indemnified Parties. If
requested by the Indemnifying Party, the Indemnified Party agrees to cooperate
with the Indemnifying Party and its counsel in contesting any claim or demand
which the Indemnifying Party defends, or, if appropriate and related to the
claim in question, in making any counterclaim against the person asserting the
third party claim or demand, or any cross-complaint against any person. No claim
or demand may be settled by the Indemnifying Party without the consent of the
Indemnified Party, which consent
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will not be unreasonably withheld. To the extent it shall be determined that the
Indemnified Party shall not be entitled to indemnification pursuant to this
Section 11.4, then the Indemnified Party shall promptly pay to the Indemnifying
Party any amounts previously paid or advanced by the Indemnifying Party to or on
behalf of the indemnified Party with respect to such matters pursuant to this
Section 11.4. Notwithstanding the above, but without affecting any rights of
Purchaser to proceed separately against Seller under this Agreement, unless
required to do so, Purchaser shall not join any of the Sellers as a third party
defendant to any action solely by reason of Seller's indemnity of Purchaser here
under for any breach of Seller's representations hereunder.
(ii) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall as promptly as practical send a Claim Notice
with respect to such claim to the Indemnifying Party; provided, however, that
any failure to give such notice will not waive any rights of the Indemnified
Party except to the extent the rights of the Indemnifying Party are actually
prejudiced. If the claim constitutes a Property Condition Claim and is brought
by Purchaser, upon receipt of Purchaser's Claim Notice, Seller shall have the
option of either (A) assuming the responsibility of performing operations
necessary to bring the condition in compliance with applicable law ("Corrective
Operations") or (B) electing not to do so, in which event Purchaser shall
perform such operations. In either case the responsibility for such operation
shall be allocated to the parties in accordance with the terms of Section
11.4(d). Should Seller fail to respond within 20 Business Days after receipt of
Purchaser's Claim Notice, it shall be deemed to have elected not to assume such
operation. Should Seller elect to perform such Corrective Operations, it shall
promptly commence Corrective Operations and continue the same with diligence
until the necessary Corrective Operations have been completed. Should any undue
delay by Seller either in the commencement of the Corrective Operations (or in
the continuation of the Corrective Operations once commenced) cause a
deterioration or other increase in the scope of the Property Condition, any
increased costs resulting from such undue delay shall be the responsibility of
Seller.
Any party performing Corrective Operations under the
provisions of the preceding paragraph (a "Performing Party") shall provide the
other party with reasonably detailed statements concerning the costs of such
Corrective Operations and the costs thereof that it allocates to such party. The
party receiving such notice shall as promptly as possible, but in no event more
than 15 Business Days after receipt of such statement, pay the amount noted,
unless it disputes in good faith its responsibility for the amounts asserted to
be due, in which case it shall promptly provide a reasonably detailed
explanation of what portion of the invoiced amount it is contesting and the
reasons therefor, and shall make payment to the Performing Party for any
uncontested amounts.
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(iii)In the event that either party, acting in the
normal course of its business, pays any cost or expense for which it is
indemnified by the other party hereunder, the paying party shall provide proof
satisfactory to the other party of the payment of such cost or expense,
whereupon the Indemnifying Party shall reimburse the paying party for such cost
or expense, provided, however, that the Indemnifying Party shall not be
obligated to so reimburse the paying party to the extent that (A) the
Indemnifying Party in good faith disputes its liability to the third party in
question for such cost or expenses, (B) the third party in question withholds
its agreement to regard the paying party payment as a full discharge and
satisfaction of the cost or expense, or (C) the Indemnifying Party makes a
payment of such cost or expense directly to the third party in question.
11.5 Further Assurances. After Closing, Seller and Purchaser
agree to take such further actions and to execute, acknowledge and deliver such
additional documents and instruments as may be necessary or useful in carrying
out the purposes of this Agreement or of any document delivered pursuant hereto.
11.6 Termination of Contribution Agreement. Seller shall have
either (a) obtained termination agreement in a form satisfactory to Purchaser
and duly executed by all parties thereto of the Contribution Agreement dated as
of August 1, 1993 between, among others, Seller and MG Natural Gas Corporation,
or (b) from and after the Closing Date and throughout the term thereof, Seller
shall pay Purchaser the amount Purchaser would be entitled to receive and has
not received under the May 1, 1993 Gas Purchase Contract between Castle
Production Corporation and MG Natural Gas Corp., as amended, as if such
Contribution Agreement had been terminated, with all such payments to be
calculated in accordance with and pursuant to the terms and provision of such
gas purchase contract. In the case of proceeds from producing horizons in wells
that are producing as of the date hereof (proved developed producing reserves),
such proceeds shall be computed without deduction for transportation costs.
ARTICLE XII
TERMINATION
12.1 Right of Termination. This Agreement and the transactions
contemplated hereby may be terminated:
(a) At any time at or prior to Closing by mutual consent of
Seller and Purchaser;
(b) At any time at or after June 16, 1997, by Seller or
Purchaser if the Closing shall not have occurred by such date; and
(c) By Seller or Purchaser on or before 5:00 p.m. Central
Daylight Time on May 28, 1997, if the Report reveals the existence of
environmental conditions on the real property interests constituting a part of
the Oil and Gas Assets or the assets constituting the "Pipeline Assets" as
defined in Pipeline Contract that require remedial action under
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applicable environmental laws as in effect on the date of the Report which
reasonably estimated will cost in excess of $6,000,000 (utilizing the most
cost-effective method of remediation as chosen), it being agreed that prior to
the exercise by Seller of such termination right, Purchaser shall have the right
to assume liability for any portion of such remediation costs in excess of
$6,000,000, in which event any amounts so assumed by Purchaser shall not be
counted towards such $6,000,000 amount (if the Closing occurs, such remediation
expenses shall, except to the extent assumed by Purchaser, be the responsibility
of Seller, as set forth in Section 11.4 above); provided, however that no such
party may exercise any right of termination pursuant to this Section 12.1 if the
event giving rise to such termination right shall be due to the willful failure
of such party to perform or observe in any material respect any of the covenants
or agreements set forth herein to be performed or observed by such party.
12.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 12.1, this Agreement shall become void and of no further
force or effect (except for the provisions of Sections 4.4, 5.4, 7.1, 7.2, 7.3,
12.2, 16.1 through 16.9, 16.12, 16.13, and the last two sentences of Section
16.17, which shall survive such termination and continue in full force and
effect); provided, however, that, if either party is in default of its
obligations under this Agreement at the time this Agreement is so terminated,
such defaulting party shall continue to be liable to the other party for damages
(but in no event for specific performance) in respect of such default and such
liability shall not be affected by such termination (in the case of Purchaser,
such damages shall include all actual damages incurred or suffered by Purchaser
in connection with this Agreement, specifically including, without limitation,
(a) all reasonable out-of-pocket costs and expenses incurred by Purchaser for
legal, engineering, environmental, accounting and other professional services
furnished in connection with this Agreement and the transactions contemplated
hereunder and (b) all reasonable costs and expenses incurred, and damages
sustained, by Purchaser in connection with Purchaser's efforts to protect
against any pricing risk associated with the transactions contemplated
hereunder, including, without limitation, the costs of liquidating any hedged
positions maintained by Purchaser in anticipation of the consummation of the
transactions contemplated here under, but in no event shall the sum of
Purchaser's damages exceed $6,250,000). Notwithstanding anything to the contrary
contained in this Agreement, upon any valid termination of this Agreement
pursuant to Section 12.1, Seller, shall be free immediately to enjoy all rights
of ownership of the Assets, as applicable, and to sell, transfer, encumber or
otherwise dispose of the same to any party without any restriction under this
Agreement; and Purchaser shall be liable for all actual, incidental and
consequential damages (including, without limitation, lost profits) if it
attempts to interfere in any way with any such enjoyment or action by Seller.
ARTICLE XIII
TAXES
13.1 Apportionment of Ad Valorem and Property Taxes. All ad
valorem taxes, real property taxes, personal property taxes and similar
obligations (other than income taxes or franchise taxes) ("Property Taxes")
attributable to the Assets with respect to the tax period in
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which the Effective Date occurs shall be apportioned as of the Effective Date
between Seller and the Purchaser. The owner of record on the assessment date
shall file or cause to be filed all required reports and returns incident to the
Property Taxes and shall pay or cause to be paid to the taxing authorities all
Property Taxes relating to the tax period during which the Effective Date
occurs. If Seller is the owner of record on the assessment date, then Purchaser
shall pay to such party Purchaser's pro rata portion of Property Taxes within 30
days after receipt of an invoice therefor, except to the extent taken into
account as an adjustment to the Purchase Price pursuant to Section 2.3. If
Purchaser is the owner of record as of the assessment date, then Seller shall
pay to Purchaser its pro rata portion of Property Taxes within 30 days after
receipt of Purchaser's invoice therefor.
13.2 Sales Taxes. The Purchase Price provided for hereunder
excludes any sales taxes or other taxes in connection with the sale of the
Assets pursuant to this Agreement. Purchaser, however, shall be liable for any
sales and use taxes, conveyance, transfer and recording fees and real estate
transfer, stamp or similar taxes should any be determined to be due on the
transfer of the Assets pursuant to this Agreement or the consummation of any of
the other transactions contemplated hereunder. Purchaser shall indemnify and
hold Seller, harmless with respect to the payment of any such taxes, including
any interest or penalties assessed thereon.
13.3 Other Taxes. All taxes (other than income taxes or franchise
taxes) attributable to the Assets that are imposed on or with respect to the
production of oil, natural gas or other hydrocarbons or minerals or the receipt
of proceeds therefrom (including but not limited to severance, production, and
excise taxes) shall be apportioned between Seller and Purchaser based upon the
respective shares of production taken by such parties. All such taxes that
accrue with respect of the period prior to the Closing Date have been or will be
properly paid or withheld by Seller, although such taxes for the period between
the Effective Date and the Closing Date will be taken into account as an
adjustment to the Purchase Price pursuant to Section 2.3(a)(i) and all
statements, returns, and documents pertinent thereto have been or will be
properly filed. Purchaser shall be responsible for paying or withholding or
causing to be paid or withheld all such taxes that accrue after the Closing Date
and for filing all statements, returns, and documents incident thereto.
13.4 Cooperation. Each party to this Agreement shall provide the
other party with reasonable access to all relevant documents, data and other
information (other than that which is subject to an attorney-client privilege)
which may be required by the other party for the purpose of preparing tax
returns and responding to any audit by any taxing jurisdiction or the Securities
and Exchange Commission. Each party to this Agreement shall cooperate with all
reasonable requests of the other party made in connection with contesting the
imposition of taxes. Notwithstanding anything to the contrary in this Agreement,
neither party to this Agreement shall be required at any time to disclose to the
other party any tax return or other confidential tax information.
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13.5 Indemnification for Tax Obligations.
(a) Subject to the provisions of Section 13.5(b), Seller
shall indemnify Purchaser for all liabilities that are assessed against
Purchaser for foreign, federal, state, local or Indian Tribal taxes (other than
income or franchise taxes) in respect of the ownership or operation of the
Assets prior to the Effective Date, together with penalties and interest thereon
(provided such penalties and interest do not result from the negligence, late
filing, fraud or acts of misfeasance or malfeasance of the Purchaser), to the
extent such liabilities exceed the amounts of such taxes paid by Seller;
provided that Seller shall be entitled to all refunds or rebates of taxes paid
in respect of the ownership or operation of the Assets prior to the Effective
Date that may be received by Seller or Purchaser. Subject to the provisions of
Section 13.5(b), Purchaser shall indemnify Seller for all liabilities that are
assessed against Seller for foreign, federal, state, local or Indian Tribal
taxes (other than income or franchise taxes), together with penalties and
interest thereon (provided such penalties and interest do not result from the
negligence, late filing, fraud or acts of misfeasance or malfeasance of Seller),
to the extent such liabilities relate to the ownership or operation of the
Assets from and after the Effective Date; provided, however, that such indemnity
shall not apply to severance or production taxes on oil and gas production from
the Oil and Gas Assets on or after the Effective Date to the extent (but only to
the extent) such taxes are included in the determination of the Adjusted
Purchase Price, and provided further, however, that Purchaser shall be entitled
to all refunds or rebates of severance or production taxes on oil and gas
production from the Oil and Gas Assets on or after the Effective Date that may
be received by Seller or Purchaser, except to the extent (but only to the
extent) such refunds or rebates are included in the determination of the
Adjusted Purchase Price.
(b) In order for Seller or Purchaser ("Claimant") to make a
claim against the other ("Indemnitor") under this Section 13.5, Claimant shall
give prompt notice to Indemnitor of any liability for which Claimant would claim
indemnification under this Article XIII, which notice shall include the
circumstances surrounding such liability. Indemnitor shall then have the right
but not the obligation, to contest such liability at its sole cost and expense
by giving written notice to Claimant of such election within 30 days after
Indemnitor receives Claimant's notice. Should Indemnitor elect not to contest
such liability, Indemnitor shall pay the full amount due under Section 13.5(a)
in respect of such liability to Claimant in cash within 60 days after Indemnitor
receives Claimant's notice. Except as specifically provided in this Section 13.5
with respect to certain tax issues which must be combined or joined with other
tax issues, if Indemnitor elects to contest any such liability, Claimant shall
give Indemnitor full authority to defend, adjust, compromise or settle such
liability and any action, suit, or proceeding in which Indemnitor contests such
liability, in the name of Claimant or otherwise as Indemnitor shall elect. With
respect to tax issues incident to any such liability that must be combined or
joined with one or more other tax issues which Claimant desires to contest,
Claimant and Indemnitor shall cooperate fully, and control of any administrative
legal proceeding shall rest with the party having the greater ultimate liability
(including liability under Section 13.5(a) for the taxes in dispute). The party
in control may not adjust,
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compromise or settle taxes which are contested by or on behalf of the other
party without the consent of the other party, which consent shall not be
unreasonably withheld. With respect to any liability contested by Indemnitor
under the terms of this Section 13.5(b), Indemnitor shall pay the full amount
due under Section 13.5(a) in respect of such liability to Claimant in cash
within 30 days after the liability is finally determined either by settlement or
pursuant to the final unappealable judgment of a court of competent
jurisdiction.
ARTICLE XIV
DOCUMENT RETENTION
14.1 Inspection. As used in this Article XIV, "Documents" shall
mean all files, documents, books and records delivered to Purchaser by Seller
pursuant to the provisions of this Agreement, including, but not limited to:
financial and tax accounting records; land, title and division of interest
files; contracts; engineering and well files; and books and records relating to
the operation of the Assets during the Interim Period. Subject to the provisions
of Section 14.2, Purchaser agrees that the Documents shall be open for
inspection by representatives of Seller as applicable, at reasonable times and
upon reasonable notice during regular business hours for a period of 10 years
following the Closing Date (or for such longer period as may be required by law
or governmental regulation), and that Seller may during such period at its
expense make such copies thereof as it may reasonably request. Seller agrees
that such documents and materials as shall be retained by Seller as applicable,
and that are related to the Assets or the conduct of business or the operation
of the Assets, shall be open for inspection by representatives of Purchaser at
reasonable times and upon reasonable notice during regular business hours for a
period of 10 years following the Closing Date and that Purchaser may during such
period at its expense make such copies thereof as it may reasonably request.
14.2 Destruction. Without limiting the generality of the
foregoing, for a period of 10 years after the Closing Date (or for such longer
period as may be required by law or governmental regulation), Purchaser shall
not destroy or give up possession of any original or final copy of the Documents
without first offering Seller the opportunity, at such party's expense (without
any payment to Purchaser), to obtain such original or final copy or a copy
thereof. After the conclusion of such period, Purchaser shall offer to deliver
to such party, at such party's expense (without any payment to Purchaser), the
Documents prior to destroying same.
14.3 Access. Seller and Purchaser each shall use its best efforts
to afford the other access to (a) in the case of Seller employees of such entity
who remain employees of any such entity or an Affiliate following the Closing
Date but are familiar with the operations of the Assets and (b) in the case of
Purchaser, employees of Purchaser or an Affiliate which Seller shall reasonably
request for its proper corporate purposes, including without limitation, the
defense of legal proceedings. Such access may include interviews or attendance
at depositions or legal proceedings; provided, however, that in any event all
out-of-pocket expenses (including wages and salaries) reasonably incurred by any
party in connection with this Section 14.3 shall be paid or promptly reimbursed
by the party requesting such services.
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ARTICLE XV
INDEPENDENT INVESTIGATION AND DISCLAIMER
15.1 Independent Investigation and Disclaimer. Purchaser
acknowledges that (a) it has had and pursuant to this Agreement will have prior
to the Closing access to the Assets, the officers and employees of Seller, and
the books, records, and files of such entities relating to the Assets and (b) in
making the decision to enter into this Agreement and consummate the transactions
contemplated hereby, Purchaser has relied solely on the basis of its own
independent investigation of the Assets and the records related there to, and
upon the representations, warranties and covenants in this Agreement.
Accordingly, Purchaser acknowledges that, except as expressly set forth herein,
Seller has made no, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY
REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY STATUTE, OR
OTHERWISE RELATING TO (i) THE CONDITION OF THE ASSETS (INCLUDING WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, OR
ENVIRONMENTAL CONDITION), (ii) ANY INFRINGEMENT BY SELLER OF ANY PATENT OR
PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (iii) ANY INFORMATION, DATA OR OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER
(INCLUDING, WITHOUT LIMITATION, IN RESPECT OF GEOLOGICAL, GEOPHYSICAL AND
SEISMIC DATA, THE EXISTENCE OR EXTENT OF OIL, GAS OR OTHER MINERAL RESERVES, THE
RECOVERABILITY OF OR THE COST OF RECOVERING ANY SUCH RESERVES, THE VALUE OF SUCH
RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, AND THE ABILITY TO SELL OIL OR GAS
PRODUCTION AFTER CLOSING); AND PURCHASER WILL HAVE SOLE RESPONSIBILITY FOR ANY
ACTION TAKEN BY PURCHASER OR BY OTHERS RELYING ON PURCHASER'S ADVICE, BASED ON
THE GEOLOGICAL MAPS, RECORDS, LOGS AND OTHER DATA TRANSFERRED UNDER THIS
AGREEMENT, provided, however, that the foregoing disclaimer and negation of
representations and warranties shall not affect or impair the representations
and warranties of Seller set forth in Article IV hereof, the covenants of Seller
set forth in Article VI or the obligations of Seller under Section 11.4. As used
in this Section 15.1, the term "Seller" shall include the agents and
representatives of such parties.
ARTICLE XVI
MISCELLANEOUS
16.1 Governing Law. This Agreement and all instruments executed
in accordance with it shall be governed by and interpreted in accordance with
the laws of the State of Texas, without regard to any conflict of law rules that
would direct application of the laws of another jurisdiction.
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16.2 Entire Agreement. This Agreement, including all Exhibits
attached hereto and made a part hereof, constitute the entire agreement between
the parties and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the parties hereto.
16.3 Waiver. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
16.4 Captions. The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
16.5 Assignment. Neither party hereto shall assign this Agreement
or any of its rights or obligations hereunder without the prior written consent
of the other party and any assignment made without such consent shall be void;
provided, however, that Purchaser shall have the right to grant a security
interest in its rights and obligations hereunder or to assign all or any part
its rights or obligations hereunder to any Affiliate of Purchaser. Except as
otherwise provided herein, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
16.6 Notices. Any notice provided or permitted to be given under
this Agreement shall be in writing, and may be served by personal delivery or by
depositing same in the mail, addressed to the party to be notified, postage
prepaid, and registered or certified with a return receipt requested. Notice
deposited in the mail in the manner hereinabove described shall be deemed to
have been given and received on the date of the delivery as shown on the return
receipt. Notice served in any other manner shall be deemed to have been given
and received only if and when actually received by the relevant party hereto
(except that notice given by telecopier shall be deemed given and received upon
receipt only if received during normal business hours and if received other than
during normal business hours shall be deemed received as of the opening of
business on the next Business Day). For purposes of notice, the addresses of the
parties shall be as follows:
For Seller:
Mailing and Street Address:
Castle Energy Corporation
One Radnor Corporate Center, Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087
Attn:Joseph L. Castle
Telecopy No.: (610) 955-0409
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For Purchaser:
Mailing and Street Address:
Union Pacific Resources Company
801 Cherry Street
Fort Worth, Texas 76102
Attn: William M. Searcy
Telecopy No.: (817) 877-6093
Each party shall have the right, upon giving 10 days' prior notice to
the other in the manner hereinabove provided, to change its address for purposes
of notice.
16.7 DTPA Waiver. To the extent applicable to the Assets or any
portion thereof, Purchaser hereby waives the provisions of the Texas Deceptive
Trade Practices Act, Chapter 17, Subchapter E, Sections 17.41 through 17.63,
inclusive (other than Section 17555, which is not waived), Tex. Bus. & Com.
Code. In order to evidence its ability to grant such waiver, Purchaser hereby
represents and warrants to Seller that Purchaser (a) is in the business of
seeking or acquiring, by purchase or lease, goods or services for commercial or
business use, (b) has assets of $5 million or more according to its most recent
financial statement prepared in accordance with generally accepted accounting
principles, (c) has knowledge and experience in financial and business matters
that enable it to evaluate the merits and risks of the transaction contemplated
hereby, and (d) is not in a significantly disparate bargaining position.
16.8 Expenses. Except as otherwise provided herein, each party
shall be solely responsible for all expenses incurred by it in connection with
this transaction (including, without limitation, fees and expenses of its own
counsel and accountants).
16.9 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced under any rule of
law, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in a materially adverse
manner with respect to either party.
16.10 Publicity. Seller and Purchaser shall consult with each
other with regard to all publicity and other releases issued at or prior to the
Closing concerning this Agreement and the transactions contemplated hereby and,
except as required by applicable law or the applicable rules or regulations of
any governmental body or stock exchange, neither party shall issue any publicity
or other release without the prior written consent of the other party.
16.11 Use of Names. As soon as practicable after the Closing,
Purchaser shall remove or cause to be removed the names and marks used by each
Seller and all variations and derivatives thereof and logos relating thereto
from the Assets and shall not thereafter make any use whatsoever of those names,
marks and logos. In the event Purchaser has not completed such removal within 60
days after Closing, Seller shall have the right but not the obligation to cause
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such removal, and Purchaser hereby grants Seller access to the Assets for such
purpose. In addition, Purchaser shall reimburse Seller for any costs or expenses
incurred thereby by Seller.
16.12 Consequential Damages. Except as expressly provided in
Section 2.2 or the last sentence of Section 12.2, the parties waive any rights
to incidental or consequential damages resulting from a breach of this
Agreement, including, without limitation, loss of profits.
16.13 No Third Party Beneficiary. This Agreement is not intended
to create, nor shall it be construed to create, any rights in any third party
under doctrines concerning third party beneficiaries.
16.14 Survival Limitation of Liability. Except with respect to
the covenants set forth in Sections 6.1, 6.2 and 6.3, the representations,
warranties, covenants and obligations of the parties under this Agreement shall
survive the Closing; provided, however, that any claim with respect to the
breach thereof may be made only if the party claiming a breach thereof shall
have notified the breaching party (i) on or before the first anniversary of the
Closing Date in the case of Section 4.6, (ii) on or before the Closing Date in
the case if Sections 4.12, 4.14 and 4.16, (iii) on or before the 120th day
following the Closing Date in the case of Sections 4.8 and 4.13, (iv) on or
before the 180th day following the Closing Date in the case of Sections 4.7,
4.9, 4.10, 4.11, 4.15 and 4.17 and (v) at any time in the case of all other
provisions.
16.15 Counterparts; Exhibits. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All Exhibits
attached hereto are hereby made a part of this Agreement and incorporated herein
by this reference. The inclusion of an item by Sellers on an Exhibit shall not
be deemed to be an admission by Sellers that such item satisfies any materiality
or other qualifiers set forth in the Section of the Agreement to which such
Exhibit relates.
16.16 Operatorship. Notwithstanding anything herein to the
contrary, Seller does not represent or warrant to Purchaser that Purchaser will
succeed to Seller's operatorship of any unit or well constituting a part of the
Oil and Gas Assets. Purchaser acknowledges and agrees that Purchaser will be
required to comply with the terms of any applicable operating agreement, unit
operating agreement or other contract relating to any elections or selection
procedures in order to succeed Seller as operator there under. Purchaser shall
reimburse Seller for all filing and related fees payable in connection with the
filing of any change of operatorship forms executed by Purchaser. In addition,
Purchaser shall provide Seller with evidence of the acceptance of and the change
of operatorship resulting from the filing of any such forms.
16.17 Environmental Investigation and Report. On or prior to the
date hereof, Purchaser has engaged the consulting firm of Pilko & Associates
(the "Consultant") to prepare and deliver on or before May 25, 1997, an
environmental report of the Assets (the "Report"). Seller agrees to cooperate
fully with respect to the Report and the investigation to be conducted by
Consultant necessary to prepare such Report. A Seller employee shall have the
opportunity to be present during any on-site environmental investigations or
inspections conducted by the
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Consultant. Purchaser shall, except where otherwise required by applicable law,
cause all information contained in the Report or obtained as a result of the
investigation conducted by the Consultant to be maintained in confidence, used
only for internal purposes and not disclosed to any third party without prior
written consent of the other.
16.18 Recordable Assignment. Sellers and Purchaser acknowledge
and agree that in the event of any conflict or inconsistency between the terms
and provisions of this Agreement and the terms and provisions of the Assignment,
Assumption and Bill of Sale executed and delivered at Closing by Seller and
Purchaser (or Purchaser's assignee) covering the Oil and Gas Assets, the terms
and provisions of this Agreement shall control.
16.19 Casualty and Condemnation. If after the Effective Time and
prior to the Closing any part of the Assets shall be destroyed by fire or other
casualty or if any part of the Assets shall be taken in condemnation or under
the right of eminent domain or if proceedings such purposes shall be pending or
threatened, this Agreement shall remain in full force and effect notwithstanding
any such destruction, taking or proceeding or the threat thereof, except as
provided in this Section 16.19. Purchaser or Seller shall have the right to
elect to terminate this Agreement on or before the Closing Date if the value of
all Assets affected by any one or more casualties, takings or proceedings or
threats thereof exceeds 30% of the Purchase Price, in the aggregate. For
purposes of this section 16.19, the value of the Assets affected by such matters
shall be the portion of the Purchase Price which would be attributable to such
Assets pursuant to Section 6.8 hereof if such Assets were subject to
preferential purchase rights. After the date of this Agreement, without
Purchaser's prior written consent, no insurance proceeds, condemnation awards or
other payments will be committed, used or applied by Seller to repair, restore
or replace a damaged or taken Asset if the cost to repair, restore or replace
any such damaged or taken Asset is projected to exceed $50,000.00. To the extent
the same are not used or applied by Seller prior to the Closing Date in
accordance with this Section 16.19, Seller shall at the Closing pay to Purchaser
all sums paid to Seller by reason of such destruction or taking. In addition,
Seller shall assign, transfer and set over unto Purchaser at Closing, all of the
right, title and interest of Seller in and to any unpaid insurance proceeds,
condemnation awards or other payments arising out of such destruction or taking
and shall cooperate with Buyer in its efforts to collect same.
The next page is page number: 40
34
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first set forth above.
CASTLE
CASTLE ENERGY CORPORATION
By:
--------------------------------------
Joseph L. Castle II
President
CASTLE TEXAS PRODUCTION
LIMITED PARTNERSHIP
By: Castle Production Company, General Partner
By:
--------------------------------------
Richard E. Staedtler
Vice-President
CASTLE EXPLORATION INC.
By:
--------------------------------------
Richard E. Staedtler
Vice-President
PURCHASER
UNION PACIFIC RESOURCES COMPANY
By:
--------------------------------------
<PAGE>
Exhibit 4.13
------------
Missing Licenses and Permits
----------------------------
None.
<PAGE>
Exhibit 4.9
-----------
Basic Documents
---------------
Gas Contract, dated May 1, 1993 between the Production Company
and MG Natural Gas Corp., as amended August 1, 1993, August 31, 1993 and
September 30, 1993.
<PAGE>
PURCHASE AND SALE AGREEMENT
by and among
CASTLE ENERGY CORPORATION, and
CASTLE TEXAS PIPELINE LIMITED PARTNERSHIP
and
UNION PACIFIC INTRASTATE PIPELINE COMPANY
<PAGE>
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS..................................................... 1
1.1 Defined Terms...................................................... 1
ARTICLE II CLOSING DATE TRANSACTIONS; PURCHASE PRICE...................... 4
2.1 Sale of Assets..................................................... 4
2.2 Purchase Price..................................................... 5
2.3 Adjustments to Purchase Price...................................... 5
2.4 Payment and Calculation of Estimated Adjusted Purchase Price....... 6
2.5 Post Closing Adjustment............................................ 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER...................... 6
3.1 Existence.......................................................... 6
3.2 Power.............................................................. 6
3.3 Authorization...................................................... 6
3.4 Brokers............................................................ 7
3.5 Foreign Person..................................................... 7
3.6 Title to Certain Assets............................................ 7
3.7 Basic Document..................................................... 7
3.8 Commitment to Make Expenditures.................................... 8
3.9 Contracts.......................................................... 8
3.10 Litigation........................................................ 8
3.11 Licenses and Permits.............................................. 8
3.12 Tax Partnerships.................................................. 8
3.13 Compliance with Laws.............................................. 8
3.14 Preferential Rights............................................... 9
3.15................................................................... 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.................... 9
4.1 Existence.......................................................... 9
4.2 Power.............................................................. 9
4.3 Authorization...................................................... 9
4.4 Brokers............................................................ 9
ARTICLE V PRE-CLOSING OBLIGATIONS OF SELLER............................... 10
5.1 Operations......................................................... 10
5.2 Permissions........................................................ 10
5.3 No Shop............................................................ 10
5.4 Expenditures....................................................... 10
5.5 Transfer of Assets................................................. 11
5.6 Payment of Bills................................................... 11
5.7 Access to Records and Assets....................................... 11
ii
<PAGE>
ARTICLE VI PRE-CLOSING OBLIGATIONS OF PURCHASER........................... 11
6.1 Confidentially..................................................... 11
6.2 Return of Data..................................................... 11
6.3 Indemnity Regarding Access......................................... 12
6.4 Transition Agreement Election...................................... 12
ARTICLE VII SELLER'S CONDITIONS OF CLOSING................................ 12
7.1 Representations and Warranties..................................... 12
7.2 Performance........................................................ 12
7.3 Officer's Certificate.............................................. 13
7.4 Pending Matters.................................................... 13
7.5 Bonds.............................................................. 13
7.6 Certain Events..................................................... 13
7.7 Opinion of Counsel................................................. 13
7.8 Consents..................................Error! Bookmark not defined.
7.9 Production Contract................................................ 13
7.10 Contract Amendment................................................ 13
ARTICLE VIII PURCHASER'S CONDITIONS OF CLOSING............................ 14
8.1 Representations and Warranties..................................... 14
8.2 Performance........................................................ 14
8.3 Attorney-in-Fact Certificate....................................... 14
8.4 Pending Matters.................................................... 15
8.5 Certain Events..................................................... 15
8.6 Opinion of Counsel................................................. 15
8.7 Production Agreement............................................... 15
8.8 Liens.............................................................. 15
ARTICLE IX CLOSING........................................................ 15
9.1 Time and Place of Closing.......................................... 15
9.2 Closing Obligations................................................ 15
ARTICLE X POST-CLOSING OBLIGATIONS........................................ 16
10.1 Calculation of Adjusted Purchase Price............................ 16
10.2 Receipts and Credits.............................................. 17
10.3 Assumption of Liabilities; Cross Indemnity........................ 17
10.4 Further Assurances................................................ 21
ARTICLE XI. TERMINATION................................................... 21
11.1 Right of Termination.............................................. 21
11.2 Effect of Termination............................................. 22
ARTICLE XII TAXES......................................................... 23
12.1 Apportionment of Ad Valorem and Property Taxes.................... 23
12.2 Sales Taxes....................................................... 23
12.3 Cooperation....................................................... 23
12.4 Indemnification for Tax Obligations............................... 24
iii
<PAGE>
ARTICLE XIII DOCUMENT RETENTION........................................... 25
13.1 Inspection........................................................ 25
13.2 Destruction....................................................... 25
13.3 Access............................................................ 25
ARTICLE XIV INDEPENDENT INVESTIGATION AND DISCLAIMER...................... 25
14.1 Independent Investigation and Disclaimer.......................... 26
ARTICLE XV. MISCELLANEOUS................................................. 26
15.1 Governing Law..................................................... 26
15.2 Entire Agreement.................................................. 26
15.3 Waiver............................................................ 26
15.4 Captions.......................................................... 27
15.5 Assignment........................................................ 27
15.6 Notices........................................................... 27
15.7 DTPA Waiver....................................................... 28
15.8 Expenses.......................................................... 28
15.9 Severability...................................................... 28
15.10 Publicity........................................................ 28
15.11 Use of Names..................................................... 28
15.12 Consequential Damages............................................ 28
15.13 No Third Party Beneficiary....................................... 29
15.14 Survival Limitation of Liability................................. 29
15.15 Counterparts; Exhibits........................................... 29
15.16 Environmental Investigation and Report........................... 29
15.17 Recordable Assignment............................................ 29
15.18 Casualty and Condemnation........................................ 29
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is made and entered into
this 16th day of May, 1997, by and among CASTLE ENERGY CORPORATION, a Delaware
corporation ("CASTLE"), and CASTLE TEXAS PIPELINE LIMITED PARTNERSHIP, a Texas
limited partnership ("Pipeline"), referred to herein as ("Seller") and UNION
PACIFIC INTRASTATE PIPELINE COMPANY, a Delaware corporation ("Purchaser").
RECITALS
Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, certain pipeline properties and other assets on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The following terms (which shall include both the
singular and plural of each term) shall have the following meanings when used in
this Agreement:
"Adjusted Purchase Price" shall have the meaning given that term in
Section 2.3.
"Affiliate" shall mean, with respect to any person or entity, any
other person or entity that directly or indirectly controls, is controlled by or
is under common control with, the person or entity in question. As used herein,
the term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person or
entity, whether through ownership of voting securities, by contract or
otherwise.
"Assets" shall mean the Pipeline Assets, Motor Vehicles, Real Estate
and Inventory and the Transportation Agreements.
"Assumed Obligations" shall have the meaning given that term in
Section 10.3(a), and shall include, but not be limited to, the agreements listed
on Exhibit 1.1(j).
"Basic Documents" shall have the meaning given that term in Section
3.7(a).
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in New York, New York, or Dallas, Texas, are required
or authorized by law to be closed.
"Claim Notice" shall have the meaning given that term in Section
10.3(g).
<PAGE>
"Claimant" shall have the meaning given that term in Section 12.4(b).
"Closing" shall have the meaning given that term in Section 9.1.
"Closing Date" shall have the meaning given that term in Section 9.1.
"Code" shall mean the Internal Revenue Code as amended.
"Corrective Operations" shall have the meaning given that term in
Section 10.3(g)(ii).
"Documents" shall have the meaning given that term in Section 13.1.
"Effective Date" shall have the meaning given that term in Section
2.1(a).
"Indemnified Party" shall have the meaning given that term in Section
10.3(g).
"Indemnifying Party" shall have the meaning given that term in
Section 10.3(g).
"Indemnitor" shall have the meaning given that term in Section
12.4(b).
"Knowledge" shall mean the knowledge of an individual who is an
employee of a Seller or any Affiliate of a Seller and who has supervisory
responsibility over the matter in question.
"Lawsuit Liabilities" shall mean all claims, liabilities, losses,
costs and expenses (including, without limitation, court costs and reasonable
attorneys' fees) that are attributable to the lawsuits listed on Exhibit 1.1, as
the same may be amended or refiled (except to the extent any claims raised in
such amendments or refilings relate to periods of time subsequent to the
Effective Date and are covered by Purchaser's indemnity of Sellers pursuant to
Sections 10.3(b)(iii) or (d).
"Losses" shall have the meaning given that term in Section 10.3(b).
"Motor Vehicles, Real Estate and Inventory" shall mean the assets
described in Exhibit B.
"Performing Party" shall have the meaning given that term in Section
10.4(g)(ii).
"Pipeline Assets" shall mean all of Seller's right, title and interest in and to
the assets and interests comprising a part of or utilized in connection with
Pipeline's intrastate pipeline system located in Rusk County, Texas, including,
without limitation, the following:
2
<PAGE>
(a) real property, whether owned of record or beneficially,
and the improvements, buildings and fixtures located thereon,
including, without limitation, those that are described on
Exhibit A;
(b) easements, rights-of-way, licenses and permits, whether
owned of record or beneficially, and all prescriptive rights,
titles, interests and claims, together with the improvements,
buildings and fixtures located thereon, including, without
limitation, those that are described on Exhibit A;
(c) leases of real property, whether owned of record or
beneficially, and the improvements, buildings and fixtures
located there on, including, without limitation, those that
are described on Exhibit A;
(d) pipelines, storage, compressor and other facilities,
whether above or below ground, and all appurtenances thereto,
including, without limitation, compressor stations, metering
stations, valves, cathodic protection systems, improvements,
buildings and fixtures;
(e) certificates of authority, licenses and permits to
construct, own, maintain, operate and remove pipeline
facilities within the boundaries of various federal, state,
municipal and local governmental and quasi-governmental
jurisdictions;
(f) licenses, permits, authorizations, registrations and
exemptions relating to the handling, treatment, disposal and
discharge of pollutants, contaminants and other
environmentally sensitive materials and substances;
(g) computer hardware and software, including all leases and
licenses thereof;
(h) radios and other communication equipment;
(i) governmental permits, licenses, franchises, registrations
and similar rights;
(j) contracts, contract rights, agreements and other
instruments including, without limitation, the agreements
listed on Exhibits 1.1(j);
(k) materials, supplies and parts and personal property used
or useful in connection with the assets described as a part
of this defined term; and
(l) books of account, customer lists, files, papers, records
and computer data bases, together with related file layouts,
and any other relevant files, documents and records relating
to any and all of the properties described in clauses (a)-(k)
above.
3
<PAGE>
"Production Contract" shall mean the contract dated of even date
herewith between Castle Energy Corporation and Castle Texas Production
Limited Partnership, as seller and Union Pacific Resources Company, as
buyer.
"Property Taxes" shall have the meaning given that term in Section
12.1.
"Property Condition Claims" shall have the meaning given that term in
Section 10.3(d).
"Purchase Price" shall have the meaning given that term in Section 2.2.
"Purchaser Indemnified Parties" shall have the meaning given that term
in Section 10.3(c).
"Seller Indemnified Parties" shall have the meaning given that term in
Section 10.3(b).
"Report" shall have the meaning given that term in Section 15.16.
"Transition Agreement" shall have the meaning given that term in
Section 9.2(h).
"Transportation Agreements" shall mean all right, title and interest of
Seller in and to any transportation agreements including those listed
on Exhibit 3.9 to which Seller is a party as of the Closing Date,
together with copies of all relevant files, documents and records
relating thereto (other than any of such files, documents and records
that Sellers are unable to disclose to Purchaser without waiver of an
attorney-client privilege that any Seller deems significant to its
legal position or due to a third party restriction on assignment or
disclosure with respect to which Production is unable, after reasonable
efforts (which shall not include the payment of any funds or other
consideration) to secure a waiver).
ARTICLE II
CLOSING DATE TRANSACTIONS; PURCHASE PRICE
2.1 Sale of Assets.
(a) On the Closing Date, but effective as of 7:00 a.m. Central
Time on May 1, 1997, (the "Effective Date") and subject to the terms
and conditions of this Agreement, Seller agrees to sell and convey, or
cause to be sold and conveyed, to Purchaser, and Purchaser agrees to
purchase and pay for, the Assets.
(b) All amounts required to be paid by any party hereto to
another party hereto shall be made by wire transfer of immediately
available funds to an account designated by the payee thereof, which
designation shall be made not later than two Business Days prior to the
Closing Date.
2.2 Purchase Price. The purchase price for the Assets shall be One
Million Two Hundred Eight Thousand and no/100 Dollars $1,208,000 (the "Purchase
Price"), which amount
4
<PAGE>
shall be adjusted as provided in Section 2.3. As added consideration for the
sale of the Assets, the parties agree that Castle has prepaid for transportation
services to be provided by Purchaser to CEC Gas Marketing Limited Partnership as
set forth in the Amendment to Gas Transportation Agreement in Exhibit C hereto.
2.3 Adjustments to Purchase Price. The Purchase Price shall be adjusted
as follows (the resulting amount being herein referred to as the "Adjusted
Purchase Price"):
(a) The Purchase Price shall be increased by an amount equal
to the sum of the following amounts (determined without duplication and
on an accrual basis in accordance with generally accepted accounting
principles consistently applied):
(i) the amount of all expenses accrued by Seller,
(other than amounts covered by clause (ii) following and
expenses incurred in violation of the $5,000 limitation
contained in Section 5.4) that are attributable to the Assets
and to the period of time between the Effective Date and the
Closing Date, including without limitation, pipeline operating
expenses, capital expenditures, ad valorem, property and
similar taxes and assessments, sales taxes, gross receipts
taxes (but excluding income taxes and franchise taxes),
rentals and similar charges, amounts billed under applicable
operating agreements and prepaid expenses; and
(ii) to the extent paid by Seller, the amounts
incurred by Seller under the assumed contracts listed on
Exhibit 1.1(j).
(b) The Purchase Price shall be decreased by an amount equal
to the sum of the following amounts (determined without duplication and
on an accrual basis in accordance with generally accepted accounting
principles consistently applied):
(i) $14,693.70 (representing 6,973 mcf @ $2.10), in
respect of amounts owed as of March 31, 1997 by Seller to any
other party under gas balancing or similar written
arrangements affecting the Assets as the result of Seller
receiving more gas than it has redelivered as of March 31,
1997, which such amount to be deducted from the Purchase Price
at the Closing but further adjusted through the Closing Date
in accordance with the procedures set forth in Section 10.1
using the same methodology that was used to calculate the
amount as of March 31, 1997; and
(ii) the amount of proceeds earned by Seller that are
attributable from the ownership and operation of the Assets
after the Effective Date and to the period of time between the
Effective Date and Closing except to the extent such proceeds
represent the amortization of prepaid transportation expenses
pursuant to the Transportation Agreement between CEC Gas
Marketing, L.P. and Purchaser.
2.4 Payment and Calculation of Estimated Adjusted Purchase Price.
Seller shall prepare and deliver to Purchaser, at least five Business Days prior
to the Closing Date, Seller's estimate of the Adjusted Purchase Price to be paid
at Closing, together with a statement setting
5
<PAGE>
forth Seller's estimate of the amount of each adjustment to the Purchase Price
to be made pursuant to Section 2.3. The parties shall negotiate in good faith
and attempt to agree on such estimated adjustments prior to Closing. In the
event any estimated adjustment amounts are not agreed upon prior to Closing, the
Adjusted Purchase Price (calculated based on Seller's and Purchaser's agreed
upon estimated adjustments and Seller's estimation of any such disputed amounts)
shall be paid at Closing, subject to further post-Closing adjustment in
accordance with Section 10.1.
2.5 Post Closing Adjustment. Within five Business Days after the final
determination of the Adjusted Purchase Price in accordance with Section 10.1 or
otherwise, Purchaser shall pay to Seller or Seller shall pay to Purchaser the
amount by which such final Adjusted Purchase Price is greater than or less than,
respectively, the estimated Adjusted Purchase Price calculated pursuant to
Section 2.4.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that:
3.1 Existence. Castle is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is duly
qualified to carry on its business in the State of Texas. Pipeline is a Texas
limited partnership and is duly qualified to carry on its business in the State
of Texas.
3.2 Power. Castle and Pipeline have the corporate power and partnership
power, respectively, and authority to enter into and perform this Agreement and
the transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each Seller, and the consummation by each such party of the
transactions contemplated hereby, will not violate (a) any provision of the
certificate of incorporation or bylaws of such party or partnership agreement,
as the case may be, (b) except as set forth on Exhibit 3.2, any material
agreement or instrument to which such party is a party or by which such party or
any of the Assets are bound, (c) any judgment, order, ruling, or decree
applicable to such party as a party in interest, or (d) any law, rule or
regulation applicable to such party.
3.3 Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate and partnership action on the part of
Castle and Pipeline, respectively. This Agreement has been duly executed and
delivered on behalf of each Seller, and at the Closing all documents and
instruments required hereunder to be executed and delivered by each Seller,
shall have been duly executed and delivered. This Agreement does, and such
documents and instruments shall, constitute legal, valid and binding obligations
of each Seller, enforceable in accordance with their terms, subject, however, to
the effect of bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect relating to the rights and remedies of
creditors, as well as to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
6
<PAGE>
3.4 Brokers. Seller has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Agreement that will be the responsibility of Purchaser; and
any such obligation or liability that might exist shall be the sole obligation
of Seller.
3.5 Foreign Person. Seller is not a "foreign person" within the meaning
of the Code, Sections 1445 and 7701 (i.e. Seller is not a non-resident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate as
those terms are defined in the Code and any regulations promulgated thereunder).
3.6 Title to Certain Assets. Seller does not warrant title to the real
property interests comprising a part of the Pipeline Assets (including
easements, rights-of-way and similar interests).
3.7 Basic Document.
(a) To the knowledge of each Seller, the assumed contracts
listed on Exhibit 1.1(j), and the material contracts and agreements
comprising a part of the Assets other than any agreements pursuant to
which any Seller derives its rights with respect to any real property
comprising a part of the Pipeline Assets (such assumed contracts listed
on Exhibit 1.1(j), and such material contracts and agreements being
herein called the "Basic Documents"), are in full force and effect and
constitute valid and binding obligations of the parties thereto,
subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect
relating to the rights and remedies of creditors, as well as to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); all contracts and
agreements which are Basic Documents are disclosed on Exhibit A or 3.9
and Seller has not transferred, assigned, conveyed or encumbered its
interest therein.
(b) No Seller is in breach or default of its obligations under
the Basic Documents, and to each Seller's knowledge no breach or
default by any third party exists, in either case to the extent such
breach or default, whether by a Seller or a third party, could
materially and adversely affect, after the Effective Date, the
ownership, operation, value or use of any Asset by the Purchaser.
(c) Seller has, pursuant to the terms of the Basic Documents,
and any agreements pursuant to which any Seller derives its rights with
respect to any real property comprising a part of the Pipeline Assets,
all rights material to the ownership or operation of the Assets in the
manner in which the same are presently being owned or operated.
(d) The rights of Seller in and to the easements,
rights-of-way and similar interests comprising a part of the Pipeline
Assets are assignable to Purchaser upon the consummation of the
transactions contemplated hereunder free of any prohibitions on
transfer or required consents to assignment that are not reasonably
capable of being
7
<PAGE>
obtained by a Seller (without the payment of any funds or other
compensation in connection therewith).
3.8 Commitment to Make Expenditures. Since the Effective Date, except
as permitted by Section 5.4, Sellers have incurred no expenses, and have made no
commitments to make expenditures in connection with the ownership or operation
of the Assets after the Effective Date, other than routine expenses incurred in
the normal operation of the Assets. No proposals are currently outstanding to
conduct any other operations other than normal operation of the Assets, or to
remove or abandon any portion of the Pipeline Assets.
3.9 Contracts. All Transportations Agreements and all other agreements
or arrangements for the purchase, sale or transportation of hydrocarbons
relating to the Assets or pipeline services are referenced in Exhibit 3.9,
Exhibit 1.1(j) or Exhibit A hereto, other than agreements or arrangements which
are cancelable on 60 days' notice or less without penalty or detriment.
3.10 Litigation. Except as set forth on Exhibit 1.1, there are no
judicial or administrative suits, actions, investigations, inquiries or
proceedings with respect to which a Seller has received service of process, or
that have been threatened and, if adversely determined, would materially and
adversely affect the ownership or operation of the Assets, that affect the
Assets or the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
3.11 Licenses and Permits. Except as set forth on Exhibit 3.13, Sellers
have all governmental licenses and permits material to the ownership or
operation of the Assets as presently being owned and operated and, to the
knowledge of each Seller, such licenses, permits and filings are in full force
and effect. As of the Effective Date, there were no uncured violations in
respect of such licenses or permits with respect to which Sellers received
written notice prior to the Effective Date and since the Effective Date, Sellers
have not received written notice of any violations in respect of any such
licenses or permits.
3.12 Tax Partnerships. Seller has no knowledge of the existence of any
tax partnership agreements affecting or governing the Assets. Seller is not
filing any tax partnership returns with respect to the Assets and has not
received any notices of delinquency from the Internal Revenue Service in
connection with any federal returns of partnership income for the Assets.
3.13 Compliance with Laws. The ownership and operation of those Assets
operated by each Seller and, to the best of such Seller's knowledge, the
ownership and operation of Assets not operated by such Seller, to the extent
that non-conformance could materially and adversely affect the ownership,
operation, value or use thereof after the Effective Date, has been in
conformity, in all material respects, with all applicable laws, and all
applicable rules, regulations and orders of all governmental agencies having
jurisdiction, relating to the Assets. In addition, as to Assets operated by each
Seller, to such Seller's knowledge the pipeline comprising a part of the
Pipeline Assets has been constructed within the boundaries of the applicable
leases, easements, servitude or within limits otherwise permitted by applicable
law or a valid and enforceable pooling, unit or other agreement or contract.
8
<PAGE>
3.14 Preferential Rights. There are no preferential purchase rights
held by others with respect to the Assets.
3.15 Except as disclosed in Section 2.3(b)(i) there are no pipeline
imbalances.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
4.1 Existence. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and is
duly qualified to carry on its business in the State of Texas and in any other
jurisdiction where the nature of its operations or properties requires it to be
so qualified.
4.2 Power. Purchaser has the corporate power and authority to enter
into and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Purchaser, and the
transactions contemplated hereby, will not violate (a) any provision of the
certificate of incorporation or bylaws of the Purchaser, (b) any material
agreement or instrument to which Purchaser is a party or by which Purchaser is
bound, (c) any judgment, order, ruling, or decree applicable to Purchaser as a
party in interest, or (d) any law, rule or regulation applicable to Purchaser.
4.3 Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Purchaser. This
Agreement has been duly executed and delivered on behalf of Purchaser, and at
the Closing all documents and instruments required here under to be executed and
delivered by Purchaser shall have been duly executed and delivered. This
Agreement does, and such documents and instruments shall, constitute legal,
valid and binding obligations of Purchaser enforceable in accordance with their
terms, subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect relating
to the rights and remedies of creditors, as well as to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
4.4 Brokers. Purchaser has incurred no obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Agreement that will be the responsibility of Seller; and
any such obligation or liability that might exist shall be the sole obligation
of Purchaser.
9
<PAGE>
ARTICLE V
PRE-CLOSING OBLIGATIONS OF SELLER
5.1 Operations. From the date of execution of this Agreement until
Closing (the "Interim Period"), except as otherwise approved by Purchaser,
Seller shall cause the Pipeline Assets to be operated as a reasonably prudent
operator would operate the same and shall cause the Transportation Agreements
and other Assumed Obligations to be performed in accordance with past practices,
and in each case, in conformity (in all material respects) with all applicable
laws, and all applicable rules, regulations and orders of all governmental
agencies having jurisdiction, and in conformity in all material respects with
all Basic Documents.
5.2 Permissions. During the Interim Period, Seller will use reasonable
efforts to obtain all permissions, approvals, and consents of federal, state and
local governmental authorities and others as may be required to consummate the
transactions contemplated here under (excluding governmental permissions,
approvals and consents which are customarily obtained after the consummation of
transactions of the type contemplated hereunder).
5.3 No Shop. From April 23, 1997, until Closing, Seller, shall not,
directly or indirectly, initiate discussions with, or otherwise solicit from,
any person or entity any proposals or offers relating to, or deliver information
to any person or entity for purposes of evaluating, one or more transactions of
the type contemplated hereunder involving the Assets, except as may be
contemplated by this Agreement or required by applicable law.
5.4 Expenditures. Each Seller will not expend any funds, or make any
commitments to expend funds (including, without limitation, entering into new
agreements which would obligate Seller to expend funds), or otherwise
voluntarily incur any other obligations or liabilities, in connection with the
ownership or operation of the Assets after the date hereof, other than those
required by the contracts constituting the Assumed Obligations, by law or
governmental order or regulation, in connection with an emergency or as a part
of routine expenses incurred or commitments made in the normal operation of the
Assets (it being agreed that expenditures or commitments with respect to a
particular operation or matter of less than $5,000, and expenditures or
commitments with respect to a particular operation or matter in excess of $5,000
to which Purchaser has consented, shall be deemed to have been made as a part of
routine expenses in the normal operation of the Assets). Except as required by
law or governmental order or regulation or in connection with an emergency, each
Seller will not, without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld, propose the conducting of any other
operations which require consent under the applicable operating agreement, or
propose the conducting of any other operations other than the normal operation
of the existing properties comprising the Assets, or propose the removal or
abandonment of any portion of the Pipeline Assets; each Seller will advise
Purchaser of any such proposals made by third parties (and will respond to each
such proposal made by a third party in the manner requested by Purchaser).
5.5 Transfer of Assets. During the Interim Period, each Seller will not
sell, mortgage, encumber, transfer or abandon any portion of the Assets other
than in the ordinary course of business consistent with past practices. Except
in connection with the curing of any title defects, each Seller will not,
without Purchaser's consent, voluntarily release, or modify or reduce its
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rights under any easement, servitude or rights-of-way comprising a part of the
Pipeline Assets, or any other Basic Document, or enter into any new agreements
which would be Basic Documents.
5.6 Payment of Bills. Each Seller will cause all undisputed expenses
(including, without limitation, all bills for labor, materials and supplies used
or furnished for use in connection with the Assets and all taxes) and
liabilities relating to the ownership or operation of the Assets prior to the
date of Closing to be promptly paid and discharged.
5.7 Access to Records and Assets. Prior to the Closing Date, each
Seller shall grant the Purchaser access during Seller's normal business hours,
upon reasonable notice, to the Assets and to all records relating to the Assets
except those records that Seller is unable to make available to the Purchaser
without waiver of an attorney-client privilege that Seller deems significant to
its legal position or due to a third party restriction on disclosure with
respect to which Seller is unable, after reasonable efforts (which shall not
include the payment of funds or other consideration), to secure a waiver. Such
Assets and records will be made available at their present locations. Prior to
the Closing Date, Seller agrees to cooperate with Purchaser should Purchaser
desire to contact individuals presently employed by Sellers in connection with
the Assets for possible employment by Purchaser after the Closing.
ARTICLE VI
PRE-CLOSING OBLIGATIONS OF PURCHASER
6.1 Confidentially. Except with respect to any disclosure that may be
required by applicable law or by the applicable rules or regulations of any
governmental body or stock exchange, Purchaser shall cause (a) any information
relating to the terms of the transactions contemplated hereunder, and (b) the
information and data furnished or made available by Seller to Purchaser and its
officers, employees, and representatives in connection with this Agreement or
Purchaser's investigation of the Assets, to be maintained in confidence and not
to be used or disclosed for any purpose other than in connection with this
Agreement or Purchaser's investigation of the Assets; provided, however, that
solely with respect to information of the type described in clauses (a) and (b)
preceding, the foregoing obligation shall terminate on the earlier to occur of
(i) the Closing, (ii) such time as the information or data in question is
disclosed to Purchaser by a third party that is not obligated to Seller to
maintain same in confidence, or (iii) such time as the information or data in
question becomes generally available to the oil and gas industry other than
through the breach of the foregoing obligation.
6.2 Return of Data. Purchaser agrees that if this Agreement is
terminated for any reason whatsoever, Purchaser shall, at Seller's request,
promptly return to Seller all information and data furnished by or on behalf of
Sellers to Purchaser, its officers, employees and representatives in connection
with this Agreement or Purchaser's investigation of the Assets, and Purchaser
agrees not to retain any copies of any such information or data (except to the
extent Purchaser reasonably believes that the retention of copies of any such
information or data may be relevant to the resolution of any then existing
disputes between Purchaser and Seller regarding the rights of such parties under
this Agreement).
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6.3 Indemnity Regarding Access. Purchaser agrees to protect, indemnify,
defend and hold harmless the Seller Indemnified Parties from and against any and
all claim, liabilities, losses, costs and expenses (including, without
limitation, court costs and reasonable attorneys' fees) in connection with
personal injuries, including death or property damage arising out of or relating
to the access granted to Purchaser, its officers, employees, and representatives
to the Assets and to any records and other information relating thereto as
permitted under this Agreement, regardless of whether such injuries, death or
damages are caused in whole or part by the sole, partial or concurrent
negligence of the Seller Indemnified Parties. It is the expressed intention of
parties hereto that the indemnity provided for by this Section 6.3 constitutes
an agreement by Purchaser to indemnify and protect the Seller Indemnified
Parties from the consequences of their own negligence, regardless of whether
that negligence is the sole or a concurring cause of the injury, death or
damage. Purchaser further agrees that access to certain of the Assets shall be
conditioned upon Purchaser, its agents, employees, representatives or
contractors executing appropriate request for access forms as may be required by
Seller.
6.4 Transition Agreement Election. Purchaser shall give Seller notice
no later than three Business Days prior to the Closing Date that it will not
enter into the Transition Agreement if Purchaser elects to terminate the
transition agreement attached as an exhibit to the Production Contract.
Purchaser may elect not to enter into the Transition Agreement provided it
notifies Seller of such election no later than three Business Days prior to the
Closing Date.
ARTICLE VII
SELLER'S CONDITIONS OF CLOSING
Each Seller's obligation to consummate the transactions provided for
herein is subject to the satisfaction or waiver on or before the Closing Date of
the following conditions:
7.1 Representations and Warranties. The representations and warranties
of Purchaser contained in Article V shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, for the purposes of this Section 7.1, in determining whether this
condition has been satisfied, any representation and warranty of Purchaser
contained in this Agreement which is qualified by (i) materiality shall be read
and interpreted as if such qualification was not included therein (it being the
intent of the parties not to apply a double materiality threshold), and (ii)
knowledge shall be read and interpreted as if such qualification was not
included therein.
7.2 Performance. Purchaser shall have performed in all material
respects the obligations, covenants and agreements required hereunder to be
performed by it at or prior to the Closing Date.
7.3 Officer's Certificate. Purchaser shall have delivered to Seller a
certificate of a corporate officer, dated the Closing Date, certifying on behalf
of Purchaser that the conditions set forth in Sections 7.1 and 7.2 have been
fulfilled.
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7.4 Pending Matters. No suit, action or other proceeding by a third
party or a governmental authority shall be pending or threatened which seeks
substantial damages from Seller in connection with, or seeks to restrain, enjoin
or otherwise prohibit the consummation of the transactions contemplated by this
Agreement.
7.5 Bonds. To the extent same are required by applicable law, Purchaser
shall have delivered to Seller either: (a) copies of any bonds, in form and
substance and issued by a corporate surety satisfactory to the applicable
governmental authorities, covering any Pipeline Assets; or (b) a commitment by a
surety company, satisfactory to the applicable governmental authorities, to
issue such bonds upon Closing.
7.6 Certain Events. There shall not have occurred an explosion, fire,
blowout, earthquake or adverse geophysical event that has materially and
adversely affected the operation or value of the Pipeline Assets.
7.7 Opinion of Counsel. Seller shall have received the opinion Kerry R.
Brittain, Assistant General Counsel for the Purchaser, as to the matters covered
by Sections 4.1, 4.2 and 4.3, subject to normal and customary qualifications and
exceptions.
7.8 Production Contract. The transactions contemplated by the
Production Contract shall be consummated concurrent with the transactions
contemplated by this Agreement.
7.9 Contract Amendment. Purchaser and Castle Gas Marketing Limited
Partnership shall execute an amendment to that certain Gas Transportation
Agreement between B & A Marketing Company as Shipper and Tabasco Gas Pipeline
Company as Transporter dated July 1, 1992, in the form of Exhibit C hereto.
ARTICLE VIII
PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transactions provided for
herein is subject to the satisfaction or waiver on or before the Closing Date by
Purchaser of the following conditions:
8.1 Representations and Warranties. The representations and warranties
of Seller contained in Article IV shall be true and correct in all material
respects on the Closing Date as though made on and as of that date; provided,
however, for the purposes of this Section 8.1, in determining whether this
condition has been satisfied, any representation and warranty of Seller
contained in this Agreement which is qualified by (i) materiality shall be read
and interpreted as if such qualification was not included therein (it being the
intent of the parties not to apply a double materiality threshold), and (ii)
knowledge shall be read and interpreted as if such qualification was not
included therein.
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8.2 Performance. Seller shall have performed in all material respects
the obligations, covenants and agreements required hereunder to be performed by
it at or prior to the Closing Date.
8.3 Attorney-in-Fact Certificate. Seller shall have delivered to
Purchaser a certificate of each Seller, dated the Closing Date, certifying on
behalf of Seller that the conditions set forth in Sections 8.1 and 8.2 have been
fulfilled.
8.4 Pending Matters. No suit, action or other proceeding by a third
party or a governmental authority shall be pending or threatened which seeks
substantial damages from Purchaser in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of the transactions contemplated
by this Agreement.
8.5 Certain Events. There shall not have occurred an explosion, fire,
blowout, earthquake or adverse geophysical event that has materially and
adversely affected the operation or value of the Pipeline Assets. Seller agrees
to promptly provide notice to Purchaser of the occurrence of any such event.
8.6 Opinion of Counsel. Purchaser shall have received an opinion of
Akin, Gump, Strauss, Hauer & Feld for Seller, as to the matters covered by
Sections 3.1, 3.2 and 3.3, subject to normal and customary qualifications and
exceptions.
8.7 Production Agreement. The transactions contemplated by the
Production Contract shall be consummated concurrent with the transactions
contemplated by this agreement.
8.8 Liens. All liens, claims and encumbrances on the Pipeline Assets
shall have been released.
ARTICLE IX
CLOSING
9.1 Time and Place of Closing. Subject to the conditions stated in this
Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall occur on May 30, 1997; provided, however, that if all of the
conditions to Closing set forth in Articles VIII and IX have not been satisfied
or waived by such date for Closing, the party whose obligations are subject to
the conditions that have not been satisfied or waived shall have the right to
extend the date of Closing for successive periods of up to seven days each until
such conditions shall have been satisfied or waived. The date Closing actually
occurs is herein called the "Closing Date." The Closing shall be held at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., One Liberty Place, Suite
3600, 1650 Market Street, Philadelphia, Pennsylvania 19103 or at such other
location as may be mutually agreed upon by Castle and Purchaser.
9.2 Closing Obligations. At the Closing, the following events shall
occur:
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(a) Seller and Purchaser shall execute, acknowledge and
deliver the Assignment, Assumption and Bill of Sale in the form of Exhibit 10.2
conveying the Assets to Purchaser;
(b) Purchaser shall deliver to Castle the executed corporate
guarantee of Union Pacific Fuels, Inc. in the form of Exhibit D hereto.
(c) Pipeline shall send a letter thereof directing all
transportation customers to make payment to Purchaser of proceeds attributable
to transportation after the Closing Date.
(d) Seller shall make arrangements to deliver to Purchaser
(such delivery to occur not later than the 30th day following the Closing Date),
at Purchaser's cost and at a location selected by Seller, originals of all
records, as required by this Agreement, pertaining to the Assets;
(e) Seller shall provide an officer's certificate to Purchaser
to the effect that none of the events listed in Section 7.5 have occurred;
(f) Purchaser shall make the payments described in Section
2.2;
(g) Purchaser shall deliver to Seller the certificate and
opinion referred to in Sections 7.3 and 7.7, respectively, and Seller shall
deliver to Purchaser the certificate and opinion referred to in Sections 8.3 and
8.6, respectively;
(h) Seller and Purchaser shall each execute and deliver to the
other a Transition Agreement ("Transition Agreement") substantially in the form
attached hereto as Exhibit E pursuant to which Seller agrees, for a period of up
to six months following the Closing Date, to perform accounting services with
respect to the Assets for the benefit of Purchaser in exchange for the payment
by Purchaser to Seller $1.00 a month.
(i) Seller, shall each execute such other instruments and take
such other action as may be necessary to carry out its obligations under this
Agreement; and
(j) Purchaser shall execute such other instruments and take
such other action as may be necessary to carry out its obligations under this
Agreement.
ARTICLE X
POST-CLOSING OBLIGATIONS
10.1 Calculation of Adjusted Purchase Price. Within 60 days after the
Closing, Seller shall prepare, in accordance with this Agreement and with
generally accepted accounting principles consistently applied, and deliver to
Purchaser a statement setting forth each adjustment to the Purchase Price and
showing the calculation of such adjustments. From and after Closing and until
the Adjusted Purchase Price is finally determined pursuant to this Section 10.1,
Seller
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shall make available to Purchaser such accounting records and other
information as may be reasonably necessary for Purchaser to verify the accuracy
of the adjustments set forth on such statement. Within 15 days after receipt of
such statement from Seller, Purchaser shall deliver to Seller a written report
describing all changes (together with explanations there for) that Purchaser
proposes be made to such statement, it being agreed that Purchaser's failure to
deliver such report to Seller within such time period shall constitute
acceptance by Purchaser of Seller's statement. From and after the expiration of
such 15-day period, no additional changes to the statement provided by Seller
shall be considered by the parties. The parties shall then undertake to agree on
the Adjusted Purchase Price no later than 85 days after the Closing. At any time
thereafter, any adjustments remaining in dispute or not finally determined and
agreed upon may, at the request of either Seller or Purchaser, be submitted for
determination to a firm chosen by lot from the following: Ernst & Young and
Coopers and Lybrand. Such firm shall make such determination within 30 days
following such submission and such determination shall be final and binding upon
Seller and Purchaser, with the fees and expenses of such firm to be shared
equally by Seller and Purchaser. Following the final determination of the
Adjusted Purchase Price pursuant to this Section 10.1, Seller or Purchaser, as
the case may be, shall make the payment required pursuant to Section 2.5.
10.2 Receipts and Credits. Subject to Section 10.3 and except to the
extent same have already been taken into account as an adjustment to the
Purchase Price, all monies, proceeds, receipts, credits and income attributable
to the Assets and to the period of time (a) subsequent to the Effective Date,
shall be the sole property and entitlement of the Purchaser and, to the extent
received by Seller shall promptly disclose, account for and transmit same to
Purchaser and (b) prior to the Effective Date, shall be the sole property and
entitlement of Seller, and, to the extent received by Purchaser, Purchaser shall
promptly disclose, account for and transmit same to Seller. Except as provided
otherwise in this Agreement and except to the extent same have already been
taken into account as an adjustment to the Purchase Price (i) all costs,
expenses,
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disbursements, obligations and liabilities attributable to the Assets and to the
period of time prior to the Effective Date, regardless of when due or payable,
shall be the sole obligation of Seller, and Seller shall promptly pay same, or
if paid by Purchaser, promptly reimburse Purchaser for the amount paid, and (ii)
all costs, expenses, disbursements, obligations, and liabilities attributable to
the Assets and to the period of time subsequent to the Effective Date,
regardless of when due or payable, shall be the sole obligation of the
Purchaser, and Purchaser shall promptly pay same, or if paid by Seller, promptly
reimburse Seller for the amount paid. Except as provided otherwise in this
Agreement and except to the extent same have already been taken into account as
an adjustment to the Purchase Price, all uncollected accounts receivable as of
the Closing Date attributable to the Assets after the Effective Date shall be
assigned to Purchaser, and all uncollected accounts receivable as of the Closing
Date attributable to the Assets prior to the Effective Date shall be retained by
Seller.
10.3 Assumption of Liabilities, If the Closing occurs, each Seller and
Purchaser agree as follows:
(a) Except for the Lawsuit Liabilities, Purchaser hereby
assumes and agrees to pay, perform and discharge all liabilities and
obligations that are attributable to the ownership or operation of the
Assets on or after the Closing Date (the "Assumed Obligations"),
(b) Subject to the terms of Article XII, which shall control
with respect to the tax matters covered thereby, and Section 10.3(d),
which shall control with respect to the matters covered thereby,
Purchaser agrees to indemnify, defend and hold harmless Seller and its
agents and representatives (the 'Seller Indemnified Parties") from and
against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, court costs and reasonable attorneys'
fees, but excluding any amounts reimbursed from third party insurance)
(collectively, "Losses") that are attributable to (i) the Assumed
Obligations, (ii) a breach by Purchaser of its representations,
warranties, covenants and agreements here under, (iii) the ownership or
operation of the Assets on or after the Closing Date, in each case
without regard to the sole, partial or concurrent negligence of the
Seller Indemnified Parties or (iv) Losses resulting from or
attributable to the failure of Seller, other than by breach of Section
5.2, to obtain the consent of a third party to the assignment and
conveyance of any Asset to Purchaser,
(c) Subject to the terms of Article XII, which shall control
with respect to the tax matters covered thereby, and the terms of
Section 10.3(d), which shall control with respect to the matters
covered thereby, Seller agrees to indemnify, defend and hold harmless
Purchaser and its agents and representatives (the "Purchaser
Indemnified Parties") from and against any and all Losses that are
attributable to (i) a breach by any Seller of its representations,
warranties, covenants and agreements hereunder, (ii) the Lawsuit
Liabilities, or (iii) the ownership or operation of the Assets before
the Closing Date (other than any matter with respect to which Purchaser
has agreed to indemnify, defend and hold harmless Seller pursuant to
clause (b) above), in each case without regard to the sole, partial or
concurrent negligence of the Purchaser Indemnified Parties;
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(d) With respect to any claims made after the Closing Date
(whether brought by Purchaser, its Affiliates, third parties or
governmental entities or authorities) that involve damage to property,
environmental matters (including environmental remediation and
restoration costs), injury to or death of persons, or fines or
penalties relating to the foregoing and are attributable to the
condition of the Assets on the Closing Date ("Property Condition
Claims"), Seller and Purchaser agree as follows:
(i) Seller shall indemnify, defend and hold harmless
Purchaser from and against any and all Losses arising out of
any Property Condition Claims, to the extent such Losses
accrued prior to the Closing Date and are attributable to the
violation of any environmental or other laws or regulations in
effect on the Closing Date (including, as to environmental
laws and regulations in effect on the Closing Date, any such
laws or regulations that, as of the Closing Date, establish
final, specific and identifiable compliance standards that
will become effective on or after the Closing Date); and
(ii) Purchaser shall indemnify, defend and hold
Sellers harmless from and against any and all Losses arising
out of any Property Condition Claims to the extent that such
Losses are not covered by the indemnification by Seller set
forth in clause (i) preceding; (by way of example, if a
release of a hazardous substance in violation of applicable
law commences prior to the Closing Date and continues
thereafter, and such release results in a Property Condition
Claim, Seller would be liable for all Losses resulting from
such Property Condition Claim relating to releases occurring
prior to the Closing Date and Purchaser would be liable for
all Losses relating to releases occurring after the Closing
Date);
(e) The indemnity, defense and hold harmless obligations set
forth in Sections 10.3(b), (c) and (d) above shall not apply to (i) any
amount that was taken into account as an adjustment to the Purchase
Price pursuant to the provisions here of, and (ii) either party's costs
and expenses with respect to the negotiation and consummation of this
Agreement and the transactions contemplated hereby;
(f) Upon request of Seller, Purchaser agrees to execute and
deliver specific assumption agreements with respect to the Assumed
Obligations; and
(g) The party making a claim under this Section 10.3 is
hereinafter referred to as the "Indemnified Party" and the party
against whom such claims are asserted under this Section 10.3 is
hereinafter referred to as the "Indemnifying Party." All claims by any
Indemnified Party under this Section 10.3 shall be asserted and
resolved as follows:
(i) In the event that any claim or demand for which
an Indemnifying Party would be liable to an Indemnified Party
hereunder is asserted against or sought to be collected from
such Indemnified Party by a third party, said Indemnified
Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the
nature of and specific basis for such claim or demand and the
amount or the estimated amount thereof to
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the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim and demand) (the
"Claim Notice"); provided, however, that any failure to give
such notice will not waive any rights of the Indemnified Party
except to the extent the rights of the Indemnifying Party are
actually prejudiced. The Indemnifying Party, upon request of
the Indemnified Party, shall retain counsel to represent the
Indemnified Party and any others the Indemnifying Party may
designate in connection with such claim or demand (to the
extent they are covered by the Indemnifying Party's indemnity)
and shall pay the fees and disbursements of such counsel with
regard thereto; provided, however, that any Indemnified Party
is hereby authorized prior to the date on which it receives
written notice from the Indemnifying Party designating such
counsel to retain counsel (but Indemnified Party shall
promptly notify the Indemnifying Party that the Indemnified
Party has retained such counsel) whose reasonable fees and
expenses shall be at the expense of the Indemnifying Party to
file any motion, answer or other pleading and take such other
action which it shall reasonably deem necessary to protect its
interests or those of the Indemnifying Party until the date on
which the Indemnified Party receives such notice from the
Indemnifying Party, whereupon the Indemnifying Party's counsel
shall be substituted for the counsel of the Indemnified Party.
In the event that an Indemnifying Party shall retain counsel
as provided above, the Indemnified Party shall have the right
to retain its own counsel but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party
unless (A) the Indemnifying Party and the Indemnified Party
shall have mutually agreed to the retention of such counsel or
(B) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the
Indemnified Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party shall
not, in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one such firm for all such
Indemnified Parties. If requested by the Indemnifying Party,
the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or
demand which the Indemnifying Party defends, or, if
appropriate and related to the claim in question, in making
any counterclaim against the person asserting the third party
claim or demand, or any cross-complaint against any person. No
claim or demand may be settled by the Indemnifying Party
without the consent of the Indemnified Party, which consent
will not be unreasonably withheld. To the extent it shall be
determined that the Indemnified Party shall not be entitled to
indemnification pursuant to this Section 10.3, then the
Indemnified Party shall promptly pay to the Indemnifying Party
any amounts previously paid or advanced by the Indemnifying
Party to or on behalf of the indemnified Party with respect to
such matters pursuant to this Section 10.3. Notwithstanding
the above, but without affecting any rights of Purchaser to
proceed separately against Seller under this Agreement, unless
required to do so, Purchaser shall not join any of the Sellers
as a third party defendant to any action solely by reason of
Seller's indemnity of Purchaser here under for any breach of
Seller's representations hereunder.
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(ii) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder which does not
involve a claim or demand being asserted against or sought to
be collected from it by a third party, the Indemnified Party
shall as promptly as practical send a Claim Notice with
respect to such claim to the Indemnifying Party; provided,
however, that any failure to give such notice will not waive
any rights of the Indemnified Party except to the extent the
rights of the Indemnifying Party are actually prejudiced. If
the claim constitutes a Property Condition Claim and is
brought by Purchaser, upon receipt of Purchaser's Claim
Notice, Seller shall have the option of either (A) assuming
the responsibility of performing operations necessary to bring
the condition in compliance with applicable law ("Corrective
Operations") or (B) electing not to do so, in which event
Purchaser shall perform such operations. In either case the
responsibility for such operation shall be allocated to the
parties in accordance with the terms of Section 10.3(d).
Should Seller fail to respond within 20 Business Days after
receipt of Purchaser's Claim Notice, it shall be deemed to
have elected not to assume such operation. Should Seller elect
to perform such Corrective Operations, it shall promptly
commence Corrective Operations and continue the same with
diligence until the necessary Corrective Operations have been
completed. Should any undue delay by Seller either in the
commencement of the Corrective Operations (or in the
continuation of the Corrective Operations once commenced)
cause a deterioration or other increase in the scope of the
Property Condition, any increased costs resulting from such
undue delay shall be the responsibility of Seller.
Any party performing Corrective Operations under the
provisions of the preceding paragraph (a "Performing Party") shall provide the
other party with reasonably detailed statements concerning the costs of such
Corrective Operations and the costs thereof that it allocates to such party. The
party receiving such notice shall as promptly as possible, but in no event more
than 15 Business Days after receipt of such statement, pay the amount noted,
unless it disputes in good faith its responsibility for the amounts asserted to
be due, in which case it shall promptly provide a reasonably detailed
explanation of what portion of the invoiced amount it is contesting and the
reasons therefor, and shall make payment to the Performing Party for any
uncontested amounts.
(iii) In the event that either party, acting in the
normal course of its business, pays any cost or expense for
which it is indemnified by the other party hereunder, the
paying party shall provide proof satisfactory to the other
party of the payment of such cost or expense, whereupon the
Indemnifying Party shall reimburse the paying party for such
cost or expense, provided, however, that the Indemnifying
Party shall not be obligated to so reimburse the paying party
to the extent that (A) the Indemnifying Party in good faith
disputes its liability to the third party in question for such
cost or expenses, (B) the third party in question withholds
its agreement to regard the paying party payment as a full
discharge and satisfaction of the cost or expense, or (C) the
Indemnifying Party makes a payment of such cost or expense
directly to the third party in question.
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10.4 Further Assurances. After Closing, Seller and Purchaser
agree to take such further actions and to execute, acknowledge and deliver such
additional documents and instruments as may be necessary or useful in carrying
out the purposes of this Agreement or of any document delivered pursuant hereto.
ARTICLE XI.
TERMINATION
11.1 Right of Termination. This Agreement and the transactions
contemplated hereby may be terminated:
(a) At any time at or prior to Closing by mutual consent of
Seller and Purchaser;
(b) At any time at or after June 16, 1997, by Seller or
Purchaser if the Closing shall not have occurred by such date; and
(c) By Seller or Purchaser on or before 5:00 p.m. Central
Standard Time on May 28, 1997, if the Report reveals the existence of
environmental conditions on the real property interests constituting a
part of the Pipeline Assets or the "Oil and Gas Assets", as defined in
the Production Contract, that require remedial action under applicable
environmental laws as in effect on the date of the Report which
reasonably estimated will cost in excess of $6,000,000 (utilizing the
most cost-effective method of remediation as chosen), it being agreed
that prior to the exercise by Seller of such termination right,
Purchaser shall have the right to assume liability for any portion of
such remediation costs in excess of $6,000,000, in which event any
amounts so assumed by Purchaser shall not be counted towards such
$6,000,000 amount (if the Closing occurs, such remediation expenses
shall, except to the extent assumed by Purchaser, be the responsibility
of Seller, as set forth in Section 10.3 above);
provided, however that no such party may exercise any right of termination
pursuant to this Section 11.1 if the event giving rise to such termination right
shall be due to the willful failure of such party to perform or observe in any
material respect any of the covenants or agreements set forth herein to be
performed or observed by such party.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, this Agreement shall become void and of no further force or effect
(except for the provisions of Sections 3.4, 4.4, 6.1, 6.2, 6.3, 11.2, 15.1
through 15.9, 15.12, 15.13, and the last two sentences of Section 15.16, which
shall survive such termination and continue in full force and effect); provided,
however, that, if either party is in default of its obligations under this
Agreement at the time this Agreement is so terminated, such defaulting party
shall continue to be liable to the other party for damages (but in no event for
specific performance) in respect of such default and such liability shall not be
affected by such termination (in the case of Purchaser, such damages shall
include all actual damages incurred or suffered by Purchaser in connection with
this Agreement, specifically including, without limitation, (a) all reasonable
out-of-pocket costs and expenses
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incurred by Purchaser for legal, engineering, environmental, accounting and
other professional services furnished in connection with this Agreement and the
transactions contemplated hereunder and (b) all reasonable costs and expenses
incurred, and damages sustained, by Purchaser in connection with Purchaser's
efforts to protect against any pricing risk associated with the transactions
contemplated hereunder, including, without limitation, the costs of liquidating
any hedged positions maintained by Purchaser in anticipation of the consummation
of the transactions contemplated here under, but in no event shall the sum of
Purchaser's damages exceed $6,250,000). Notwithstanding anything to the contrary
contained in this Agreement, upon any valid termination of this Agreement
pursuant to Section 11.1, Seller, shall be free immediately to enjoy all rights
of ownership of the Assets, as applicable, and to sell, transfer, encumber or
otherwise dispose of the same to any party without any restriction under this
Agreement; and Purchaser shall be liable for all actual, incidental and
consequential damages (including, without limitation, lost profits) if it
attempts to interfere in any way with any such enjoyment or action by Seller.
ARTICLE XII
TAXES
12.1 Apportionment of Ad Valorem and Property Taxes. All ad valorem
taxes, real property taxes, personal property taxes and similar obligations
(other than income taxes or franchise taxes) ("Property Taxes") attributable to
the Assets with respect to the tax period in which the Effective Date occurs
shall be apportioned as of the Effective Date between Seller and the Purchaser.
The owner of record on the assessment date shall file or cause to be filed all
required reports and returns incident to the Property Taxes and shall pay or
cause to be paid to the taxing authorities all Property Taxes relating to the
tax period during which the Effective Date occurs. If Seller is the owner of
record on the assessment date, then Purchaser shall pay to such party
Purchaser's pro rata portion of Property Taxes within 30 days after receipt of
an invoice therefor, except to the extent taken into account as an adjustment to
the Purchase Price pursuant to Section 2.3. If Purchaser is the owner of record
as of the assessment date, then Seller shall pay to Purchaser its pro rata
portion of Property Taxes within 30 days after receipt of Purchaser's invoice
therefor.
12.2 Sales Taxes. The Purchase Price provided for hereunder excludes
any sales taxes or other taxes in connection with the sale of the Assets
pursuant to this Agreement. Purchaser, however, shall be liable for any sales
and use taxes, conveyance, transfer and recording fees and real estate transfer,
stamp or similar taxes should any be determined to be due on the transfer of the
Assets pursuant to this Agreement or the consummation of any of the other
transactions contemplated hereunder. Purchaser shall indemnify and hold Seller,
harmless with respect to the payment of any such taxes, including any interest
or penalties assessed thereon.
12.3 Cooperation. Each party to this Agreement shall provide the other
party with reasonable access to all relevant documents, data and other
information (other than that which is subject to an attorney-client privilege)
which may be required by the other party for the purpose of preparing tax
returns and responding to any audit by any taxing jurisdiction or the Securities
and Exchange Commission. Each party to this Agreement shall cooperate with all
reasonable
22
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requests of the other party made in connection with contesting the
imposition of taxes. Notwithstanding anything to the contrary in this Agreement,
neither party to this Agreement shall be required at any time to disclose to the
other party any tax return or other confidential tax information.
12.4 Indemnification for Tax Obligations.
(a) Subject to the provisions of Section 12.4(b), Seller shall
indemnify Purchaser for all liabilities that are assessed against
Purchaser for foreign, federal, state, local or Indian Tribal taxes
(other than income or franchise taxes) in respect of the ownership or
operation of the Assets prior to the Effective Date, together with
penalties and interest thereon (provided such penalties and interest do
not result from the negligence, late filing, fraud or acts of
misfeasance or malfeasance of the Purchaser), to the extent such
liabilities exceed the amounts of such taxes paid by Seller; provided
that Seller shall be entitled to all refunds or rebates of taxes paid
in respect of the ownership or operation of the Assets prior to the
Effective Date that may be received by Seller or Purchaser. Subject to
the provisions of Section 12.4(b), Purchaser shall indemnify Seller for
all liabilities that are assessed against Seller for foreign, federal,
state, local or Indian Tribal taxes (other than income or franchise
taxes), together with penalties and interest thereon (provided such
penalties and interest do not result from the negligence, late filing,
fraud or acts of misfeasance or malfeasance of Seller), to the extent
such liabilities relate to the ownership or operation of the Assets
from and after the Effective Date.
(b) In order for Seller or Purchaser ("Claimant") to make a
claim against the other ("Indemnitor") under this Section 12.4,
Claimant shall give prompt notice to Indemnitor of any liability for
which Claimant would claim indemnification under this Article XII,
which notice shall include the circumstances surrounding such
liability. Indemnitor shall then have the right but not the obligation,
to contest such liability at its sole cost and expense by giving
written notice to Claimant of such election within 30 days after
Indemnitor receives Claimant's notice. Should Indemnitor elect not to
contest such liability, Indemnitor shall pay the full amount due under
Section 12.4(a) in respect of such liability to Claimant in cash within
60 days after Indemnitor receives Claimant's notice. Except as
specifically provided in this Section 12.4 with respect to certain tax
issues which must be combined or joined with other tax issues, if
Indemnitor elects to contest any such liability, Claimant shall give
Indemnitor full authority to defend, adjust, compromise or settle such
liability and any action, suit, or proceeding in which Indemnitor
contests such liability, in the name of Claimant or otherwise as
Indemnitor shall elect. With respect to tax issues incident to any such
liability that must be combined or joined with one or more other tax
issues which Claimant desires to contest, Claimant and Indemnitor shall
cooperate fully, and control of any administrative legal proceeding
shall rest with the party having the greater ultimate liability
(including liability under Section 12.4(a) for the taxes in dispute).
The party in control may not adjust, compromise or settle taxes which
are contested by or on behalf of the other party without the consent of
the other party, which consent shall not be unreasonably withheld. With
respect to any liability contested by Indemnitor under the terms of
this Section 12.4(b), Indemnitor shall pay the full amount due under
Section 12.4(a) in respect of such liability to Claimant in cash within
30 days
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<PAGE>
after the liability is finally determined either by settlement or
pursuant to the final unappealable judgment of a court of competent
jurisdiction.
ARTICLE XIII
DOCUMENT RETENTION
13.1 Inspection. As used in this Article XIII, "Documents"
shall mean all files, documents, books and records delivered to Purchaser by
Seller pursuant to the provisions of this Agreement, including, but not limited
to: financial and tax accounting records; land, title and division of interest
files; contracts; engineering and well files; and books and records relating to
the operation of the Assets during the Interim Period. Subject to the provisions
of Section 13.2, Purchaser agrees that the Documents shall be open for
inspection by representatives of Seller as applicable, at reasonable times and
upon reasonable notice during regular business hours for a period of 10 years
following the Closing Date (or for such longer period as may be required by law
or governmental regulation), and that Seller may during such period at its
expense make such copies thereof as it may reasonably request. Seller agrees
that such documents and materials as shall be retained by Seller as applicable,
and that are related to the Assets or the conduct of business or the operation
of the Assets, shall be open for inspection by representatives of Purchaser at
reasonable times and upon reasonable notice during regular business hours for a
period of 10 years following the Closing Date and that Purchaser may during such
period at its expense make such copies thereof as it may reasonably request.
13.2 Destruction. Without limiting the generality of the
foregoing, for a period of 10 years after tee Closing Date (or for such longer
period as may be required by law or governmental regulation), Purchaser shall
not destroy or give up possession of any original or final copy of the Documents
without first offering Seller the opportunity, at such party's expense (without
any payment to Purchaser), to obtain such original or final copy or a copy
thereof. After the conclusion of such period, Purchaser shall offer to deliver
to such party, at such party's expense (without any payment to Purchaser), the
Documents prior to destroying same.
13.3 Access. Seller and Purchaser each shall use its best
efforts to afford the other access to (a) in the case of Seller employees of
such entity who remain employees of any such entity or an Affiliate following
the Closing Date but are familiar with the operations of the Assets and (b) in
the case of Purchaser, employees of Purchaser or an Affiliate which Seller shall
reasonably request for its proper corporate purposes, including without
limitation, the defense of legal proceedings. Such access may include interviews
or attendance at depositions or legal proceedings; provided, however, that in
any event all out-of-pocket expenses (including wages and salaries) reasonably
incurred by any party in connection with this Section 13.3 shall be paid or
promptly reimbursed by the party requesting such services.
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ARTICLE XIV
INDEPENDENT INVESTIGATION AND DISCLAIMER
14.1 Independent Investigation and Disclaimer. Purchaser
acknowledges that (a) it has had and pursuant to this Agreement will have prior
to the Closing access to the Assets, the officers and employees of Seller, and
the books, records, and files of such entities relating to the Assets and (b) in
making the decision to enter into this Agreement and consummate the transactions
contemplated hereby, Purchaser has relied solely on the basis of its own
independent investigation of the Assets and the records related there to, and
upon the representations, warranties and covenants in this Agreement.
Accordingly, Purchaser acknowledges that, except as expressly set forth herein,
Seller has made no, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY
REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY STATUTE, OR
OTHERWISE RELATING TO (i) THE CONDITION OF THE ASSETS (INCLUDING WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, OR
ENVIRONMENTAL CONDITION), (ii) ANY INFRINGEMENT BY SELLER OF ANY PATENT OR
PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (iii) ANY INFORMATION, DATA OR OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER,
provided, however, that the foregoing disclaimer and negation of representations
and warranties shall not affect or impair the representations and warranties of
Seller set forth in Article III hereof, the covenants of Seller set forth in
Article V or the obligations of Seller under Section 10.3. As used in this
Section 14.1, the term "Seller" shall include the agents and representatives of
such parties.
ARTICLE XV.
MISCELLANEOUS
15.1 Governing Law. This Agreement and all instruments
executed in accordance with it shall be governed by and interpreted in
accordance with the laws of the State of Texas, without regard to any conflict
of law rules that would direct application of the laws of another jurisdiction.
15.2 Entire Agreement. This Agreement, including all Exhibits
attached hereto and made a part hereof, constitute the entire agreement between
the parties and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the parties hereto.
15.3 Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
15.4 Captions. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
15.5 Assignment. Neither party hereto shall assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party and any assignment
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<PAGE>
made without such consent shall be void; provided, however, that Purchaser shall
have the right to grant a security interest in its rights and obligations
hereunder or to assign all or any part its rights or obligations hereunder to
any Affiliate of Purchaser. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
15.6 Notices. Any notice provided or permitted to be given under this
Agreement shall be in writing, and may be served by personal delivery or by
depositing same in the mail, addressed to the party to be notified, postage
prepaid, and registered or certified with a return receipt requested. Notice
deposited in the mail in the manner hereinabove described shall be deemed to
have been given and received on the date of the delivery as shown on the return
receipt. Notice served in any other manner shall be deemed to have been given
and received only if and when actually received by the relevant party hereto
(except that notice given by telecopier shall be deemed given and received upon
receipt only if received during normal business hours and if received other than
during normal business hours shall be deemed received as of the opening of
business on the next Business Day). For purposes of notice, the addresses of the
parties shall be as follows:
For Seller:
Mailing and Street Address:
Castle Energy Corporation
One Radnor Corporate Center, Suite 250
100 Matsonford Road
Radnor, Pennsylvania 19087
Attn: Joseph L. Castle
Telecopy No.: (610) 955-0409
For Purchaser:
Mailing and Street Address:
Union Pacific Resources Company
801 Cherry Street
Fort Worth, Texas 76102
Attn: William M. Searcy
Telecopy No.: (817) 877-6093
Each party shall have the right, upon giving 10 days' prior notice to the other
in the manner hereinabove provided, to change its address for purposes of
notice.
15.7 DTPA Waiver. To the extent applicable to the Assets or any portion
thereof, Purchaser hereby waives the provisions of the Texas Deceptive Trade
Practices Act, Chapter 17, Subchapter E, Sections 17.41 through 17.63, inclusive
(other than Section 17555, which is not waived), Tex. Bus. & Com. Code. In order
to evidence its ability to grant such waiver, Purchaser
26
<PAGE>
hereby represents and warrants to Seller that Purchaser (a) is in the business
of seeking or acquiring, by purchase or lease, goods or services for commercial
or business use, (b) has assets of $5 million or more according to its most
recent financial statement prepared in accordance with generally accepted
accounting principles, (c) has knowledge and experience in financial and
business matters that enable it to evaluate the merits and risks of the
transaction contemplated hereby, and (d) is not in a significantly disparate
bargaining position.
15.8 Expenses. Except as otherwise provided herein, each party shall be
solely responsible for all expenses incurred by it in connection with this
transaction (including, without limitation, fees and expenses of its own counsel
and accountants).
15.9 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced under any rule of law, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse manner with respect
to either party.
15.10 Publicity. Seller and Purchaser shall consult with each other
with regard to all publicity and other releases issued at or prior to the
Closing concerning this Agreement and the transactions contemplated hereby and,
except as required by applicable law or the applicable rules or regulations of
any governmental body or stock exchange, neither party shall issue any publicity
or other release without the prior written consent of the other party.
15.11 Use of Names. As soon as practicable after the Closing, Purchaser
shall remove or cause to be removed the names and marks used by each Seller and
all variations and derivatives thereof and logos relating thereto from the
Assets and shall not thereafter make any use whatsoever of those names, marks
and logos. In the event Purchaser has not completed such removal within 60 days
after Closing, Seller shall have the right but not the obligation to cause such
removal, and Purchaser hereby grants Seller access to the Assets for such
purpose. In addition, Purchaser shall reimburse Seller for any costs or expenses
incurred thereby by Seller.
15.12 Consequential Damages. Except as expressly provided in Section
2.2 or the last sentence of Section 11.2, the parties waive any rights to
incidental or consequential damages resulting from a breach of this Agreement,
including, without limitation, loss of profits.
15.13 No Third Party Beneficiary. This Agreement is not intended to
create, nor shall it be construed to create, any rights in any third party under
doctrines concerning third party beneficiaries.
15.14 Survival Limitation of Liability. Except with respect to the
covenants set forth in Sections 5.1, 5.2 and 5.3, the representations,
warranties, covenants and obligations of the parties under this Agreement shall
survive the Closing; provided, however, that any claim with respect to the
breach thereof may be made only if the party claiming a breach thereof shall
have notified the breaching party on or before the Closing Date in the case of
Sections 3.14, (ii) on or before the 120th day following the Closing Date in the
case of Sections 3.8 and 3.13, (iii) on or before the
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180th day following the Closing Date in the case of Sections 3.7, 3.9, 3.11 and
3.15 and (iv) at any time in the case of all other provisions.
15.15 Counterparts; Exhibits. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. All Exhibits attached
hereto are hereby made a part of this Agreement and incorporated herein by this
reference. The inclusion of an item by Sellers on an Exhibit shall not be deemed
to be an admission by Sellers that such item satisfies any materiality or other
qualifiers set forth in the Section of the Agreement to which such Exhibit
relates.
15.16 Environmental Investigation and Report. On or prior to the date
hereof, Purchaser has engaged the consulting firm of Pilko & Associates (the
"Consultant") to prepare and deliver on or before May 25, 1997, an environmental
report of the Assets (the "Report"). Seller agrees to cooperate fully with
respect to the Report and the investigation to be conducted by Consultant
necessary to prepare such Report. A Seller employee shall have the opportunity
to be present during any on-site environmental investigations or inspections
conducted by the Consultant. Purchaser shall, except where otherwise required by
applicable law, cause all information contained in the Report or obtained as a
result of the investigation conducted by the Consultant to be maintained in
confidence, used only for internal purposes and not disclosed to any third party
without prior written consent of the other.
15.17 Recordable Assignment. Sellers and Purchaser acknowledge and
agree that in the event of any conflict or inconsistency between the terms and
provisions of this Agreement and the terms and provisions of either (a) the
Assignment and Bill of Sale executed and delivered at Closing by Seller and
Purchaser (or Purchaser's assignee) covering the Pipeline Assets, the terms and
provisions of this Agreement shall control.
15.18 Casualty and Condemnation. If after the Effective Time and prior
to the Closing any party of the Assets shall be destroyed by fire or other
casualty or if any part of the Assets shall be taken in condemnation or under
the right of eminent domain or if proceedings such purposes shall be pending or
threatened, this Agreement shall remain in full force and effect notwithstanding
any such destruction, taking or proceeding or the threat thereof, except as
provided in this Section 15.18. Purchaser or Seller shall have the right to
elect to terminate this Agreement on or before the Closing Date if the value of
all Assets affected by any one or more casualties, takings or proceedings or
threats thereof exceeds 30% of the Purchase Price, in the aggregate. After the
date of this Agreement, without Purchaser's prior written consent, no insurance
proceeds, condemnation awards or other payments will be committed, used or
applied by Seller to repair, restore or replace a damaged or taken Asset if the
cost to repair, restore or replace any such damaged or taken Asset is projected
to exceed $5,000.00. To the extent the same are not used or applied by Seller
prior to the Closing Date in accordance with this Section 15.18, Seller shall at
the Closing pay to Purchaser all sums paid to Seller by reason of such
destruction or taking. In addition, Seller shall assign, transfer and set over
unto Purchaser at Closing, all of the right, title and interest of Seller in and
to any unpaid insurance proceeds, condemnation awards or other payments arising
out of such destruction or taking and shall cooperate with Buyer in its efforts
to collect same.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first set forth above.
CASTLE
CASTLE ENERGY CORPORATION
By:
------------------------------------
Joseph L. Castle II
President
CASTLE TEXAS PIPELINE LIMITED PARTNERSHIP
By:
------------------------------------
Rick Staedtler
Vice President
PURCHASER
UNION PACIFIC INTRASTATE PIPELINE COMPANY
By:
------------------------------------
<PAGE>
EXHIBIT 1.1(j)
--------------
ASSUMED CONTRACTS
-----------------
Transportation Agreement, dated July 1, 1992 between B&A Marketing
Company and Tabasco Gas Pipeline Company (subsequently assigned to Pipeline and
CEC Gas Marketing L.P., a subsidiary of Castle.
Transportation Agreement, dated February 1, 1997, between Pipeline and
Cherokee Loan Marketing, Inc. as agent for the Long Trusts.
Master Rental and Service Agreement dated January 28, 1997 between
Seller and Hanover Compresser Company.
Service Agreement, dated February 1, 1997 between Pipeline and Gas
Service, Inc.
<PAGE>
Exhibit 1.1
-----------
LITIGATION
----------
Larry Long Lawsuit (1996-172) for the Texas Production L.P. has been
named a defendant in the Larry Long Litigation. See Litigation Exhibit to
Purchase and Sale Agreement by and among Castle Energy Corporation for the Texas
Production L.P. and Union Pacific Resources Company.
<PAGE>
EXHIBIT 3.13
------------
LICENSES AND PERMITS
--------------------
None
