UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO __________________
COMMISSION FILE NUMBER 0-11871
AMERICAN EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-2086890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 756-6000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
ON AUGUST 9, 1995, THERE WERE OUTSTANDING 11,814,427 SHARES OF THE
REGISTRANT'S COMMON STOCK, PAR VALUE $0.05 PER SHARE.
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1995
(Unaudited)
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1995
and December 31, 1994..................................... 1
Condensed Consolidated Statements of Operations for the
Three Months Ended June 30, 1995 and 1994 and the Six
Months Ended June 30, 1995 and 1994....................... 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994....................... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 12
Item 2. Changes in Securities........................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Information............................................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 17
SIGNATURES ......................................................... 18
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and temporary cash investments ................. $ 8,972 $ 9,973
Accounts receivable ................................. 12,515 10,652
Assets held for sale ................................ 52,227 --
Receivable from partnerships ........................ -- 4,488
Other current assets ................................ 890 1,014
--------- ---------
Total current assets ............................. 74,604 26,127
--------- ---------
Property, plant and equipment:
Oil and gas properties, based on successful
efforts accounting ................................. 271,207 318,453
Other property and equipment ........................ 12,996 12,530
--------- ---------
284,203 330,983
Less: Accumulated depreciation, depletion
and amortization ............................. 134,390 135,578
--------- ---------
Property, plant and equipment, net ............... 149,813 195,405
--------- ---------
Other assets ........................................... 1,164 2,362
--------- ---------
Total assets ................................. $ 225,581 $ 223,894
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................... $ 7,665 $ 154
Accounts payable .................................... 13,320 14,391
Accrued liabilities ................................. 13,423 15,684
Payable to partnerships ............................. 1,725 --
--------- ---------
Total current liabilities ........................ 36,133 30,229
--------- ---------
Long-term debt ......................................... 90,045 69,712
--------- ---------
Note payable to related party .......................... -- 31,128
--------- ---------
Other liabilities ...................................... 5,106 5,115
--------- ---------
Stockholders' equity:
Convertible preferred stock, $1.00 par value,
4,000 shares issued and outstanding (1995 and 1994) 4 4
Common stock, par value $.05 per share; issued:
11,814,427 shares (1995) and 11,477,500 shares
(1994); outstanding: 11,814,427 shares (1995) and
11,468,313 shares (1994) .......................... 591 574
Additional paid-in capital .......................... 276,785 272,817
Accumulated deficit ................................. (182,625) (184,676)
Treasury stock, at cost; 9,187 shares (1994) ........ -- (342)
Unearned compensation ............................... (353) (525)
Notes receivable from officers ...................... (105) (142)
--------- ---------
Total stockholders' equity ....................... 94,297 87,710
--------- ---------
Total liabilities and stockholders' equity ... $ 225,581 $ 223,894
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
1
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- --------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales.................................. $20,327 $11,145 $38,159 $ 20,511
Gas settlement income.............................. -- 167 879 231
Gain on sales of oil and gas properties............ 296 190 443 212
Other revenues (costs), net........................ 102 (60) 81 (79)
------- ------- ------- --------
Total revenues.................................. 20,725 11,442 39,562 20,875
------- ------- ------- --------
COSTS AND EXPENSES:
Production and operating........................... 6,762 4,237 13,524 7,955
Depreciation, depletion and amortization........... 7,820 6,703 15,552 12,912
General and administrative......................... 1,498 1,590 2,983 3,669
Taxes other than income............................ 1,708 1,168 3,138 2,349
Exploration........................................ 40 103 160 914
Impairment......................................... -- 54 -- 6,818
------- ------- ------- --------
Total costs and expenses........................ 17,828 13,855 35,357 34,617
------- ------- ------- --------
INCOME (LOSS) FROM OPERATIONS......................... 2,897 (2,413) 4,205 (13,742)
------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense................................... (1,880) (1,695) (3,851) (3,372)
Other income, net.................................. 31 83 152 291
------- ------- ------- --------
Total other expense............................. (1,849) (1,612) (3,699) (3,081)
------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 1,048 (4,025) 506 (16,823)
Income tax provision.................................. (58) (248) (11) (259)
------- ------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............... 990 (4,273) 495 (17,082)
Extraordinary gain on extinguishment of debt.......... -- 2,042 2,456 2,042
------- ------- ------- --------
NET INCOME (LOSS)..................................... 990 (2,231) 2,951 (15,040)
Preferred stock dividends............................. (450) (450) (900) (900)
------- ------- ------- --------
NET INCOME (LOSS) TO COMMON STOCK..................... $ 540 $(2,681) $ 2,051 $(15,940)
======= ======= ======= ========
NET INCOME (LOSS) PER COMMON SHARE:
Primary and fully diluted:
Income (loss) before extraordinary item......... $ .05 $ (.67) $ (.03) $ (2.55)
Extraordinary item.............................. -- .29 .20 .29
------- ------- ------- --------
NET INCOME (LOSS) PER COMMON SHARE........... $ .05 $ (.38) $ .17 $ (2.26)
======= ======= ======= ========
NUMBER OF COMMON AND EQUIVALENT SHARES:
Primary and fully diluted.......................... 11,814 7,051 11,811 7,051
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 2,951 $(15,040)
Adjustments to arrive at net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization ........... 15,552 12,912
Gain on sales of oil and gas properties ............ (443) (212)
Exploration expense ................................ 142 449
Impairment expense ................................. -- 6,818
Extraordinary gain on extinguishment of debt ....... (2,456) (2,042)
Other, net ......................................... 274 591
Changes in operating working capital:
Accounts receivable ................................ 994 1,078
Other current assets ............................... 235 (947)
Accounts payable and accrued liabilities ........... (2,689) (5,963)
Other operating ....................................... 1,247 100
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES .............................. 15,807 (2,256)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties ................. (10,212) (7,460)
Development and exploration expenditures .............. (13,267) (12,430)
Proceeds from sales of oil and gas properties, net .... 2,441 914
Other investing ....................................... 2,781 (370)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES .............. (18,257) (19,346)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank debt borrowings .................................. 39,500 19,000
Bank debt repayments .................................. (5,000) (1,500)
Bridge debt borrowings ................................ -- 6,638
Bridge debt repayments ................................ (31,128) --
Repayments of other debt, net ......................... (1,060) (3,869)
Preferred stock dividends ............................. (900) (900)
Debt and equity issuance costs and other .............. 37 (599)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 1,449 18,770
-------- --------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS ...... (1,001) (2,832)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF PERIOD ..................................... 9,973 12,236
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF PERIOD ........................................... $ 8,972 $ 9,404
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by American Exploration Company ("American" or the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements reflect adjustments of a normal recurring
nature which are, in the opinion of management, necessary to present fairly such
information. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, certain information and footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended by Form 10-K/A. Certain amounts in the prior
year's consolidated financial statements have been reclassified to conform with
current classifications.
As discussed in Note 5, the Company effected a one-for-ten reverse split
of its common stock (the "Reverse Stock Split") during the second quarter of
1995. The stockholders' equity accounts on the accompanying consolidated balance
sheets have been restated to give retroactive recognition to the Reverse Stock
Split for all periods presented. In addition, all references to number of shares
of common stock and per share amounts have been restated.
(2) ADOPTION OF NEW ACCOUNTING STANDARD
Effective March 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." Under the provisions of the new statement, if the net book
value of an individual proved oil or gas field is greater than its undiscounted
future net cash flow from proved reserves, then the excess of the net book value
over the fair value is recognized as an impairment of the asset. Because the
Company changed its accounting policy on impairments during 1994, the adoption
of SFAS No. 121 had no effect on the 1995 financial statements.
(3) APPL CONSOLIDATION
During 1994 and January 1995, the Company purchased limited partners'
interests in the APPL Partnerships and net profits interests and debt interests
in the APPL Debt Programs (the "APPL Consolidation"). In January 1995, the
Company repurchased the remaining two investors' interests in several APPL
Partnerships and the APPL Debt Programs for a combination of $1.3 million in
cash and the issuance of approximately 346,000 shares of the Company's common
stock, thereby eliminating the remaining $6.6 million of nonrecourse debt
outstanding at year-end 1994. The elimination of the APPL debt in 1995 resulted
in an extraordinary gain of approximately $2.5 million. No income tax expense
has been recognized on the extraordinary gain.
In May 1995, New York Life Insurance Company ("New York Life") transferred
certain of its limited partner's interests in oil and gas properties not
acquired in the APPL Consolidation to ANCON Partnership Ltd. ("ANCON"). The
Company acquired a 20% interest in these properties for approximately $6.7
million in cash, which was financed through the Company's bank credit facility.
4
(3) APPL CONSOLIDATION - (CONTINUED)
The following pro forma summary of consolidated results of operations for
the six months ended June 30, 1995 and 1994 gives effect to the APPL
Consolidation as if it had occurred as of January 1, 1994.
<TABLE>
<CAPTION>
(In thousands except for per share amounts) FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------
1995 1994
-------- --------
<S> <C> <C>
Pro forma revenues ..................................................................... $ 40,278 $ 40,638
Pro forma loss before extraordinary item ............................................... (22) (14,676)
Pro forma loss to common stock ......................................................... (22) (4,084)
Pro forma loss per common share: Primary and fully diluted:
Loss before extraordinary item ................................................... $ -- $ (1.26)
Net loss ......................................................................... -- (.35)
Weighted average shares outstanding:
Primary and fully diluted ........................................................... 11,814 11,664
</TABLE>
The pro forma amounts do not purport to be indicative of the results of
operations of American that may be reported in the future or that would have
been reported had this transaction occurred as of January 1, 1994.
(4) DEBT
In February 1995, the Company used excess borrowing capacity under the
bank credit facility to refinance the $31.1 million balance outstanding under
the bridge facility which had been provided by New York Life to finance a
portion of the APPL Consolidation. Primarily due to the refinancing, bank debt
increased from $28.0 million outstanding at year-end 1994 to $62.5 million at
June 30, 1995. In July 1995, American repaid all of the outstanding bank debt
primarily using the proceeds from the sale of the Company's interest in the
Sawyer Field, discussed in Note 9.
The borrowing base under the bank credit facility is redetermined by the
banks semiannually, and in May 1995, the borrowing base was redetermined at
$75.0 million. In July 1995, in conjunction with the sale of the Sawyer Field,
the borrowing base was reduced to $55.0 million. The accompanying consolidated
balance sheets reflect $7.5 million of current maturities of long-term bank debt
as of June 30, 1995, with the current portion representing the excess of the
total outstanding bank debt at that date over the borrowing base which became
effective in July.
(5) REVERSE STOCK SPLIT
On June 13, 1995, American's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation which effected the Reverse Stock
Split and also reduced the number of authorized shares of common stock from
200,000,000 to 50,000,000. As a result of the Reverse Stock Split, the number of
outstanding shares of common stock was reduced to 11,814,427 shares outstanding
at June 30, 1995, from 118,144,275 shares outstanding immediately prior to the
Reverse Stock Split. In addition, approximately $5.3 million was reclassified on
the consolidated balance sheet from common stock to additional paid-in capital.
The remaining shares of treasury stock held by American prior to the Reverse
Stock Split were cancelled.
5
(6) DERIVATIVES
The Company periodically enters into commodity price swap agreements to
hedge its oil and gas production sold under market-based prices. The following
table details the swap agreements currently in effect:
<TABLE>
<CAPTION>
PRODUCT CONTRACT PERIOD DAILY PRODUCTION FIXED PRICE MARKET PRICE REFERENCE
- ------- ----------------------- ----------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Gas May 1995 - April 1996 10,000 mmbtu $ 1.78 Houston Ship Channel
Gas May 1995 - April 1996 5,000 mmbtu 1.80 Henry Hub
Gas June 1995 - May 1996 20,000 mmbtu 1.81 Houston Ship Channel
Gas June 1995 - May 1996 10,000 mmbtu 1.84 Henry Hub
Oil May 1995 - December 1995 2,000 barrels $18.70 NYMEX WTI
Oil July 1995 - December 1995 1,500 barrels 18.55 NYMEX WTI
</TABLE>
With regard to the commodity price swap agreements, if the market price is above
the fixed price, the Company will pay to the counterparty the difference between
the fixed price and the market price; and if the market price is below the fixed
price, the Company will receive that difference from the counterparty.
(7) CONTINGENCIES
LEGAL PROCEEDINGS
LOUISIANA STATEWIDE CONTRACT. In December 1992, a U.S. District Court
ruled that Louisiana Intrastate Gas Corporation ("LIG") had underpaid a
subsidiary of the Company under a statewide gas purchase contract ("Statewide
Contract") for the 1989 contract year. Pursuant to the ruling by the U.S.
District Court, it was also determined through arbitration that the Company's
subsidiary was underpaid for the period January 1990 to October 1992. The
Statewide Contract covered certain properties acquired by the Company's
subsidiary in 1988 with ownership in these properties assigned to several of the
Company's investment programs. In December 1992, the Company's subsidiary agreed
to terminate the Statewide Contract effective October 1, 1992 in exchange for a
cash payment from LIG and a three-year replacement contract providing for
market-based pricing. Upon appeal to the Fifth Circuit Court of Appeals, the
Court of Appeals held in December 1994 that there was no reversible error and
affirmed the trial court's ruling. Neither party appealed this ruling and in
January 1995, the Company received cash proceeds of approximately $1.0 million,
net to its interest, after payment of applicable royalties. The proceeds from
this settlement are reflected in gas settlement income on the accompanying
statements of operations.
SAWYER FIELD - SUTTON COUNTY, TEXAS. The Company and an affiliated
partnership are defendants in a property damage lawsuit in the 112th Judicial
District in Sutton County, Texas styled CLAIRE J. POWERS, ET AL. VS. DON R.
GILLER, ET AL. A related personal injury suit styled JANE GILLER, ET AL. VS.
ENRON CORPORATION, ET AL in the 113th Judicial District in Harris County, Texas,
in which the Company and its affiliated partnership are among the defendants,
has been abated pending resolution of the Sutton County suit. Both lawsuits
arise out of a fire in December 1994 at a cabin owned by the landowner in the
Sawyer Field. As a result of the fire, two hunters died and a third hunter
suffered serious burns.
Pursuant to an arrangement made by the previous operator of the field, the
landowner supplied the cabin with natural gas from a nearby well of which the
Company subsequently became the operator. The Company is alleged to have been
negligent or grossly negligent in failing to properly supply gas to the cabin.
The Company has denied that it was negligent or grossly negligent and will
vigorously defend its interests. The amount of damages being sought against the
Company is unknown at this time since the plaintiffs have not specified damages.
Because of the early stages of these proceedings, it is not possible to quantify
what liabilities, if any, the Company might incur.
LIMITED PARTNERSHIP LITIGATION. In February 1995, the Company and American
Exploration Production Company, a subsidiary of the Company, were served with a
lawsuit instituted on October 14, 1994 styled RICHARD RILEY AND FRANCES RILEY V.
LEROY WOLF, NEW YORK LIFE INSURANCE COMPANY, NYLIFE EQUITY, INC., NYLIFE REALTY
INCOME PARTNERS I, L.P., NEW YORK LIFE OIL AND GAS PRODUCING PROPERTIES II-E,
L.P., LINCLAY INVESTMENT PROPERTIES, INC., AMERICAN EXPLORATION PRODUCTION
COMPANY, JOHN DOES (1-10) AND A.B.C. CORP. (1-10) Civil Action No. 94.5827 (HAA)
presently pending in
6
the United States District Court, District of New Jersey. The plaintiffs allege
various causes of action, including inefficient and wasteful management of
partnership assets, relating to their investment in real estate and oil and gas
limited partnerships. American Exploration Production Company acts as a
co-general partner in the oil and gas limited partnership. The plaintiffs seek a
rescission of their investments, compensatory and punitive damages, and other
relief. The Company believes American and its affiliate have conducted
themselves properly with respect to such limited partnership.
On May 8, 1995, the Court denied the plaintiffs' request to add derivative
and racketeering counts to the complaint, finding that the plaintiffs did not
have standing to bring a derivative claim and that the essential elements of a
racketeering claim had not been properly plead. More recently, the plaintiffs
sought to replead the racketeering and fraudulent concealment counts. The Court
has not yet ruled on the plaintiffs' motion to amend their complaint, but has
stayed all discovery in the case pending a settlement conference between the
parties.
CEMENT I UNIT - CADDO COUNTY, OKLAHOMA. In 1991, an administrative hearing
was held by the Oklahoma Corporation Commission ("OCC") to establish the cause
of the saltwater contamination of the municipal water supply of the city of
Cyril, Oklahoma and to formulate a plan of abatement of the pollution. Parties
to the hearing included the current and former operators of the Cement, Cement I
and West Cement units as well as American. The Company owns an 18.56% interest
in the Cement I Unit and controls an additional 6.42% interest through
investment programs. In August 1992, the administrative law judge granted the
Company's motion to dismiss on the grounds that the Company had not violated any
statute, rule or regulation of the OCC and that the evidence did not establish
that the Company caused any contamination of the aquifer. The ruling was
subsequently affirmed by the OCC in December 1992. In January 1993, the current
and former operators filed Petitions in Error in the Supreme Court of Oklahoma
to appeal the OCC's decision. Matters raised on appeal included the dismissal of
the Company. The Supreme Court remanded the appeal to the Court of Appeals for
consideration. On April 25, 1995, the Court of Appeals issued a ruling affirming
the Company's dismissal from the proceeding. The Court denied the Petitions for
Rehearing on June 2, 1995, and the other parties to the proceeding have filed
Writs of Certiorari with the Oklahoma Supreme Court. The OCC is requiring the
responsible parties to conduct an investigation and formulate a plan of
remediation during the pendency of the appeal.
In rendering its April 1995 judgement, the Court stated, however, that any
claims which an operator wishes to make against any non-operator (which could
include the Company), pursuant to the plan of unitization, for the
non-operator's proportionate share of any costs incurred pursuant to any
remediation ultimately ordered must be brought in District Court in a new
proceeding. To date, no such claims have been brought against the Company.
It is not presently possible for the Company to determine the extent, if
any, to which it may incur liability for alleged saltwater contamination. Under
the terms of the Company's Purchase and Sale Agreement covering the Cement I
Unit, the predecessor in interest indemnified the Company from and against all
loss, damage, cost and expense relating to ownership for operations of the
purchased properties prior to October 1986.
(8) CASH FLOW INFORMATION
Net cash provided by operating activities includes cash payments for
interest totaling $4.0 million and $2.9 million, net of capitalized interest of
$695,000 and $753,000, for the first six months of 1995 and 1994, respectively.
The Company paid income taxes of $12,000 and $218,000 for the first six months
of 1995 and 1994, respectively.
Noncash investing and financing activities in 1995 were related to the
APPL Consolidation. American issued approximately 346,000 shares of common stock
valued at $12.50 per share to acquire $1.2 million of oil and gas properties,
including working capital, and to eliminate $4.7 million of nonrecourse debt,
resulting in an extraordinary gain of $1.6 million.
7
(9) SUBSEQUENT EVENT
SALE OF SAWYER FIELD
On July 27, 1995, the Company closed the sale of its interest in the
Sawyer Field to Louis Dreyfus Natural Gas Corp. ("Louis Dreyfus") for a purchase
price of approximately $64.0 million net to American's interest. Louis Dreyfus
also purchased additional interests in the Sawyer Field held by certain limited
partnerships for which the Company is the managing general partner. As of
December 31, 1994, the present value of the future net cash flows, discounted at
10%, related to American's interest in the Sawyer Field totaled approximately
$29.7 million. As part of the sale of the Sawyer Field, the Company also sold
approximately 10 Bcf of proved reserves acquired through the APPL Consolidation
in early 1995.
After adjusting for interim net revenues, changes in property values and
transaction costs, American's share of the net proceeds from the sale was
applied to eliminate the Company's outstanding bank debt. The net book value of
the Company's interest in the Sawyer Field is reflected as a current asset in
the accompanying consolidated balance sheet as of June 30, 1995. The Company
expects to recognize a gain on the sale of the Sawyer Field of approximately $8
million, subject to adjustment, in the third quarter of 1995.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods presented.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1995 1994 1995 1994
-------- ------- ------- -------
<S> <C> <C> <C> <C>
AVERAGE SALES PRICE:
Gas ($/Mcf)........................................ $ 1.74 $ 2.04 $ 1.71 $ 2.10
Oil ($/Bbl)........................................ 17.39 16.11 16.98 14.57
BOE ($/Bbl)........................................ 12.33 13.46 12.06 13.28
PRODUCTION DATA:
Gas (MMcf)......................................... 7,191 3,409 13,853 6,069
Oil (MBbls)........................................ 449 260 854 533
MBOE............................................... 1,648 828 3,163 1,545
ADDITIONAL $/BOE DISCLOSURES:
Production and operating costs..................... $ 4.10 $ 5.12 $ 4.28 $ 5.15
Production and severance taxes (1)................. .65 .80 .62 .78
Depreciation, depletion and amortization........... 4.75 8.10 4.92 8.36
</TABLE>
(1) Excludes franchise and ad valorem taxes.
REVENUES
Oil and gas sales totaled $20.3 million for the second quarter of 1995,
compared to $11.1 million for the same period in 1994. For the first six months
of the year, oil and gas sales totaled $38.2 million in 1995 and $20.5 million
in 1994. The significant increases in sales revenues for the 1995 periods
reflect the doubling of total production volumes which resulted from the
acquisition of investors' interests in oil and gas properties through the APPL
Consolidation and successful development activity.
Oil production and gas production increased 73% and 111%, respectively,
for the second quarter of 1995, as compared to the same quarter of 1994,
resulting in a $10.8 million increase in sales. For the first half of 1995,
sales increased $21.0 million over the comparable period a year ago as oil
production climbed 60% to 854 MBbls and gas production more than doubled to 13.9
Bcf. In addition to the APPL Consolidation, higher production volumes also
reflect the results of drilling activities in the Sawyer, Brazos 440 and West
McAllen fields.
The favorable impact of increased production was partially offset by the
decline in current year gas prices. American's 1995 realized gas price fell to
$1.74 for the quarter and $1.71 year-to-date from $2.04 and $2.10 for the
comparable periods last year. As a result, second quarter 1995 sales revenues
were reduced by $2.2 million and year-to-date 1995 sales were lowered by $5.5
million, net of a $953,000 gain from gas price hedges.
The negative impact of lower gas prices was partially offset by higher oil
prices. For the second quarter of 1995, American realized an average price of
$17.39 per barrel with the 8% increase over the comparable 1994 quarter adding
$575,000 to sales revenues, net of $299,000 losses on oil price hedges.
Favorable oil prices made a more significant impact on the year-to-date period,
averaging $16.98 per barrel in 1995 or 17% above the first half of 1994 when oil
prices were particularly low during the first quarter. For the six-month period,
the increase in oil prices contributed $2.1 million to sales, net of $370,000
hedging losses.
During the first six months of 1995, the Company recorded net gas
settlement income of $879,000 which primarily includes the proceeds received in
the first quarter from certain litigation with Louisiana Intrastate Gas
Corporation. For the first half of 1994, the Company recorded $231,000 of gas
settlement income.
9
EXPENSES
Reflecting the acquisition of interests pursuant to the APPL
Consolidation, production and operating costs increased to $6.8 million and
$13.5 million for the three and six months ended June 30, 1995, respectively,
compared to $4.2 million and $8.0 million for the same periods in 1994. On a
unit of production basis, American's operating cost per BOE decreased to $4.10
for the quarter and $4.28 for the first six months of 1995 from $5.12 and $5.15
for the comparable 1994 periods. The 20% decline in unit operating cost for the
quarter (17% year-to-date) highlights the Company's improved operating
efficiency attributable to higher production from new wells and operating cost
reductions on other properties.
Depreciation, depletion and amortization ("DD&A") totaled $7.8 million for
the second quarter of 1995, compared to $6.7 million for the same period in
1994. For the first half of the year, DD&A totaled $15.6 million in 1995 and
$12.9 million in 1994. Although total DD&A expense increased due to higher
production volumes, DD&A per BOE decreased to $4.75 and $4.92 for the quarter
and six months ended June 30, 1995, respectively, from $8.10 and $8.36 for the
comparable periods last year. The decline in the DD&A rate reflects the effects
of the acquisition of interests through the APPL Consolidation and the reduction
in cost basis on certain properties as a result of an impairment charge recorded
in the fourth quarter of 1994.
General and administrative expense ("G&A") was relatively unchanged for
the second quarter totaling $1.5 million in 1995 and $1.6 million in 1994.
Another measure of improvements in operating efficiency following the APPL
Consolidation is the 53% decline in G&A per unit of production to $.91 per BOE
in the second quarter of 1995 from $1.92 per BOE for the comparable 1994
quarter. For the first six months of 1995, G&A totaled $3.0 million or 19% below
the comparable period a year ago. The year-to-date decrease primarily reflects
personnel reductions in the first half of 1994 partially offset by the loss of
management fees related to the APPL Programs.
Increases in taxes other than income to $1.7 million and $3.1 million for
the quarter and six months ended June 30, 1995, respectively, reflect higher oil
and gas production.
During the first quarter of 1994, American recorded impairment expense of
$6.8 million mainly related to the write-off of the Company's remaining
leasehold costs in Tunisia.
Reflecting higher levels of debt outstanding primarily as a result of the
APPL Consolidation, interest expense increased 11% for the quarter and 14%
year-to-date to $1.9 million and $3.9 million for respective periods of 1995.
EXTRAORDINARY ITEM
The $2.5 million extraordinary gain recorded in 1995 and the $2.0 million
gain in 1994 resulted from the extinguishment of nonrecourse debt in conjunction
with the repurchases of investors' interests in the APPL Debt Programs.
NET INCOME (LOSS) TO COMMON STOCK
American recorded net income to common stock for the second quarter of
1995 of $540,000, or $0.05 per share, compared to a net loss to common stock of
$2.7 million, or $0.38 per share, for the same quarter last year. For the first
six months of 1995, the Company recognized net income to common stock of $2.1
million, or $0.17 per share, compared to a net loss to common stock of $16.0
million, or $2.26 per share, for the same period in 1994. Net income in 1995 is
primarily attributable to income from operations which has resulted from
operating efficiencies achieved through the APPL Consolidation and from the
reduction in the Company's DD&A rate. For the first six months of 1995, income
was also enhanced by the recording of the extraordinary gain and the receipt of
gas settlement income.
10
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $15.8 million during the
first six months of 1995 compared to a utilization of $2.3 million of cash flows
from operating activities during the same period of 1994. The improvement in
operating cash flow reflects the impact of the APPL Consolidation and successful
development activity which together have more than doubled oil and gas
production in the first six months of 1995 as compared to the same period a year
ago. Cash flows for the first half of 1994 reflected negative changes in working
capital of $6.0 million due to the timing of payments relating to accounts
payable and accrued liabilities.
The Company's 1995 capital expenditure budget for acquisitions,
development and exploration is currently set at approximately $35 million.
During the first six months of 1995, capital expenditures for the acquisition of
oil and gas properties totaled $10.2 million, compared to $7.5 million in the
1994 period. Acquisitions in 1995 reflect the purchase of American's 20% general
partner's interest in ANCON for $6.7 million. In this transaction the Company
acquired an interest in certain oil and gas properties which had previously been
owned by New York Life as an investor in the APPL Programs. Acquisition
expenditures in 1995 also include $1.5 million for an interest in the Buckner
Field, $1.3 million related to the APPL Consolidation and the purchases of
several offshore blocks in the Gulf of Mexico. The prior year's acquisition
expenditures include $6.9 million for the repurchase of numerous small
investors' interests in the APPL Programs.
In January 1995, the Company repurchased the remaining two investors'
interests in several APPL Partnerships and the APPL Debt Programs for a
combination of $1.3 million in cash, as mentioned above, and the issuance of
approximately 346,000 shares of the Company's common stock, thereby eliminating
the remaining $6.6 million of nonrecourse debt outstanding at year-end 1994.
Development and exploration expenditures for the first half of 1995
totaled $13.3 million. Significant development projects include completion of
two wells offshore in the Gulf of Mexico in the Vermillion Block 115 and the
West Cameron Block 408 and projects in the West McAllen Field in South Texas.
Approximately $10 million of additional development and exploration expenditures
are budgeted for the second half of 1995. This amount may be increased should
additional opportunities arise.
Bank debt increased $34.5 million in the first half of 1995 as the Company
used its bank credit facility to refinance the $31.1 million balance outstanding
under the bridge debt facility, which had provided interim financing for a
portion of the APPL Consolidation. At June 30, 1995, bank debt totaled $62.5
million; however, American repaid all of the outstanding bank debt primarily
using the proceeds from the sale of the Company's interest in the Sawyer Field,
as discussed below. As a result, the Company's debt to capitalization ratio will
be reduced to approximately 27%. The borrowing base, or amount available, under
the bank credit facility after the close of the Sawyer sale is $55.0 million.
On July 27, 1995, the Company sold its interest in the Sawyer Field to
Louis Dreyfus Natural Gas Corp. for a purchase price of approximately $64.0
million net to American's interest. As of December 31, 1994, American's interest
in the Sawyer Field represented approximately 27% of the Company's total proved
reserves, and the present value of the future net cash flows, discounted at 10%,
related to American's interest in the field totaled approximately $29.7 million.
The sale of the Sawyer Field will reduce operating cash flow by approximately
$800,000 per month, offset by approximately $300,000 per month of interest
expense savings. Management believes that production from recently completed
wells will further mitigate the impact of the sale on operating cash flow. The
elimination of bank debt as a result of the sale places the Company in a strong
financial position which will allow American to pursue other projects in
progress and additional projects in the offshore Gulf of Mexico and onshore Gulf
Coast areas.
The Company intends to fund its planned capital expenditures, commitments
and working capital requirements through cash flows from operations and, if
necessary, borrowings under its bank credit facility. However, if there are
changes in oil and gas prices, which correspondingly affect cash flows and bank
borrowings, or if additional development and exploration opportunities arise,
American has the discretion and ability to adjust its capital budget
accordingly. Other potential sources of capital for the Company include property
sales and financings through the placement of notes or the sale of equity.
Management believes that the Company will have sufficient capital resources and
liquidity to fund its capital expenditures and meet its financial obligations as
they are due.
11
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Information regarding legal proceedings of the Company is set forth in
Note 7 to the Consolidated Financial Statements in Item 1 of Part I, which
information is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES
On June 13, 1995, stockholders of the Company approved a decrease in
authorized shares of American common stock from 200,000,000 to 50,000,000
shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on June 13, 1995, the
stockholders elected all of the nominees for directors set forth in the
Company's proxy statement as follows:
AFFIRMATIVE VOTES
VOTES WITHHELD
----------- ---------
Mark Andrews 111,526,869 910,267
Harry W. Colmery, Jr. 111,354,259 1,082,877
Irvin K. Culpepper, Jr. 103,344,980 9,092,156
Walter J. P. Curley 111,353,811 1,081,325
Phillip Frost, M.D. 111,560,269 876,867
Peter G. Gerry 111,365,565 1,071,571
H. Phipps Hoffstot, III 111,368,404 1,068,732
John H. Moore 111,553,466 883,670
Peter P. Nitze 111,369,009 1,068,127
The Company's stockholders also approved a one-for-ten reverse stock split
of the Company's common stock, a decrease in the number of authorized shares of
common stock to 50,000,000 and the related amendment of the Company's Restated
Certificate of Incorporation. This proposal received (i) 107,423,771 affirmative
votes, 4,558,190 negative votes and 236,263 abstentions by the holders of the
Company's common stock and preferred stock voting together as a class and (ii)
99,148,287 affirmative votes, 4,484,989 negative votes and 236,263 abstentions
by the holders of the Company's common stock voting alone as a class. In
addition, the Company's stockholders approved the 1994 American Exploration
Company Stock Compensation Plan with 83,264,877 affirmative votes, 16,094,080
negative votes and 767,490 abstentions. The Company's stockholders also approved
the appointment of Arthur Andersen LLP as American's independent public
accountants for 1995. This proposal received 112,430,917 affirmative votes,
522,832 negative votes and 177,790 abstentions.
ITEM 5. OTHER INFORMATION
DISPOSITION OF ASSETS
On July 27, 1995, the Company sold its interest in the Sawyer Field to
Louis Dreyfus Natural Gas Corp. ("Louis Dreyfus") for a purchase price of
approximately $64.0 million net to American's interest. The Company applied
substantially all of the proceeds to eliminate outstanding bank debt. The
Company expects to recognize a gain on sales of oil and gas properties of
approximately $8 million, subject to adjustment, in the third quarter of 1995.
Louis Dreyfus also purchased additional interests in the Sawyer Field held by
certain limited partnerships for which the Company is the managing general
partner.
12
At year-end 1994, American's net interest in the proved reserves at the
Sawyer Field totaled 65.5 Bcf of natural gas (approximately 27% of the Company's
total proved reserves on a barrel of oil equivalent basis at that date) and the
present value of the future net cash flows, discounted at 10%, related to
American's interest totaled approximately $29.7 million. As part of the sale of
the Sawyer Field, the Company also sold approximately 10 Bcf of proved reserves
acquired through the APPL Consolidation in early 1995.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Statements") give effect to the sale of American's
interest in the Sawyer Field and the APPL Consolidation. The Pro Forma
Statements also reflect the impact of the second quarter 1995 sales of interests
in several other fields for proceeds of approximately $1.5 million. The pro
forma balance sheet as of June 30, 1995 was prepared assuming the Sawyer sale
was consummated as of June 30, 1995. The pro forma statements of operations for
the six months ended June 30, 1995 and the year ended December 31, 1994 were
prepared assuming that all of these transactions occurred as of January 1, 1994.
As a result of the APPL Consolidation in 1994 and 1995, American acquired
significant additional interests in the Sawyer Field, increasing its working
interest ownership from 12.5% at the beginning of 1994 to 65% at the date of the
sale. Therefore, the pro forma statements of operations reflect the sale of the
65% interest in the Sawyer Field, after giving effect to the APPL Consolidation.
These Pro Forma Statements do not purport to be indicative of the
financial position or results of operations that would have been reported had
these transactions occurred as of the dates indicated above, or that may be
reported in the future.
13
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
AMERICAN ADJUSTMENTS PRO FORMA
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments............. $ 8,972 $ $ 8,972
Accounts receivable............................. 12,515 12,515
Assets held for sale............................ 52,227 (52,227)(a) --
Other current assets............................ 890 890
----------- ---------- ----------
Total current assets......................... 74,604 (52,227) 22,377
----------- ---------- ----------
Net property, plant and equipment.................. 149,813 149,813
----------- ---------- ----------
Other assets....................................... 1,164 1,164
----------- ---------- ----------
Total assets................................. $ 225,581 $ (52,227) $ 173,354
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............ $ 7,665 $ (7,500)(b) $ 165
Accounts payable and accrued liabilities........ 26,743 26,743
Other current liabilities....................... 1,725 1,725
----------- ---------- ----------
Total current liabilities.................... 36,133 (7,500) 28,633
----------- ---------- ----------
Long-term debt..................................... 90,045 (53,100)(b) 36,945
----------- ---------- ----------
Other liabilities.................................. 5,106 5,106
----------- ---------- ----------
Stockholders' equity............................... 94,297 8,373 (c) 102,670
----------- ---------- ----------
Total liabilities and stockholders'
equity ................................. $ 225,581 $ (52,227) $ 173,354
=========== ========== ==========
</TABLE>
(a) To reflect the sale of American's interest in the Sawyer Field as of June
30, 1995.
(b) To reflect the application of the net proceeds from the sale to reduce
outstanding bank debt.
(c) To reflect the gain on the sale of the properties, which will be subject
to adjustment in the third quarter of 1995.
14
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------
HISTORICAL APPL
AMERICAN CONSOLIDATION SAWYER OTHER PRO FORMA
---------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales......... $ 38,159 $ 646 (a) $ (7,755)(d) $ (493)(f) $ 30,557
Other revenues, net....... 1,403 70 (a) 1,473
-------- -------- -------- -------- ---------
Total revenues......... 39,562 716 (7,755) (493) 32,030
-------- -------- -------- -------- ---------
COSTS AND EXPENSES:
Production and operating.. 13,524 279 (a) (2,658)(d) (418)(f) 10,727
Depreciation, depletion and
amortization........... 15,552 339 (a) (2,431)(d) (99)(f) 13,237
(124)(b)
General and administrative 2,983 56 (a) 3,039
Taxes other than income... 3,138 26 (a) (168)(d) (33)(f) 2,963
Exploration............... 160 160
-------- -------- -------- -------- ---------
Total costs and
expenses ............ 35,357 576 (5,257) (550) 30,126
-------- -------- -------- -------- ---------
INCOME FROM OPERATIONS....... 4,205 140 (2,498) 57 1,904
-------- -------- -------- -------- ---------
Other income (expense), net . (3,699) 47 (a) 1,914 (e) (1,542)
196 (c)
Income tax provision......... (11) (11)
-------- -------- -------- -------- ---------
(3,710) 243 1,914 -- (1,553)
-------- -------- -------- -------- ---------
INCOME BEFORE EXTRAORDINARY
ITEM ...................... 495 383 (584) 57 351
Preferred stock dividends.... (900) (900)
-------- -------- -------- -------- ---------
LOSS TO COMMON STOCK BEFORE
EXTRAORDINARY ITEM........ $ (405) $ 383 $ (584) $ 57 $ (549)
======== ======== ======== ======== =========
LOSS BEFORE EXTRAORDINARY ITEM
PER COMMON SHARE:
Primary and fully diluted. $ (0.03) $ (0.05)
======== =========
NUMBER OF COMMON AND
EQUIVALENT SHARES:
Primary and fully diluted. 11,811 3 11,814
======== ======== =========
</TABLE>
(a) To reflect the results of operations related to the interests in oil and
gas properties which were acquired by American for aggregate cash
consideration of $8.0 million and the issuance of approximately 346,000
shares of the Company's common stock valued at $12.50 per share.
(b) To adjust the historical depletion related to the acquired interests to
give effect to the new basis in oil and gas properties under the purchase
method of accounting.
(c) To eliminate historical interest expense related to the nonrecourse debt
of the APPL Debt Programs.
(d) To eliminate the results of operations of American's 65% net working
interest in the Sawyer Field.
(e) To adjust historical interest expense to reflect the elimination of
outstanding bank debt.
(f) To eliminate the results of operations of certain other oil and gas
properties which were sold by American.
Note: The pro forma condensed consolidated statement of operations does not
consider the nonrecurring gain on the sale of oil and gas properties
related to the sale of the Sawyer Field. The Company expects to recognize
a gain of approximately $8 million, subject to adjustment, in the third
quarter of 1995. No income tax expense has been recognized on the gain.
15
<PAGE>
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------
HISTORICAL APPL
AMERICAN CONSOLIDATION SAWYER OTHER PRO FORMA
---------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales......... $ 50,033 $ 28,310 (a) $(14,143)(d) $ (1,565)(f) $ 62,635
Other revenues, net....... 1,326 (7)(a) 1,319
-------- -------- -------- -------- ---------
Total revenues......... 51,359 28,303 (14,143) (1,565) 63,954
-------- -------- -------- -------- ---------
COSTS AND EXPENSES:
Production and operating.. 21,302 11,655 (a) (5,731)(d) (1,275)(f) 25,951
Depreciation, depletion
and amortization....... 29,616 16,633 (a) (4,168)(d) (354)(f) 32,766
(8,961)(b)
General and administrative 10,035 2,635 (a) 12,670
Taxes other than income... 5,710 1,860 (a) (434)(d) (121)(f) 7,015
Exploration............... 2,559 2,559
Impairment................ 33,570 4,730 (a) 38,300
-------- -------- -------- -------- ---------
Total costs and
expenses ............ 102,792 28,552 (10,333) (1,750) 119,261
-------- -------- -------- -------- ---------
LOSS FROM OPERATIONS......... (51,433) (249) (3,810) 185 (55,307)
Other income (expense), net.. (9,257) (159)(a) 2,706 (e) (4,226)
2,484 (c)
Income tax benefit........... 455 455
-------- -------- -------- -------- ---------
LOSS BEFORE EXTRAORDINARY
ITEM ...................... (60,235) 2,076 (1,104) 185 (59,078)
Preferred stock dividends.... 1,800 1,800
-------- -------- -------- -------- ---------
LOSS TO COMMON STOCK BEFORE
EXTRAORDINARY ITEM........ $(62,035) $ 2,076 $ (1,104) $ 185 $ (60,878)
======== ======== ======== ======== =========
LOSS BEFORE EXTRAORDINARY ITEM
PER COMMON SHARE:
Primary and fully diluted. $ (7.70) $ (5.19)
======== =========
NUMBER OF COMMON AND
EQUIVALENT SHARES:
Primary and fully diluted. 8,061 3,665 11,726
======== ======== =========
</TABLE>
(a) To reflect the results of operations related to the interests in oil and
gas properties which were acquired by American for aggregate cash
consideration of $39.1 million and the issuance of approximately 4.6
million shares of the Company's common stock with a weighted average value
of $13.13 per share.
(b) To adjust the historical depletion related to the acquired interests to
give effect to the new basis in oil and gas properties under the purchase
method of accounting.
(c) To eliminate historical interest expense related to the nonrecourse debt
of the APPL Debt Programs.
(d) To eliminate the results of operations of American's 65% net working
interest in the Sawyer Field.
(e) To adjust historical interest expense to reflect the elimination of
outstanding bank debt.
(f) To eliminate the results of operations of certain other oil and gas
properties which were sold by American.
Note: The pro forma condensed consolidated statement of operations does not
consider the nonrecurring gain on the sale of oil and gas properties
related to the sale of the Sawyer Field. The Company expects to recognize
a gain of approximately $8 million, subject to adjustment, in the third
quarter of 1995. No income tax expense has been recognized on the gain.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a) Purchase and Sale Agreement, dated June 12, 1995, by and among
American Exploration Company and the partnerships identified on
the signature pages hereof, collectively as Sellers, and Louis
Dreyfus Natural Gas Corp., as Purchaser.
12 Statements Re Computations of Ratios
27 Financial Data Schedule
(b) The Registrant filed the following Report on Form 8-K during the
second quarter of 1995.
1. Form 8-K, dated June 12, 1995, reporting American's intent to
sell its interest in the Sawyer Field and reporting
stockholders' approval of a one-for-ten reverse common stock
split.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN EXPLORATION COMPANY
Date: August 10, 1995 By: /s/ MARK ANDREWS
Mark Andrews
Chairman of the Board
and Chief Executive Officer
Date: August 10, 1995 By: /s/ JOHN M. HOGAN
John M. Hogan
Senior Vice President
and Chief Financial Officer
(Also Principal Accounting Officer)
18
Exhibit 10(a)
PURCHASE AND SALE AGREEMENT
by and among
AMERICAN EXPLORATION COMPANY
and
THE PARTNERSHIPS
IDENTIFIED ON THE SIGNATURE PAGES HEREOF,
collectively as Sellers
and
LOUIS DREYFUS NATURAL GAS CORP.,
as Purchaser
June 12, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS.................................. 1
ARTICLE II. PURCHASE AND SALE............................ 11
Section 2.1. Purchase and Sale...................... 11
Section 2.2. Transfer of Ownership of
Production............................. 11
Section 2.3. Closing Date........................... 11
ARTICLE III. PURCHASE PRICE............................... 11
Section 3.1. Preliminary Purchase Price............. 11
Section 3.2. Allocation of Preliminary Purchase
Price.................................. 11
Section 3.3. Manner of Payment of Preliminary
Purchase Price......................... 12
Section 3.4. Adjustments to Preliminary Purchase
Price.................................. 12
ARTICLE IV. DUE DILIGENCE EXAMINATION.................... 14
Section 4.1. Inspection of Files.................... 14
Section 4.2. On-Site Tests and Inspections;
Environmental Defects.................. 15
Section 4.3. Defect Adjustments..................... 18
Section 4.4. Casualty Loss.......................... 23
Section 4.5. Preferential Purchase Rights and
Consents to Assignment................. 24
ARTICLE V. ASSUMPTION OF OBLIGATIONS; INDEMNITIES....... 27
Section 5.1. Purchaser.............................. 27
Section 5.2. Sellers................................ 29
Section 5.3. Notice of Claims; Defense;
Settlement............................. 32
ARTICLE VI. SELLERS' REPRESENTATIONS AND WARRANTIES...... 33
Section 6.1. Representations and Warranties......... 33
(a) Organization and Authority................... 33
(b) Due Execution................................ 34
(c) Binding Agreement............................ 34
(d) No Conflict.................................. 35
(e) No Breach or Default......................... 35
(g) Brokers' Fees................................ 36
(h) Regulatory Matters........................... 36
(i) Preferential Purchase Rights and
Consents to Assignment....................... 36
(j) Litigation................................... 37
(k) Taxes........................................ 37
i
(l) Leases and Wells............................. 37
(m) Marketing.................................... 38
(n) Basic Documents.............................. 39
(o) Unit, Pooling and Communitization
Agreements................................... 39
(p) Operating Agreements......................... 40
(q) Environmental Matters........................ 40
(r) Plugging and Abandonment..................... 41
(s) Disbursement of Proceeds..................... 41
(t) Certain Agreements; Payouts.................. 41
Section 6.2. DISCLAIMER OF WARRANTIES............... 42
ARTICLE VII. PURCHASER'S REPRESENTATIONS AND
WARRANTIES................................... 42
(a) Organization and Authority................... 42
(b) Due Execution................................ 43
(c) Binding Agreement............................ 43
(d) No Conflict.................................. 43
(e) No Breach or Default......................... 44
(f) Bankruptcy................................... 44
(g) Brokers' Fees................................ 44
ARTICLE VIII. SELLERS' OBLIGATIONS PRIOR TO CLOSING........ 44
Section 8.1. Operations Prior to Closing............ 44
Section 8.2. Restrictions on Operations............. 45
ARTICLE IX. ADDITIONAL AGREEMENTS OF THE PARTIES......... 46
Section 9.1. Books and Records...................... 46
Section 9.2. Safeguarding Information............... 47
Section 9.3. Confidentiality of Information......... 48
Section 9.4. Compliance with Conditions............. 48
Section 9.5. Designation as Operator................ 48
Section 9.6. Cooperation; Claims and Demands........ 48
Section 9.7. Suspense Accounts...................... 49
Section 9.8. HSR Act................................ 49
Section 9.9. Tradenames and Trademarks.............. 49
Section 9.10. Operations Until the Closing Date...... 49
Section 9.11. Bulk Transfers Law..................... 50
Section 9.12. Gas Balancing.......................... 50
Section 9.13. SEC Reports, etc....................... 50
ARTICLE X. CONDITIONS PRECEDENT TO PURCHASER'S
OBLIGATIONS.................................. 51
ARTICLE XI. CONDITIONS PRECEDENT TO SELLERS'
OBLIGATIONS.................................. 52
ii
ARTICLE XII. TERMINATION; REMEDIES FOR BREACH............. 53
Section 12.1. Right of Termination................... 53
Section 12.2. Sellers' Remedies for Breach........... 53
Section 12.3. Purchaser's Remedies for Breach........ 53
Section 12.4. Extension of Closing Date;
Withdrawal of Notice................... 54
ARTICLE XIII. TRANSACTIONS AT AND AFTER CLOSING;
PROCEDURE.................................... 54
Section 13.1. Closing Date Procedure................. 54
Section 13.2. Closing Documents...................... 54
Section 13.3. Time of Closing........................ 55
Section 13.4. Place of Closing....................... 55
Section 13.5. Closing Obligations.................... 55
Section 13.6. Further Assurances..................... 58
Section 13.7. Accounting for Proceeds from the
Sale of Production..................... 58
Section 13.8. Post-Closing Adjustments............... 58
ARTICLE XIV. MISCELLANEOUS................................ 59
Section 14.1. Notices................................ 59
Section 14.2. Binding Effect......................... 60
Section 14.3. Counterparts........................... 61
Section 14.4. Expenses............................... 61
Section 14.5. Article and Section Headings........... 61
Section 14.6. Entire Agreement....................... 61
Section 14.7. Governing Law.......................... 61
Section 14.8. Survival of Representations,
Warranties, Covenants and
Agreements............................. 61
Section 14.9. Concerning Sellers..................... 62
Section 14.10. Public Announcements................... 62
Section 14.11. Taxes.................................. 63
Section 14.12. Amendment.............................. 63
Section 14.13. Waiver; Rights Cumulative.............. 63
Section 14.14. Severability........................... 64
iii
INDEX TO EXHIBITS
EXHIBIT "A"
- Description of the Leases
- Liens to be Released at Closing
EXHIBIT "B"
- Net Revenue Interest and Working Interest
- Schedule of Allocated Values
EXHIBIT "C"
-- "C-1" - Regulatory Violations
-- "C-2" - Preferential Purchase Rights
and Consents to Assignment
-- "C-3" - Litigation
-- "C-4" - Taxes
-- "C-5" - Leases; Production; Basic
Documents
-- "C-6" - Marketing
-- "C-7" - Drilling
-- "C-8" - Environmental Violations
-- "C-9" - Certain Agreements; Payouts
EXHIBIT "D"
- Form of Assignment, Bill of Sale and
Conveyance
iv
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("this Agreement") is made and
entered into this 12th, day of June, 1995, by and among AMERICAN EXPLORATION
COMPANY, a Delaware corporation ("AX") and the partnerships identified on the
signature pages hereof (AX and each such partnership, a "Seller", and
collectively, "Sellers"), and LOUIS DREYFUS NATURAL GAS CORP., an Oklahoma
corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Sellers own certain interests in certain oil and gas
properties and related assets; and
WHEREAS, Sellers desire to sell and assign to Purchaser and
Purchaser desires to purchase and accept from Sellers all of each such Sellers'
interest in and to such oil and gas properties and related assets upon the terms
and conditions and for the consideration hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Sellers and Purchaser hereby agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"AFE's" - has the meaning set forth in Section 6.1(p).
"APPL-VII" - has the meaning set forth in Section 4.5(D).
"AX" - has the meaning set forth in the preamble hereto.
"AX Banks" - Morgan Guaranty Trust Company of New York, Bank of Montreal
and Banque Paribas, the Banks party to the Credit Agreement with AX, as
Borrower, dated December 21, 1994, as amended.
1
"Allocated Value(s)" - Those values allocated to the Evaluated Interests
pursuant to Section 3.2 and shown on Exhibit "B".
"Assets" - All of Sellers' right, title and interest in, to and under the
following:
(a) All of those properties described in Exhibit "A" attached
hereto and made a part hereof for all purposes, and all
Hydrocarbons produced therefrom from and after the Effective
Date;
(b) Without limitation of the foregoing, all other right, title
and interest of Sellers of whatever kind of character, whether
legal or equitable, vested or contingent, in and to the oil,
gas and other minerals in and under or that may be produced
from or attributable to the lands described in Exhibit "A",
including, without limitation, interests in the oil, gas
and/or mineral leases covering all or any part of such lands,
overriding royalty interests, production payments and net
profits interests in all or any part of such lands or such
leases, and fee royalty interests, fee mineral interests and
other interests in oil, gas and other minerals in all or any
part of such lands whether such lands are described in Exhibit
"A" or are described by reference to another instrument set
forth in Exhibit "A", even though Sellers' interests in such
oil, gas and other minerals may be incorrectly described in or
omitted from such Exhibit "A";
(c) All right, title and interest of Sellers in and to or
otherwise derived from all presently existing and valid oil,
gas and/or mineral unitization, pooling, and/or
communitization agreements, declarations and/or orders
covering or relating to the properties described in
subsections (a) and (b) of this definition above, 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
2
agreements, designations and/or declarations, and so-called
"working interest units" created under operating agreements or
otherwise relating to the properties described in subsections
(a) and (b) above;
(d) All Operating Equipment;
(e) All oil produced from or attributable to the properties
described above in subsections (a), (b), and (c) that is in
storage or in tanks upstream of the pipeline connections or
other delivery points to the relevant purchasers;
(f) All Claims;
(g) All rights of Sellers under all Basic Documents; and
(h) All Records.
"Basic Documents" - Leases; operating agreements; balancing agreements;
oil, gas, liquids, casinghead gas and condensate purchase, sales,
processing, gathering, storage, treatment, compression and transportation
agreements; farmount, farmin, and participation agreements; dry hole,
bottom hole, acreage contribution, purchase and acquisition agreements;
area of mutual interest agreements; salt water disposal agreements;
service contracts; easement and/or right-of-way agreements; unitization,
communitization or pooling agreements; equipment or facilities leases;
surface leases, permits, licenses, and servitudes; and all other contracts
and agreements relating to the properties and interests described in
subsections (a), (b), (c), (d), and (e) set out in the definition of
"Assets" above or that relate to the exploration, development, operation
or maintenance thereof or the treatment, storage, transportation or
marketing of production therefrom or allocated thereto.
"Claims" - All claims of each Seller against gas purchasers for "take or
pay" obligations with respect to the Evaluated Interests to the extent
such claims have not been paid to or settled by such Seller as of the
Effective Date, and all obligations and benefits with respect to any gas
production, processing, or
3
transportation imbalances that are to be assumed or received by Purchaser
pursuant to Section 9.12 hereof.
"Closing" - The consummation of the purchase and sale transaction
contemplated by this Agreement.
"Closing Amount" - has the meaning set forth in Section 13.5(b).
"Closing Date" - Such date selected by Purchaser (but not later than
August 10, 1995) pursuant to Section 2.3, being the date upon which the
Closing is to take place, as such date may be extended pursuant to Section
4.3(E) or Section 12.4.
"Confidentiality Agreement" - that certain confidentiality and standstill
agreement between AX and Purchaser dated February 2, 1995.
"Cure Period" - has the meaning set forth in Section 4.3(B).
"Defect" - has the meaning set forth in Section 4.3(A).
"Defect Closing Date" - has the meaning set forth in Section 4.3(B).
"Defective Interest" - has the meaning set forth in Section 4.3(A).
"Disbursement Properties" - has the meaning set forth in Section 6.1(s).
"Effective Date" - January 1, 1995, at 7:00 a.m., Central Standard Time.
"Environmental Assessment" - has the meaning set forth in Section 4.2(B).
"Environmental Claim" - has the meaning set forth in Section 4.2(C).
"Environmental Contamination" - has the meaning set forth in Section
5.1(B).
"Environmental Laws" - has the meaning set forth in Section 6.1(q).
4
"Environmental Remedial Work" - has the meaning set forth in Section
5.1(B).
"Evaluated Interests" - Those oil and/or gas wells, Leases, units,
drillsite locations, proved undeveloped leasehold interests or other
property interests included in the Assets, which are separately
identified in Exhibit "B" hereto and each of which is associated with a
separate Allocated Value thereon.
"Final Purchase Price" - has the meaning set forth in Section 13.8.
"Final Settlement Date" - has the meaning set forth in Section 13.8.
"Final Settlement Statement" - has the meaning set forth in Section 13.8.
"Good and Defensible Title" - Such title of record that: (i) entitles
Sellers in the aggregate to receive not less than the "Net Revenue
Interest" set forth on Exhibit "B" of all hydrocarbons produced from or
allocated to each Evaluated Interest, without reduction, suspension, or
termination during the productive life of the respective Evaluated
Interest, except as set forth on Exhibit "C-9"; (ii) obligates Sellers in
the aggregate to bear costs and expenses relating to the maintenance,
development and operation of the respective Evaluated Interest in an
amount not greater than the "Working Interest" set forth on such Exhibit
"B", without increase during the productive life of the relevant Evaluated
Interest except as set forth on Exhibit "C-9" (unless Sellers' aggregate
"Net Revenue Interest" therein is increased in the same proportion); and
(iii) is free and clear of and is not subject to any encumbrances, liens,
irregularities or other defects, other than Permitted Encumbrances;
provided, however, that for purposes of this definition, the production
payment or other burden created by the instrument identified in Exhibit
"C-5" - Material Basic Documents as item 9, "Enron", shall not be deemed
to be a Permitted Encumbrance.
"HSR Act" - has the meaning set forth in Section 9.8.
"Hazardous Substance" - Any substance, chemical or waste that is listed or
included as hazardous, toxic or dangerous under any Environmental Law,
including,
5
without limitation, (a) "hazardous substances," "pollutants or
contaminants," and "petroleum, including any fraction thereof, and natural
gas, liquid natural gas, or synthetic gas of pipeline quality" as those
terms are defined or used in Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, and (b) naturally
occurring radioactive material ("NORM") concentrated or disposed of in
association with oil and gas activities.
"Hydrocarbons" - Oil, gas, sulphur and associated liquids and other
associated gases produced, saved and marketed from or attributable to the
properties and interests described in subsections (a), (b) and (c) set out
in the definition of "Assets" above, to the extent such substances are
included in the Leases.
"IRC" - has the meaning set forth in Section 13.5(k)(3).
"Information" - has the meaning set forth in Section 9.1(B).
"Initial Settlement Statement" - has the meaning set forth in Section
13.5(b).
"Intermediate Settlement Statement" - has the meaning set forth in Section
13.8.
"Lands" - All of the lands covered by the Leases or included in units with
which the Leases, or any of them, may have been pooled or unitized.
"Lease" or "Leases" - Those oil and gas leases, oil, gas and mineral
leases, and surface leases listed and described on Exhibit "A", including
all amendments, extensions and ratifications thereof.
"Loss" - has the meaning set forth in Section 5.1(A).
"Operating Equipment" - All surface or subsurface machinery, equipment,
platforms, facilities, supplies or other property of whatsoever kind or
nature (excluding temporary platforms, temporary drilling rigs, vessels,
or other movable temporary property taken to the Lands to drill a well or
for other similar temporary uses), wherever located, which relate to or
are useful or being held for use for the exploration, development,
operation or maintenance of any of the properties and interests described
in subsections (a), (b) and (c) set out in the
6
definition of "Assets" above, or the treatment, storage, gathering,
transportation or marketing of the production therefrom or allocated
thereto, including, without limitation, all oil wells, gas wells, water
wells, salt water disposal wells, injection wells, wellhead equipment,
casing, tubing, rods, pumping units and engines, Christmas trees,
derricks, separators, compressors, dehydration units, heater-treaters,
boilers, valves, gauges, meters, pumps, generators, motors, gun barrels,
flow lines, tanks and tank batteries, water lines, gas lines, gas
processing plants and other plants, gathering lines, laterals and
trunklines, gas systems (for gathering, treating and compression),
chemicals, solutions, water systems (for treating, disposal and
injection), power plants, poles, lines, transformers, starters and
controllers, machine shops, tools, storage yards and equipment stored
therein, buildings and camps, telegraph, telephone and other communication
systems, loading docks, loading racks and shipping facilities, and any and
all additions, accessions to, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.
"Other Sellers" - Each partnership identified on the signature pages
hereof and made a part hereof for all purposes.
"Permitted Encumbrances" -
(a) (i) Lessor's royalties, non-participating royalties, overriding
royalties, production payments, net profits interests, carried
interests, reversionary interests and other similar burdens existing
on the Effective Date; (ii) division orders; (iii) unitization and
pooling designations, declarations, orders and agreements; and (iv)
contracts for the sale, purchase, exchange or processing of
Hydrocarbons to the extent that the net cumulative effect of such
burdens, documents, and agreements is not to (1) reduce the
aggregate net revenue interest of Sellers in any Evaluated Interest
to less than the "Net Revenue Interest" set forth for the relevant
Evaluated Interest on Exhibit "B" during the productive life of such
Evaluated Interest except as set forth on Exhibit "C-9", or (2)
increase the aggregate working interest of Sellers in any
7
Evaluated Interest to more than the "Working Interest" set forth for
such Evaluated Interest on Exhibit "B" during the productive life of
such Evaluated Interest except as set forth on Exhibit "C-9" (unless
Sellers' aggregate net revenue interest therein is increased in the
same proportion);
(b) Preferential rights to purchase and required third party consents to
assignments and similar agreements with respect to which prior to
the Closing Date (i) written waivers or consents are obtained from
the appropriate parties or (ii) the contractual time periods for
asserting such rights have expired without an exercise of such
rights;
(c) Liens for taxes or assessments not yet due or not yet delinquent or,
if delinquent, that are being and will be contested in good faith in
the ordinary course of business;
(d) All rights to consent by, required notices to, filings with, or
other actions by governmental entities in connection with the sale
or conveyance of oil and gas leases or interests therein if the same
are customarily obtained subsequent to such sale or conveyance, and
Purchaser has no reason to believe that they cannot be obtained;
(e) Easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations, timber leases,
pipelines, grazing, logging, canals, ditches, reservoirs or the like
and conditions, covenants or other restrictions and easements for
streets, alleys, highways, pipelines, telephone lines, power lines,
railways and other easements and rights-of-way, on, over or in
respect of any of the Evaluated Interests and which do not impair or
interfere materially with the ownership, operation, use, or value of
the Evaluated Interest affected thereby;
(f) Existing arrangements among Sellers and the owners of certain of the
Lands, arising under the terms of the Leases or otherwise, to
provide gas to such owners for such owners' use free of charge, as
set forth on Exhibit "C-5";
8
(g) Such other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects and irregularities affecting the
Evaluated Interests (including, without limitation, liens of
operators relating to obligations not yet due or pursuant to which
no Seller is in default) that will not interfere materially with the
ownership, operation, use or value of the Evaluated Interest
affected thereby;
(h) Liens to be released at the Closing that are disclosed on Exhibit
"A" (provided that valid releases are obtained and presented to
Purchaser at the Closing pursuant to Section 13.5(g) below);
(i) The terms and conditions of all Leases, agreements, orders,
instruments and Basic Documents listed on Exhibit "C-5" and
furnished to Purchaser for review, provided that the net cumulative
effect of such terms and conditions is not to (x) reduce the
aggregate net revenue interests of Sellers in any Evaluated Interest
to less than the "Net Revenue Interest" set forth for such Evaluated
Interest on Exhibit "B" during the productive life of such Evaluated
Interest, except as set forth on Exhibit "C-9" or (y) increase the
aggregate working interests of Sellers in any Evaluated Interest to
more than the "Working Interest" set forth for such Evaluated
Interest on Exhibit "B" during the productive life of the relevant
Evaluated Interests except as set forth on Exhibit "C-9" (unless
Sellers' aggregate net revenue interest therein is increased in the
same proportion); and
(j) Rights reserved to or vested in any municipality, governmental,
statutory or public authority to control or regulate any of the
Evaluated Interests in any manner, and all applicable laws, rules
and orders of governmental authorities.
"Preliminary Purchase Price" - has the meaning set forth in Section 3.1.
"Pro Rata Share" - With respect to each Asset, the undivided ownership
interest of each Seller in and to such Asset, proportionate to the
aggregate record title ownership interest of all Sellers in the Evaluated
9
Interest constituting such Asset or to which such Asset otherwise relates.
"Records" - All lease files, land and title files (including abstracts of
title, title opinions, and title curative), well files, gas and oil sales
and other contract files, gas processing files, division order files,
operations, environmental, production, and accounting files and records,
correspondence, and all other books, files and records, information and
data (including engineering and geological data and, to the extent
transferrable without violating any applicable license restrictions,
geophysical data other than interpretations thereof and excluding general
financial or accounting records not specifically related to the properties
and rights included in the definition of "Assets") of every kind and
description, whether written or electronically stored, including without
limitation, machine readable documents or data, which relate to any of the
properties and interests described in subsections (a), (b), (c), (d), (e)
and (f) set out in the definition of "Assets" above, and all rights
thereto insofar as the same are in the possession of Seller and are
related to any of such properties and interests, or, in the case of
geological and geophysical data are related exclusively to such properties
and interests.
"Release" - Any spilling, leaking, pouring, emitting, emptying,
discharging, injection, escaping, leaching, transmission, or dumping of
any Hazardous Substance.
"Sonora Gas Contract" - That certain Gas Purchase Agreement between
Natural Gas Marketing & Storage Company, as Buyer, and Sonora Acquisition
Corporation, as Seller, dated September 1, 1993.
"Title Defect" - Any encumbrance, lien, irregularity or other defect in
Seller's title to any portion of any Evaluated Interest that alone or in
combination with other defects renders Seller's title to any portion of
such Evaluated Interest less than Good and Defensible Title.
10
ARTICLE II.
PURCHASE AND SALE
Section 2.1. PURCHASE AND SALE. Subject to the terms, provisions,
conditions and exceptions set forth in this Agreement, each Seller agrees to
sell and convey and Purchaser agrees to purchase and accept on the Closing Date,
but effective as of the Effective Date, each such Seller's Pro Rata Share of the
Assets, subject to the Permitted Encumbrances.
Section 2.2. TRANSFER OF OWNERSHIP OF PRODUCTION. On the Closing
Date, ownership of all (i) oil produced from or attributable to the Assets in
storage or in tanks upstream of the pipeline connections or other delivery
points to the relevant purchasers and (ii) Hydrocarbons produced from and after
the Effective Date attributable to the Assets conveyed to Purchaser shall pass
to Purchaser as of the Effective Date.
Section 2.3. CLOSING DATE. Purchaser will give AX, on behalf of
Sellers, two business days' prior notice of the Closing Date hereunder, which
shall be a business day not later than August 10, 1995.
ARTICLE III.
PURCHASE PRICE
Section 3.1. PRELIMINARY PURCHASE PRICE. The purchase price payable
by Purchaser to Seller for the Assets shall be Ninety-three Million, Two Hundred
Ninety-three Thousand and No/100 Dollars ($93,293,000) (the "PRELIMINARY
PURCHASE PRICE"), subject to adjustment as provided in this Agreement.
Section 3.2. ALLOCATION OF PRELIMINARY PURCHASE PRICE. The
Preliminary Purchase Price shall be allocated to the Evaluated Interests in the
manner set forth on Exhibit "B" hereto and, if necessary, shall be adjusted
separately as to each Evaluated Interest pursuant to Section 3.4. The allocation
of the Preliminary Purchase Price to the Evaluated Interests as set forth on
Exhibit "B" is solely for the purpose of enabling the parties to give effect to
Sections 4.2, 4.3, 4.4 and 4.5 of this Agreement. Sellers and Purchaser do not
intend that such allocation be treated or interpreted to constitute an
allocation of the Preliminary
11
Purchase Price among the Evaluated Interests for federal or state income tax
purposes.
Section 3.3. MANNER OF PAYMENT OF PRELIMINARY PURCHASE PRICE. The
Preliminary Purchase Price, as adjusted as provided in this Agreement, shall be
paid at the Closing by Purchaser to AX for the account of Sellers by wire
transfer of immediately available funds to an account to be designated by AX
prior to the Closing Date.
Section 3.4. ADJUSTMENTS TO PRELIMINARY PURCHASE PRICE. The
Preliminary Purchase Price shall be adjusted at the Closing Date and, if
necessary, at the Final Settlement Date as follows:
(A) The Preliminary Purchase Price shall be adjusted upward by the
sum of the following (without duplication):
(1) the amount of all direct capital and operating costs and
expenses and all expenditures for the development and maintenance
and normal and necessary operation of the Evaluated Interests that
are conveyed to Purchaser at Closing (exclusive of Sellers' general
overhead and administrative expenses, but including rentals and
other lease maintenance payments and fixed rate overhead and other
charges and expenses billed to Sellers by unaffiliated operators
under applicable operating agreements) that relate to the period
after the Effective Date and are incurred and actually paid by or on
behalf of Sellers from the Effective Date to the Closing Date;
(2) the amount of all costs and expenses incurred and actually
paid by Sellers with respect to the Evaluated Interests at the
express written request or with the express written permission of
Purchaser (exclusive of expenditures by Sellers in connection with
the remediation of an Environmental Claim pursuant to Section 4.2,
the acquisition of curative with respect to Defects pursuant to
Section 4.3, and the repair of any casualty loss pursuant to Section
4.4);
(3) an amount equal to all prepaid expenses attributable to
the Evaluated Interests that are conveyed to Purchaser at Closing
and are paid by or on behalf of Sellers prior to the Closing Date
12
to the extent that such expenses are attributable to the period
after the Effective Date including, without limitation, prepaid
utility charges, prepaid ad valorem, property, production, severance
and similar taxes (but not including income taxes) based upon or
measured by the ownership of property or the production of
Hydrocarbons or the receipt of proceeds therefrom, which expenses
are allocated to Purchaser in accordance with Section 3.4(A)(1);
(4) an amount equal to the net value of all merchantable oil
and/or condensate produced from or attributable to the Evaluated
Interests conveyed to Purchaser at Closing that is above the load
line in tanks or other storage facilities upstream of the pipeline
connections or other delivery points to the relevant purchasers at
the Effective Date (currently estimated to be $37,000);
(5) an amount equal to $15,000 per day for each day from and
excluding July 20, 1995 to, but not including, the Closing Date; and
(6) any other amounts agreed upon by Purchaser and Sellers.
(B) The Preliminary Purchase Price shall be adjusted downward by the
sum of the following (without duplication):
(1) net proceeds (gross proceeds less royalties and severance
taxes) actually received by or on behalf of Sellers prior to the
Closing Date attributable to the Evaluated Interests that are
conveyed to Purchaser at Closing and that are attributable to the
period of time from and after the Effective Date;
(2) an amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments based upon
or measured by the ownership of the Evaluated Interests that are
conveyed to Purchaser at Closing or the production of Hydrocarbons
or the receipt of proceeds therefrom accruing to the Evaluated
Interests that are conveyed to Purchaser at Closing, to the extent
such taxes and
13
assessments are attributable to the period prior to the Effective
Date; provided, however, that if the amount of any such taxes shall
not have actually been assessed, the amount thereof for purposes of
this Section 3.4(B)(2) shall be computed based upon such taxes and
assessments for the preceding calendar year;
(3) any amounts received by Sellers (whether prior to or
subsequent to the Effective Date) with respect to the Evaluated
Interests that are conveyed to Purchaser at Closing pursuant to
take-or-pay, advance payment, or similar provisions of any
production sales contract to the extent any purchaser has the right
to apply any such amounts to production to be delivered after the
Effective Date;
(4) an amount equal to all expenditures and costs relating to
the Evaluated Interests conveyed to Purchaser at Closing that became
due and payable or accrued prior to the Effective Date and that are
unpaid as of the Closing Date;
(5) an amount equal to the sum of all adjustments pursuant to
Sections 4.2, 4.3, 4.4 and 4.5; and
(6) any other amounts agreed upon by Purchaser and Sellers.
(C) All adjustments to the Preliminary Purchase Price provided for
in this Agreement shall be calculated in accordance with generally accepted
accounting principles, consistently applied.
ARTICLE IV.
DUE DILIGENCE EXAMINATION
Section 4.1. INSPECTION OF FILES. Through the Closing Date, AX shall
make or cause to be made available during normal business hours and, if
reasonably requested, such other times as Purchaser may deem necessary in order
to complete its due diligence within the time period provided, at the offices of
AX in Houston, Texas, for examination and reproduction by Purchaser's authorized
representatives at Purchaser's expense, all documents and records (including all
14
Basic Documents and Records) of every kind and character in the possession of AX
relating or in any way pertaining to the Assets. AX shall provide Purchaser's
authorized representatives with office space as reasonably necessary for due
diligence purposes. Subject to the consent and cooperation of operators and
other third parties, AX will cooperate with Purchaser in Purchaser's efforts to
obtain, at Purchaser's expense, such additional information relating to the
Assets as Purchaser may reasonably desire, to the extent in each case that AX
may do so without violating legal constraints or obligations of confidence or
other contractual commitments to a third party. AX shall cause its personnel to
assist Purchaser in obtaining such additional information and shall use its
reasonable commercial efforts to cause the counsel, accountants, independent
petroleum consultants and engineers, employees and other representatives of AX
to be available to Purchaser for such purposes. During such investigation,
except as prohibited by confidentiality or other contractual commitments to a
third party (with respect to which AX shall use its reasonable commercial
efforts to obtain a waiver thereof for the benefit of Purchaser), Purchaser, at
its expense, shall have the right to make copies of such records, files and
other materials as Purchaser may reasonably deem advisable.
Section 4.2. ON-SITE TESTS AND INSPECTIONS; ENVIRONMENTAL DEFECTS.
(A) AX shall permit, except as prohibited by confidentiality or
other contractual commitments to a third party (with respect to which AX shall
use its reasonable commercial efforts to obtain a waiver thereof for the benefit
of Purchaser), or in case of any third-party operated wells, use its reasonable
commercial efforts to cause the operator thereof to permit, Purchaser's
authorized representatives to consult with AX's and/or such third-party
operator's agents and employees during reasonable business hours and to conduct,
at Purchaser's sole risk and expense, on-site inspections and inventories of the
Assets and inspect and examine all well logs and geological and geophysical data
directly relating to such Assets.
(B) AX shall permit Purchaser or its representatives at all
reasonable times prior to the Closing Date, if Purchaser shall so elect, to
enter upon any and all of the Lands, and any other real property included in the
Assets or upon which any of the Assets are located for the purposes of
inspecting same, making tests, taking samples and soil borings and conducting
groundwater studies, and to
15
conduct such other investigations, including without limitation inspections of
all documents and records (including Basic Documents and Records), as Purchaser
shall deem appropriate (an "ENVIRONMENTAL ASSESSMENT") to determine the
environmental condition of the Assets. Each Environmental Assessment shall be
conducted without material disruption to AX's operation of the Assets.
(C) If, in the course of performing an Environmental Assessment as
provided above in Section 4.2(B) prior to the Closing Date, Purchaser identifies
the existence of an event, condition, or circumstance that constitutes a breach
by any Seller of the warranty set forth in Section 6.1(q) as of the date of this
Agreement, or, if unremedied, would constitute a breach by such Seller of such
warranty as of the Closing Date, Purchaser shall provide to AX, on behalf of
Sellers, written notice of such event, condition, or circumstance
("ENVIRONMENTAL CLAIM"), including the Evaluated Interest affected thereby and
its Allocated Value, together with all associated supporting reports, data,
analysis, and conclusions (which Sellers and Purchaser shall keep strictly
confidential unless otherwise required by law or regulation), no later than 5:00
p.m., Central Daylight Savings Time, on the fourth business day prior to the
Closing Date. All Environmental Claims thus identified by Purchaser and not
asserted in a timely manner as provided in this Section 4.2(C) shall be deemed
to have been waived by Purchaser for all purposes. Sellers and Purchaser shall
attempt, in good faith, to agree upon the methods of remediating all such
Environmental Claims and the estimates of the costs of such remediations.
(D) If Sellers and Purchaser agree upon the existence of such an
Environmental Claim, the method of remediating the same, and the estimate of the
cost of such remediation, then subject to the succeeding provisions of this
Section 4.2(D), Purchaser may elect: (i) to accept, pay for in accordance with
this Agreement, and receive an assignment of the Evaluated Interest affected by
the relevant Environmental Claim at the Closing, and receive a reduction of the
Preliminary Purchase Price equal to the agreed upon estimate of the cost of
remediating such Environmental Claim; or (ii) if the agreed upon estimate of the
cost to remediate the relevant Environmental Claim is, in the aggregate, greater
than ten percent (10%) of the Allocated Value of the Evaluated Interest affected
by such Environmental Claim, to eliminate the affected Evaluated Interest from
this purchase and sale transaction and receive a reduction of the Preliminary
Purchase Price in an amount equal to the
16
Allocated Value of the affected Evaluated Interest. Notwithstanding the
preceding provisions of this Section 4.2(D) to the contrary, Sellers shall have
the right to remediate such an Environmental Claim at their sole cost, risk,
liability, and expense in accordance with applicable laws and regulations. If
Sellers elect to remediate such Environmental Claim, Sellers shall promptly
notify Purchaser of such fact. If Sellers complete such remediation prior to the
Closing Date, Purchaser will accept, pay for in accordance with this Agreement,
and receive an assignment of the Evaluated Interest affected by such
Environmental Claim at the Closing, without reduction of the Preliminary
Purchase Price. If Sellers have not completed the remediation of the relevant
Environmental Claim on or prior to the Closing Date, Purchaser shall not
purchase the Evaluated Interest affected by such Environmental Claim at the
Closing, and the Allocated Value of such Evaluated Interest shall be withheld
from the Preliminary Purchase Price paid by Purchaser at Closing. If Sellers
complete such remediation in accordance with applicable laws and regulations on
or prior to the Defect Closing Date, Purchaser will accept, pay for in
accordance with this Agreement, and receive an assignment of the relevant
Evaluated Interest. If Sellers have not completed the remediation of the
relevant Environmental Claim on or before the Defect Closing Date, Purchaser may
elect: (i) to offer Sellers an extension of time within which to complete such
remediation; (ii) to accept, pay for in accordance with this Agreement, and
receive an assignment of the affected Evaluated Interest subject to such
unremediated Environmental Claim and receive a reduction in the Preliminary
Purchase Price equal to the estimate of the cost to remediate such Environmental
Claim originally agreed upon by Sellers and Purchaser; or (iii) if the estimated
cost to remediate the relevant Environmental Claim is, in the aggregate, greater
than ten percent (10%) of the Allocated Value of the affected Evaluated
Interest, to eliminate the affected Evaluated Interest from this purchase and
sale transaction and retain the previously withheld portion of the Preliminary
Purchase Price related to such Evaluated Interest, free and clear of any claim
by Sellers, and thereupon any and all rights of Purchaser in or to such
Evaluated Interest shall terminate. During the period from the Closing Date
through the Defect Closing Date (as the same may be extended) with respect to an
Evaluated Interest subject to such an Environmental Claim to be remediated by
Sellers, Sellers shall remain the record and beneficial owners thereof, and AX
shall continue to conduct its operations thereon or with respect thereto
pursuant to the provisions of Article VIII and any other applicable provisions
of this Agreement.
17
(E) If Sellers and Purchaser are unable to agree, after meeting in
good faith, on either the existence of an Environmental Claim, the method of
remediating the same, or an estimate of the cost of such remediation, Purchaser
may elect to waive such asserted Environmental Claim and purchase the affected
Evaluated Interest subject thereto without any reduction to the Preliminary
Purchase Price therefor. If Purchaser does not waive the asserted Environmental
Claim, either Purchaser or Sellers may elect to exclude the Evaluated Interest
affected by the relevant Environmental Claim from this purchase and sale
transaction and the Preliminary Purchase Price shall be reduced by an amount
equal to the Allocated Value of the affected Evaluated Interest; provided,
however, if neither Sellers nor Purchaser so elects to exclude the affected
Evaluated Interest, such disagreement shall be submitted to arbitration in
accordance with the procedures set forth in Section 4.3(E).
Section 4.3. DEFECT ADJUSTMENTS.
(A) A "DEFECTIVE INTEREST" shall mean an Evaluated Interest, or that
portion thereof (as determined in accordance with Section 4.3(C)) affected by a
Title Defect or that Purchaser is otherwise entitled under Section 4.5 to treat
as a Defective Interest, or affected by a breach by any Seller of any
representation or warranty by such Seller contained in this Agreement, except
for the warranty contained in Section 6.1(q). It is understood and agreed that:
(i) the existence of a Permitted Encumbrance shall not be adequate cause for
Purchaser to assert that an Evaluated Interest or the affected portion thereof
is a Defective Interest, if such Evaluated Interest is otherwise free of Defects
(as defined below); and (ii) the absence of written rights-of-way or easements
for flow lines connected to an Evaluated Interest in the case of any such flow
line that crosses a Lease boundary, or the failure of any Seller or its
predecessors in title to have buried any flow lines if the terms of the
applicable Lease otherwise required such action without demand of the lessor
thereunder, shall not be adequate cause for Purchaser to assert that such
Evaluated Interest or Lease is a Defective Interest, if such Evaluated Interest
or Lease is otherwise free of Defects. Except as is otherwise provided in
Section 4.4, Purchaser must give notice to AX, on behalf of Sellers, of
Defective Interests not later than the fourth business day prior to the Closing
Date, and any such Defective Interest that is not identified and disclosed to AX
by Purchaser on or before such date shall be deemed waived for purposes of this
Article IV. Any such notice shall be in writing and shall include (i) a
18
description of the affected Evaluated Interest, (ii) the basis for the Title
Defect or other defect or matter that Purchaser believes causes the affected
Evaluated Interest to be a Defective Interest, (iii) the Allocated Value of the
Evaluated Interest as set forth on Exhibit "B", and (iv) the amount by which
Purchaser believes the Allocated Value of the affected Evaluated Interest has
been reduced. Prior to Closing, Sellers shall have the right, but not the
obligation, to attempt to cure any Title Defect or other defect or matter that
causes an Evaluated Interest to be a Defective Interest (any such Title Defect
or other defect or matter being hereinafter referred to as a "DEFECT"). If
Sellers desire to cure any Defect, Purchaser agrees to cooperate with Sellers in
endeavoring to cure any such Defect (which shall not include the obligation on
the part of Purchaser to pay money or undertake any legal obligation).
Purchaser's failure to give notice of Defects pursuant to Article IV of this
Agreement shall not prejudice or diminish in any respect Purchaser's rights
under Section 5.2 hereof and the Assignment, Bill of Sale and Conveyance to be
delivered by Sellers at the Closing.
(B) Except as otherwise expressly provided hereinafter in this
Section 4.3(B) and Section 4.3(D), Defective Interests shall be excluded from
the Evaluated Interests to be purchased by Purchaser hereunder and the
Preliminary Purchase Price shall be reduced in accordance with Section 3.4 by an
amount equal to the Allocated Value thereof as shown on Exhibit "B".
Notwithstanding the preceding sentence of this Section 4.3(B), if, prior to the
Closing, (i) the basis for treating an Evaluated Interest as a Defective
Interest has been removed, or (ii) Purchaser has elected in writing to waive the
relevant Defects and purchase such Defective Interest notwithstanding the
Defects, Purchaser shall accept, pay for in accordance with this Agreement, and
receive an assignment of such Evaluated Interest at the Closing without
adjustment to the Preliminary Purchase Price. If, prior to Closing, Sellers and
Purchaser agree upon the existence of a Defect with respect to an Evaluated
Interest, and either Sellers elect not to attempt to cure such Defect or Sellers
and Purchaser agree that such Defect cannot or should not be cured, and Sellers
and Purchaser agree upon an amount by which the Allocated Value of the affected
Evaluated Interest has been reduced as the result of the existence of such
Defect, Purchaser shall accept, pay for in accordance with this Agreement, and
receive an assignment of the affected Evaluated Interest at the Closing, and
shall receive a reduction in the Preliminary Purchase Price in an amount equal
to the amount agreed upon
19
by Purchaser and Sellers. If Sellers and Purchaser agree upon the existence of a
Defect with respect to an Evaluated Interest, and Sellers elect to attempt to
cure such Defect, but Sellers are unable to cure such Defect prior to the
Closing, Sellers shall notify Purchaser prior to the Closing Date that Sellers
will be unable to cure an asserted Defect in an Evaluated Interest by the
Closing Date, and that Sellers are attempting to cure such defect and undertake
to continue such efforts to do so. In that event, Sellers shall not deliver to
Purchaser an assignment of the Evaluated Interest affected by the asserted
Defect at Closing, and the Allocated Value of such Evaluated Interest, or the
part thereof, subject to the asserted Defect shall be withheld from the
Preliminary Purchase Price at Closing. Sellers will have until the thirtieth day
following the Closing Date (the "CURE PERIOD"), to cure all or any portion of
uncured Defects which exist as of Closing and which Sellers have elected to
attempt to cure pursuant to this Section 4.3(B). On or before such date, Sellers
shall submit to Purchaser such curative materials as Sellers have as of such
date obtained with respect to any uncured and unwaived Defects existing as of
the Closing Date, and Purchaser will have until the forty-fifth day following
the Closing Date, to review and approve or reject the same, acting in good
faith. On the sixtieth day following the Closing Date (the "DEFECT CLOSING
DATE"), Purchaser will accept, pay for in accordance with this Agreement and
receive an assignment of any Evaluated Interest(s) as to which Sellers have
cured a Defect asserted prior to Closing, and as to any Evaluated Interest(s)
still then subject to Defects, Purchaser, at its option, may (i) offer Seller an
extension of the Cure Period on such terms and conditions as Purchaser may, in
its sole discretion, elect to impose, and Sellers may accept or reject such
extension; or (ii) waive the uncured Defect(s) and accept, pay for in accordance
with this Agreement and receive an assignment of the affected Evaluated
Interest(s) subject to such uncured Defect(s); or (iii) eliminate the affected
Evaluated Interest(s) from this purchase and sale transaction and retain the
previously withheld portion of the Preliminary Purchase Price related to such
Evaluated Interest(s), or portion thereof, free and clear of any claim by
Sellers, and thereupon any and all rights of Purchaser in or to such Evaluated
Interest(s) shall terminate. During the Cure Period (as the same may be
extended) and through the Defect Closing Date, with respect to any Evaluated
Interest(s) subject to uncured Defects that Sellers are attempting to cure,
Sellers shall remain the record and beneficial owner thereof, and AX shall
continue to conduct its operations thereof or with respect thereto pursuant to
the provisions of
20
Article VIII and any other applicable provisions of this Agreement.
(C) In determining what portion of an Evaluated Interest is a
Defective Interest, it is the intent of the parties to include only that portion
of such Evaluated Interest affected by the Defect. If the Allocated Value of a
Defective Interest cannot be determined directly from Exhibit "B" because the
Defective Interests constitute only a portion of, or a property or properties
included within, but not totally comprising, the Evaluated Interest to which the
Allocated Value relates, Purchaser and Sellers shall attempt, where feasible, in
good faith to proportionately reduce the Allocated Value. Failing such
agreement, then unless the matter is submitted to arbitration pursuant to
Section 4.3(E), the entire Evaluated Interest to which an Allocated Value has
been assigned on Exhibit "B" of which such Defective Interest(s) form a part
shall be excluded from the Evaluated Interests to be purchased by Purchaser
hereunder and the Preliminary Purchase Price shall be reduced by an amount equal
to the entire Allocated Value of the affected Evaluated Interest.
(D) If Purchaser asserts a Defect under Section 4.3(A), Purchaser
and AX shall promptly meet in an attempt to resolve any disagreement that
Sellers may have with the assertion of such Defect. If prior to the Closing
Date, or the Defect Closing Date, as applicable, (i) Purchaser and Sellers in
good faith are not able to resolve their disagreement with respect to a Defect
asserted by Purchaser, or (ii) there remains any unresolved dispute as to
whether a Defect (mutually agreed to be a Defect) has been cured, or (iii) there
remains any unresolved dispute with respect to the effect of Sellers' curative
efforts with respect to any Defect (mutually agreed to be a Defect), then unless
the matter is submitted to arbitration pursuant to Section 4.3(E), the entire
Evaluated Interest affected by the Defect shall be excluded from the Assets in
accordance with Section 4.3(B) and the Preliminary Purchase Price will be
reduced by an amount equal to the entire Allocated Value thereof; provided,
however, if Purchaser and Sellers agree to an amount by which the Allocated
Value of the affected Evaluated Interest has been reduced owing to the Defect(s)
that is less than the entire Allocated Value thereof, then the Preliminary
Purchase Price shall be reduced by such lesser amount in accordance with Section
4.3(B) and Sellers shall assign to Purchaser, without warranty of title, the
affected Evaluated Interest.
21
(E) If Sellers disagree with Purchaser's assertion of a Defect and
the matter is not resolved pursuant to the procedures set forth in Section
4.3(D), then upon written demand by either AX, on behalf of Sellers, or
Purchaser, Purchaser's and Sellers' disagreement shall be submitted to binding
arbitration. Unless otherwise agreed to by the parties, such disagreement shall
be submitted to arbitration in accordance with the commercial arbitration rules
of the American Arbitration Association. The parties shall meet and attempt to
appoint a single arbitrator. If the parties fail to agree upon an arbitrator
within five (5) days from such demand, then the arbitrator shall be selected
from the panels of the American Arbitration Association. The fees and expenses
of such arbitration shall be borne by the parties in the proportions of one-half
(1/2) each. Any person selected to arbitrate a dispute shall have the right to
retain attorneys to advise them on matters of local law. The arbitrator shall
make a decision upon the dispute within thirty (30) days after his appointment,
subject to a reasonable delay due to unforeseen circumstances. Arbitration may
proceed in the absence of any party if notice of the proceedings has been given
to such party. The determination of any dispute by such arbitration shall be
final and binding upon Purchaser and Sellers. If the matter is not resolved
prior to Closing, then pending the resolution of the matter by the arbitrator,
the adjustment amount therefor to the Preliminary Purchase Price proposed by
Purchaser shall be withheld from the Preliminary Purchase Price pending
resolution of the matter by the arbitrator. With respect to any Evaluated
Interests subject to arbitration hereunder, pending the conclusion of such
arbitration, Sellers shall remain the record owner thereof, and AX shall conduct
its operations thereof, or with respect thereto pursuant to the provisions of
Article VIII and any other applicable provisions of this Agreement.
If Purchaser submits proposed adjustments pursuant to Sections 4.2,
4.3, 4.4 and 4.5 that in the aggregate exceed 5% of the Preliminary Purchase
Price, and there exists a dispute over such adjustments, or a portion thereof,
which, if the dispute were to be resolved in Sellers' favor, would result in
reducing the aggregate amount of adjustments pursuant to Sections 4.2, 4.3, 4.4,
and 4.5 to less than 5% of the Preliminary Purchase Price, then pending the
conclusion of the arbitration, the condition to Purchaser's obligation to close
set forth in Article X(v) shall be suspended, and while the arbitration is
pending, Purchaser shall not be entitled to terminate the transaction pursuant
to Section 12.1 solely because such condition remains
22
unsatisfied. In the event the circumstances described in the preceding sentence
are applicable, and Purchaser otherwise would desire to terminate the
transaction because of the nonsatisfaction of the condition to its obligation to
close set forth in Article X(v), no purchase and sale or other transfer of any
Assets pursuant to this Agreement shall take place on the originally scheduled
Closing Date. In such event, the Closing Date shall be extended to the next
business day following the conclusion of the arbitration, at which time the
suspension of such condition shall cease, and the Closing shall transpire unless
the transaction is terminated at such time by either party having a right to do
so pursuant to Article XII.
(F) Sellers, by written notice to Purchaser delivered on or before
the fourth business day prior to the Closing Date may request an increase to the
Preliminary Purchase Price based on Sellers' demonstrating that their aggregate
ownership interest in any Evaluated Interest results in an increase to Sellers'
aggregate Net Revenue Interest therein (with not more than a proportionate
increase to Sellers' Working Interest in such Evaluated Interest) or a decrease
to Sellers' Working Interest therein (without a decrease to Sellers' aggregate
Net Revenue Interest in such Evaluated Interest) which, in either case, is not
reflected in Exhibit "B". Such notice shall specify the Evaluated Interest and
the effect of the discrepancy as calculated by Sellers on the Allocated Value
thereof, as set forth in Exhibit "B". Any adjustment proposed by Sellers and
agreed to by Purchaser under this Section 4.3(F) shall result in an increase in
the Preliminary Purchase Price. Any disputes regarding any such proposed
adjustment may be submitted to arbitration by either party in accordance with
the procedures set forth in Section 4.3(E).
Section 4.4. CASUALTY LOSS. Sellers shall give prompt written notice
to Purchaser of the destruction prior to the Closing Date of any of the
Evaluated Interests by fire, casing collapse or other casualty. If Sellers and
Purchaser agree upon the estimated cost to repair such a casualty, Purchaser may
elect: (i) to accept, pay for in accordance with this Agreement, and receive an
assignment of the Evaluated Interest affected by the relevant casualty at the
Closing, and receive a reduction of the Preliminary Purchase Price equal to the
agreed upon estimate of the cost of repairing such casualty; or (ii) if the
agreed upon estimate of the cost to repair the relevant casualty is, in the
aggregate, greater than ten percent (10%) of the Allocated Value of the
Evaluated Interest affected by such
23
casualty, to eliminate the affected Evaluated Interest from this purchase and
sale transaction and receive a reduction of the Preliminary Purchase Price in an
amount equal to the Allocated Value of the affected Evaluated Interest. If
Sellers and Purchaser are unable to agree upon the estimated cost to repair such
a casualty, Purchaser or Sellers may elect to exclude the Evaluated Interest
affected by such casualty from this purchase and sale transaction and the
Preliminary Purchase Price shall be reduced by an amount equal to the Allocated
Value of the affected Evaluated Interest, and if neither Purchaser nor Sellers
elects to so exclude the affected Evaluated Interest, then such disagreement
shall be submitted to arbitration in accordance with the procedures set forth in
Section 4.3(E).
Section 4.5. PREFERENTIAL PURCHASE RIGHTS AND CONSENTS TO
ASSIGNMENT. Except as disclosed on Exhibit "C- 2", none of the Evaluated
Interests are subject to preferential purchase rights or consents to assignment
in favor of third parties. With respect to any such rights identified in Exhibit
"C-2", and with respect to any required consents to assign any Leases, the
parties agree as follows:
(A) If a third party who has been offered an interest in an
Evaluated Interest pursuant to a preferential right to purchase elects prior to
Closing to purchase such Evaluated Interest pursuant to the aforesaid offer and
Sellers receive written notice of such election prior to the fourth business day
prior to the Closing Date, the Evaluated Interest or part thereof so affected
will be eliminated from this purchase and sale transaction as a Defective
Interest and the Preliminary Purchase Price will be reduced by the Allocated
Value of such Evaluated Interest or part thereof under Section 4.3 hereof. If as
of the fourth business day prior to the Closing Date, a third party has neither
exercised nor waived its right to purchase an interest in an Evaluated Interest
subject to a preferential right to purchase (and such right has not expired by
such date), then such Evaluated Interest shall not be purchased by or conveyed
to Purchaser at Closing and the Allocated Value thereof shall be withheld from
the Preliminary Purchase Price. If such right is exercised before the end of the
Cure Period, the Evaluated Interest affected thereby shall be eliminated from
this purchase and sale transaction and Purchaser shall retain the previously
withheld portion of the Preliminary Purchase Price related thereto, free and
clear of any claim by Sellers, and thereupon any and all right of Purchaser in
or to such Evaluated Interests shall terminate. If such right has been neither
exercised nor waived as of such date (and
24
such right has not expired by such date), then Purchaser may elect to treat the
Evaluated Interest affected thereby as a Defective Interest in accordance with
Section 4.3(B). During such time, Sellers shall remain the record owner of the
affected Evaluated Interest; provided, however, that if requested by Sellers and
furnished with acceptable indemnity, Purchaser will assume operations of any
such Evaluated Interest for Sellers pursuant to a contract operating agreement
containing such terms and conditions as are mutually agreed upon by the parties.
(B) Sellers shall use their reasonable commercial efforts to obtain
all consents to assignment of the Evaluated Interests prior to the Closing. If a
lessor or other third party who has the right to consent to the assignment of an
Evaluated Interest or part thereof refuses such consent prior to the fourth
business day prior to the Closing Date, Sellers will promptly notify Purchaser
and the Evaluated Interest or part thereof so affected will be eliminated from
the purchase and sale transaction and the Preliminary Purchase Price will be
reduced by the Allocated Value of such Evaluated Interest or part thereof under
Section 4.3 hereof. If a request for a consent to assign is outstanding as of
the fourth business day prior to the Closing Date, such circumstance shall
constitute a Title Defect and the portion of the Preliminary Purchase Price
allocated to the affected interest or part thereof shall be withheld from the
Preliminary Purchase Price and thereafter the parties' rights and obligations
with respect thereto shall be as set forth in Section 4.3(B). During the Cure
Period, Sellers shall (i) continue to use their reasonable commercial efforts to
obtain all consents to assignment as promptly after Closing as is possible and
(ii) remain the record owner of the affected Evaluated Interest; provided,
however, that if requested by Sellers and furnished with acceptable indemnity,
Purchaser will assume operations of any such Evaluated Interest for Sellers
pursuant to a contract operating agreement containing such terms and conditions
as are mutually agreed upon by the parties.
(C) Nothing in this Agreement shall be construed as an attempt or
agreement to assign any Basic Document (other than a Lease) or claim as to which
a required third party consent to assignment cannot be obtained. If, however,
following the Closing, there is any Basic Document (other than a Lease), which
would have been included in the Assets had the required consent been obtained,
or any such Basic Document for which consent to the assignment thereof cannot be
obtained, Sellers and Purchaser agree to take such action
25
as may be reasonably requested by Purchaser or Sellers, as applicable, to the
extent permitted by applicable law, as may be necessary in order for Purchaser
to obtain the benefit and/or assume the obligations thereunder; provided,
however, in no event will Sellers be obligated to bear any unreasonable costs or
initiate any legal proceedings. Subject to the foregoing, such actions may
include Sellers' designation of Purchaser as Sellers' subcontractor, agent, or
representative for purposes of performing such Basic Document and Sellers'
collection of monies due under such contracts and payment of the same promptly
over to Purchaser.
(D) The parties recognize that a portion of certain of the Evaluated
Interests is subject to the burden of a net profits interest granted to American
Net Profits Partnership-VII, Ltd. ("APPL-VII") pursuant to a Conveyance of Net
Profits Overriding Interest granted by AX and dated effective June 1, 1989. The
parties further recognize that such burdened portion cannot be assigned and
conveyed hereunder without the consent of the limited partner in APPL-VII which,
as of the date hereof, has not been requested. Notwithstanding any other
provision of this Agreement, the parties agree that any failure to obtain such
consent (or, in the alternative, consent of such limited partner to the sale by
APPL-VII to Purchaser of such net profits interest) shall not constitute a
breach by Sellers hereunder or result in the failure of any condition precedent
to Purchaser's obligations to close hereunder; provided, however, that the
failure to obtain any such consent shall cause the entirety of the affected
portion of the Evaluated Interests to be a Defective Interest; and provided
further, however, that the obtaining of consent from the limited partner to
assign and convey such portion of the Evaluated Interests subject to the burden
of such net profits interest shall not diminish Purchaser's right to assert that
the affected Evaluated Interests are Defective Interests on account of such net
profits interest, and except that in either case, any resulting adjustment to
the Preliminary Purchase Price on account thereof shall not be considered for
purposes of Article X(v) or Article XI(v). If such Defective Interest is
eliminated from this purchase and sale transaction, AX and Purchaser will enter
into a mutually agreeable joint operating agreement based on Model Form 610
Operating Agreement -- 1982 and COPAS Accounting Procedure -- 1984 naming
Purchaser as Operator and containing a COPAS overhead reimbursement provision
reasonable for the Contract Area covered thereby.
26
ARTICLE V.
ASSUMPTION OF OBLIGATIONS; INDEMNITIES
Section 5.1. PURCHASER.
(A) Purchaser, as owner of the Assets acquired on the Closing Date,
shall, by the consummation of the transactions contemplated by this Agreement,
assume and be bound by, effective as of the Effective Date, all of the terms,
conditions and covenants contained in the Basic Documents (including any Basic
Document that becomes subject to the provisions of Section 4.5(C) above) and
assume and timely discharge all duties and obligations of the owner of the
Assets that are conveyed to Purchaser at Closing and that accrue or arise from
and after the Effective Date, including without limitation all obligations with
respect to the abandonment of wells, the abandonment of the Operating Equipment
and site restoration, pursuant to the terms of any Basic Document or as
otherwise required by any applicable law, rule, regulation or ordinance of any
applicable governmental authority, and Purchaser does hereby agree to defend,
save harmless and indemnify Sellers and their respective affiliates, directors,
officers, employees, stockholders and partners, as appropriate, from any and all
damages, claims, costs, expenses (including reasonable attorneys' fees and
disbursements, and reasonable attorneys' fees and disbursements incurred in
enforcing such indemnification obligation to the extent such enforcement efforts
are successful), liabilities, losses, or causes of action (hereinafter "LOSS")
arising from (i) the ownership after the Effective Date of, or operations after
the Effective Date on, the Assets transferred pursuant to this Agreement, (ii)
the physical condition of the Assets transferred pursuant to this Agreement,
(iii) subject to the limitations set forth in Section 14.8, the breach of any
representation, warranty, covenant or agreement of Purchaser contained in this
Agreement or any instrument executed in connection herewith, (iv) any demands,
claims or litigation that may be instituted by Purchaser's security holders,
creditors or employees arising out of or related to the transactions
contemplated herein, (v) Sellers' acting as Purchaser's subcontractor, agent, or
representative for purposes of performing any Basic Document pursuant to Section
4.5(C) above, or (vi) injury to or death of any person, persons, or other living
things, or loss or destruction of property, resulting directly or indirectly
from Purchaser's performance of Environmental Remedial Work under Section
5.1(B).
27
(B) Purchaser shall further defend, save harmless and indemnify
Sellers and their respective affiliates, directors, officers, employees,
stockholders and partners, as appropriate, from all Loss (exclusive of any
amounts by which the Preliminary Purchase Price is reduced pursuant to Section
4.2) arising from (i) any claims (including without limitation third party
claims for personal injury or real or personal property damage, nuisance or
abatement claims and so-called "toxic tort" claims), actions, administrative
proceedings (including informal proceedings), judgments, damages, punitive
damages, penalties, fines, losses, liabilities (including sums paid in
settlement of claims), interest or costs, including reasonable attorneys' fees
and disbursements (including reasonable attorneys' fees and disbursements
incurred in enforcing such indemnification obligation to the extent such
enforcement efforts are successful), reasonable consultant fees, and reasonable
expert fees sought from or asserted against any Seller in connection with the
presence or suspected presence of any Hazardous Substance, whether in the air,
soil, surface water or groundwater, attributable to any Release (accidental or
otherwise) from or onto any Asset transferred pursuant to this Agreement
("ENVIRONMENTAL CONTAMINATION"), regardless of when the same commenced or
occurred, to the extent any such claim is asserted (x) after December 31, 1995
or (y) on or before December 31, 1995, but involves an amount not exceeding
$100,000 and (ii) without limiting the generality of the foregoing, costs,
including capital, operating and maintenance costs, incurred in connection with
any investigation or monitoring of site conditions or any clean-up, remedial,
removal or restoration work required or performed by any federal, state or local
governmental agency or political subdivision or performed by any nongovernmental
entity or person because of any Environmental Contamination in, on, or relating
to the Assets transferred pursuant to this Agreement ("ENVIRONMENTAL REMEDIAL
WORK") that results from a claim of Environmental Contamination for which
Purchaser is obligated to defend, save harmless and indemnify Sellers pursuant
to this Section 5.1(B). The performance of Environmental Remedial Work pursuant
to this Section 5.1(B) will be by Purchaser, in the name of Purchaser. Purchaser
will obtain all necessary licenses, manifests, permits and approvals to perform
such work. All such Environmental Remedial Work, and the disposal of all
Hazardous Substances or other wastes generated by such Environmental Remedial
Work, will be performed in accordance with applicable Environmental Laws.
28
(C) Without limiting its obligations under any other provision of
this Agreement, as between Sellers and Purchaser, Purchaser shall be solely and
completely responsible for responding to and complying with any administrative
order, request or demand relating to potential or actual Environmental
Contamination in, on, or relating to the Assets transferred pursuant to this
Agreement that results in a third party claim for which Purchaser is obligated
to defend, save harmless and indemnify Sellers pursuant to Section 5.1(B),
whether such order, request or demand names Sellers, or any Seller alone, or
names one or more Sellers and Purchaser. The responsibility conferred under this
Section 5.1(C) includes but is not limited to responding to such orders on
behalf of Sellers and defending against any assertion of any Seller's financial
responsibility or individual duty to perform under such orders. Purchaser shall
assume, pursuant to Section 5.1(B) above, any liabilities or responsibilities
that are assessed against any Seller in any action described under this Section
5.1(C), provided that Purchaser has received timely notice of such action and
has had the reasonable opportunity to defend such action.
(D) Without limiting its obligations under any other provision of
this Agreement, Purchaser shall be solely and completely responsible for
responding to and defending against any claims by any third party, including but
not limited to, former or future owners, operators, lessees or occupants or
their employees, or other owners, operators, lessees or occupants of lands
adjoining or near the Lands, for response or remedial actions in, on, or
relating to the Assets transferred pursuant to this Agreement or for the costs
of any such actions that the third-party claimant has undertaken, whether such
claim names Sellers, or any Seller alone, or one or more Sellers and Purchaser,
provided such claim is asserted after December 31, 1995 or, if asserted on or
before such date, involves an amount not exceeding $100,000. Purchaser shall
assume, pursuant to Section 5.1(B) above, any liability or responsibility
assessed against any Seller in any claim or action described in this Section
5.1(D), provided that Purchaser has received timely notice of such action and
has had the reasonable opportunity to defend such action.
Section 5.2. SELLERS.
(A) Each Seller, severally to the extent of its Pro Rata Share,
shall defend, save harmless and indemnify Purchaser and its affiliates,
directors, officers, employees,
29
stockholders and partners, as appropriate, from all Loss arising from (i) injury
to or death of any person, persons, or other living things, or loss or
destruction of property, resulting directly or indirectly from Sellers'
remediation of an Environmental Claim pursuant to Section 4.2(D) and Sellers'
performance of Environmental Remedial Work under Section 5.2(B), to the extent
that any claim for which indemnification is sought under this Section 5.2(A)(i)
is asserted prior to the expiration of six (6) months after the relevant
Environmental Claim is remediated or the relevant Environmental Remedial Work is
completed, as applicable, (ii) the gross negligence or willful misconduct of any
Seller in connection with operations on the Assets between the Effective Date
and the Closing Date, to the extent that Purchaser has not received a reduction
in the Preliminary Purchase Price hereunder with respect thereto, and subject to
the limitations set forth in Section 14.8, (iii) the ownership prior to the
Effective Date of, or operations prior to the Effective Date on, the Assets
transferred pursuant to this Agreement, including without limitation the
litigation described in Exhibit "C-3", (iv) subject to the limitations set forth
in Section 14.8, the breach of any representation, warranty, covenant or
agreement of Sellers contained in this Agreement or any instrument executed in
connection herewith, (v) subject to the limitations set forth in Section 14.8,
the actions of Sellers in connection with the creation, maintenance, and
operation between the Effective Date and the Closing Date of the suspense
accounts transferred to Purchaser pursuant to Section 9.3, or (vi) any demands,
claims or litigation that may be instituted by any such Seller's security
holders, creditors or employees arising out of or related to the transactions
contemplated herein.
(B) Each Seller, severally to the extent of its Pro Rata Share,
shall further defend, save harmless and indemnify Purchaser and its affiliates,
directors, officers, employees, stockholders and partners, as appropriate, from
all Loss arising from (i) any claims (including without limitation third party
claims for personal injury or real or personal property damage, nuisance or
abatement claims and so-called "toxic tort" claims), actions, administrative
proceedings (including informal proceedings), judgments, damages, punitive
damages, penalties, fines, losses, liabilities (including sums paid in
settlement of claims), interest or costs, including reasonable attorneys' fees
and disbursements (including reasonable attorneys' fees and disbursements
incurred in enforcing such indemnification obligation to the extent such
enforcement efforts are successful), reasonable consultant fees, and reasonable
30
expert fees sought from or asserted against Purchaser in connection with
Environmental Contamination, to the extent any such claim (w) is asserted by a
third party, including but not limited to, former or future owners, operators,
lessees or occupants or their employees, or other owners, operators, lessees or
occupants of lands adjoining or near the Lands, (x) involves an amount exceeding
$100,000, (y) is asserted on or before December 31, 1995, and (z) relates to
Environmental Contamination that commenced or occurred prior to the Effective
Date and (ii) without limiting the generality of the foregoing, costs, including
capital, operating and maintenance costs, incurred in connection with
Environmental Remedial Work that results from a claim of Environmental
Contamination for which Sellers are obligated to defend, save harmless and
indemnify Purchaser pursuant to this Section 5.2(B); provided, however, that
Sellers shall have no obligation to indemnify Purchaser or its affiliates,
directors, officers, employees, stockholders or partners pursuant to this
Section 5.2(B) unless AX, on behalf of Sellers, has received timely notice of
such third party claims or actions and has had the reasonable opportunity to
defend such claims or actions. The performance of Environmental Remedial Work
pursuant to this Section 5.2(B) will be by Sellers, in the name of Sellers.
Sellers will obtain all necessary licenses, manifests, permits and approvals to
perform such work. All such Environmental Remedial Work, and the disposal of all
Hazardous Substances or other wastes generated by such Environmental Remedial
Work, will be performed in accordance with applicable Environmental Laws.
(C) Without limiting its obligations under any other provision of
this Agreement, as between Sellers and Purchaser, Sellers shall be solely and
completely responsible for responding to and complying with any administrative
order, request or demand relating to potential or actual Environmental
Contamination in, on, or relating to the Assets that results in a third party
claim for which Sellers are obligated to defend, save harmless and indemnify
Purchaser pursuant to Section 5.2(B), whether such order, request or demand
names Purchaser alone, or names one or more Sellers and Purchaser. The
responsibility conferred under this Section 5.2(C) includes but is not limited
to responding to such orders on behalf of Purchaser and defending against any
assertion of Purchaser's financial responsibility or individual duty to perform
under such orders. Sellers shall assume, pursuant to Section 5.2(B) above, any
liabilities or responsibilities that are assessed against Purchaser in any
action described under this Section 5.2(C), provided that AX,
31
on behalf of Sellers, has received timely notice of such action and has had the
reasonable opportunity to defend such action.
Section 5.3. NOTICE OF CLAIMS; DEFENSE; SETTLEMENT. Upon the
discovery by any party entitled to indemnification under any provision of this
Agreement of facts giving rise to a claim for indemnification hereunder,
including the receipt by any such party of notice of any claim, demand, action,
cause of action, suit, or controversy, judicial or otherwise, by any third
party, the party entitled to indemnification shall give prompt written notice of
any such claim to AX, on behalf of Sellers, or Purchaser, as appropriate
depending upon which of such parties is obligated to provide the requested
indemnification; provided, however, the failure to provide any such written
notice shall not relieve the indemnifying party of any indemnification
obligation under this Article V except to the extent that such party has
suffered actual prejudice as a direct result of such failure by the indemnified
party. For purposes of this Section 5.3, the party giving notice of a claim and
requesting indemnification shall be referred to as the "indemnified party," and
Sellers or Purchaser, as applicable, in its capacity as the party receiving
notice of a claim and from which indemnification is sought, shall be referred to
as the "indemnifying party." Each such notice shall set forth the facts known to
the indemnified party pertaining to the claim and shall specify the manner in
which the indemnified party proposes to respond to the claim. Within ten (10)
days after the receipt by the indemnifying party of such notice, the
indemnifying party shall state in writing to the indemnified party: (i) whether
the indemnified party may proceed to respond to the claim in the manner set
forth in its notice, or (ii) whether the indemnifying party shall assume
responsibility for and conduct the negotiation, defense, or settlement of the
claim, and if so, the specific manner in which the indemnifying party proposes
to proceed. If the indemnifying party assumes control of the claim, the
indemnified party shall at all times have the right to participate in the
defense thereof and to be represented, at its sole expense, by counsel selected
by it. No such claim shall be compromised or settled by either the indemnifying
party or the indemnified party, as applicable, in any manner that might
adversely affect the interest of the other party without the prior written
consent of such other party. As a condition precedent to indemnification under
this Agreement, the indemnified party shall assign to the indemnifying party,
and the indemnifying party shall become subrogated to, all rights, claims, and
causes of action of the indemnified party
32
against third persons arising out of or pertaining to the matters for which the
indemnifying party shall provide indemnification. The amount of the indemnified
party's claim for indemnification shall be reduced by the amount of any
insurance or similar reimbursement paid to the indemnified party pertaining to
the claim.
ARTICLE VI.
SELLERS' REPRESENTATIONS AND WARRANTIES
Section 6.1. REPRESENTATIONS AND WARRANTIES. Each Seller, severally
as to itself with respect to the matters addressed in Sections 6.1(a) through
(g), and severally, to the extent of its Pro Rata Share, with respect to the
matters addressed in Sections 6.1(h) through (t), represents and warrants to
Purchaser as of the date hereof (except as specifically provided otherwise,
below) and will so represent and warrant to Purchaser on the Closing Date as
follows:
(a) ORGANIZATION AND AUTHORITY. AX is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified and in good standing in the State of
Texas. Each Other Seller is a general or limited partnership duly
formed, validly existing and in good standing under the laws of the
State of Texas. AX has all requisite corporate power and authority
to enter into this Agreement and the other documents and agreements
contemplated hereby and to perform its obligations under this
Agreement and the other documents and agreements contemplated
hereby. At the Closing Date, each Other Seller will have all
requisite partnership power and authority to enter into this
Agreement and the other documents and agreements contemplated hereby
and to perform its obligations under this Agreement and the other
documents and agreements contemplated hereby. The execution and
delivery of this Agreement, the execution and delivery of all
certificates, documents and instruments required to be executed and
delivered by AX at the Closing, and the consummation of the
transactions contemplated hereby as of the Effective Date have been
duly and validly authorized by all necessary action on the part of
AX. At the Closing Date, the execution and
33
delivery of this Agreement, the execution and delivery of all
certificates, documents and instruments required to be executed and
delivered by each Other Seller at the Closing, and the consummation
of the transactions contemplated hereby as of the Effective Date
will have been duly and validly authorized by all necessary action
on the part of each Other Seller.
(b) DUE EXECUTION. This Agreement has been duly executed and delivered
on behalf of AX. At the Closing Date, this Agreement will have been
duly executed and delivered on behalf of each Other Seller. At the
Closing, all instruments required hereunder to be delivered at
Closing by each Seller will have been duly authorized by such Seller
and upon execution and delivery will have been duly executed and
delivered by such Seller. At the Closing, all corporate or
partnership action of each Seller necessary to authorize the
transactions contemplated by this Agreement will have been taken by
such Seller.
(c) BINDING AGREEMENT. This Agreement constitutes the valid, legal and
binding obligation of AX and is enforceable against it in accordance
with its terms, subject to obtaining the consent of the AX Banks and
except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and by general equitable principles. At
the Closing Date, this Agreement will constitute the valid, legal
and binding obligation of each Other Seller and will be enforceable
against each such Seller in accordance with its terms, except to the
extent that such enforcement may be limited by applicable bankruptcy
, insolvency and similar laws affecting creditors' rights generally,
and by general equitable principles. All instruments required
hereunder to be executed and delivered by each Seller at the Closing
will, when executed and delivered, constitute valid, legal and
binding obligations of such Seller enforceable against such Seller
in accordance with their terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally, and by general
equitable principles.
34
(d) NO CONFLICT. AX's execution, delivery and performance of this
Agreement does not conflict with and will not conflict with or
violate and will not violate any material agreement governing AX's
management, administration, organization, business or affairs,
including its charter or certificate or articles of incorporation or
by-laws or, subject to obtaining the consent of the AX Banks, in any
material respect, any other agreements to which AX may be a party or
by which any of its properties are bound, or any material law,
administrative regulation or rule or court order, judgment or decree
applicable to AX which would have a materially adverse effect on
Purchaser or its ownership or operation of the Assets on and after
the Closing Date. At the Closing Date, no Other Seller's execution,
delivery and performance of this Agreement will have conflicted with
or will have violated any material agreement governing such Other
Seller's management, administration, organization, business or
affairs, including its general partnership agreement or agreement or
certificate of limited partnership or, in any material respect, any
other agreements or instruments to which such Other Seller may be a
party or by which such Other Seller or any of its properties are
bound, or any material law, administrative regulation or rule or
court order, judgment or decree applicable to such Other Seller or
to the Assets, non-compliance with which would have a materially
adverse effect on Purchaser or its ownership or operation of the
Assets on and after the Closing Date.
(e) NO BREACH OR DEFAULT. Subject to obtaining the consent of the AX
Banks, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby does or will
constitute a breach of, or an event of default under, any contract
or agreement to which AX is a party; nor will the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby (i) subject to obtaining the consent of the AX
Banks, result in the creation of any lien or encumbrance on any of
the Assets or (ii) result in any liability to Purchaser under the
terms of any contracts or agreements of employment to which AX is a
party. At the Closing Date, neither the execution and delivery of
this
35
Agreement nor the consummation of the transactions contemplated
hereby will have constituted a breach of, or an event of default
under, any contract or agreement to which any Other Seller is a
party; nor will the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby result in the
creation of any lien or encumbrance on any of the Assets or any
liability to Purchaser under the terms of any contracts or
agreements of employment to which any such Other Seller is a party.
(f) BANKRUPTCY. There are no bankruptcy, reorganization, or arrangement
proceedings pending, being contemplated by or, to the best knowledge
of each Seller, threatened against such Seller.
(g) BROKERS' FEES. No Seller has incurred any liability, contingent or
otherwise, for brokers' or finders' fees in respect of this
transaction for which Purchaser shall have any responsibility
whatsoever.
(h) REGULATORY MATTERS. Except as disclosed on Exhibit "C-1", Sellers
have complied in all material respects with all laws, rules,
regulations, ordinances, codes, orders, licenses, and permits
relating to the Assets (except Environmental Laws, which are covered
in Section 6.1(q)), including, without limitation, labor, civil
rights, occupational safety and health, and antitrust laws. Except
as disclosed on Exhibit "C-1", Sellers have not violated any
applicable laws relating to, or regulations, rules or orders
promulgated by the Federal Energy Regulatory Commission or any other
federal or state regulatory agency, or any of their predecessor
agencies, which might materially adversely affect in any respect any
Evaluated Interest, or the production therefrom.
(i) PREFERENTIAL PURCHASE RIGHTS AND CONSENTS TO ASSIGNMENT. Except as
disclosed on Exhibit "C-2", and except such agreements with respect
to which all necessary waivers of preferential purchase rights or
consents to assignment have already been obtained, the Evaluated
Interests are not subject to any agreements containing preferential
purchase
36
rights or consent to assignment provisions that must be complied
with prior to the assignment of the Evaluated Interests to
Purchaser.
(j) LITIGATION. Except as disclosed on Exhibit "C-3", there is neither
any claim, dispute, suit, action, investigation or other proceeding
pending before any court or governmental agency nor, to the best
knowledge of Sellers threatened, which has resulted or would result
in a material impairment or loss of Sellers' title to any Evaluated
Interest or which would materially impede the operation of any such
Evaluated Interest, or which challenges or pertains to the execution
and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(k) TAXES. Except as disclosed on Exhibit "C-4", all ad valorem,
property, production, excise, severance and similar taxes and
assessments payable with respect to the Evaluated Interests and
based on or measured by the ownership of property or the production
or removal of Hydrocarbons or the receipt of proceeds therefrom have
been and will be timely paid in all respects.
(l) LEASES AND WELLS. Except as disclosed on Exhibit "C-5", to the best
knowledge of Sellers, each of the Leases is in full force and
effect. To each Seller's best knowledge, no Seller is in material
breach or material default, nor has there occurred any event, fact,
or circumstance that, with the lapse of time or the giving of
notice, or both, would constitute such a breach or default by any
Seller, with respect to any of its obligations under any Lease.
Except as disclosed on Exhibit "C-5", Sellers have made, or caused
to be made, all payments, including royalties, delay rentals,
shut-in well payments, and other lease maintenance payments, due in
respect of the Leases thereunder. To each Seller's best knowledge,
no other party owning an interest in any Lease is in material breach
or material default with respect to any of its obligations
thereunder. Except on disclosed on Exhibit "C-3", no lessor under
any Lease has given or, to each Seller's best knowledge, threatened
to give notice of any action to terminate, cancel, rescind,
repudiate, or procure a judicial reformation of any Lease or any
37
provisions thereof. Except as disclosed on Exhibit "C-5", (i) all of
the wells included in the Assets have been drilled, completed and
operated within the boundaries of the Leases or Evaluated Interests
or within the limits otherwise permitted by contract, pooling or
unit agreement, and by law and in compliance with the provisions of
the relevant Basic Documents and all applicable rules, regulations,
permits, judgments, orders and decrees of any court or the federal
and state regulatory authorities having jurisdiction thereof; and
(ii) the production of oil and gas therefrom has not been in excess
of the allowable production allocated to such well. The wells
described on Exhibit "B" are the only wells located on the Leases
and Lands.
(m) MARKETING. Except as disclosed on Exhibit "C-6", no amounts of
Hydrocarbons produced from the Evaluated Interests are subject to a
sales contract (except for contracts terminable without penalty on
not more than 30 days notice), and except as may be contained in any
document described on Exhibit "C-6", no person has any call upon,
option to purchase or similar rights under any agreement with
respect to the Evaluated Interests or to the production therefrom.
Sellers have not in any respect collected, nor will Sellers in any
respect collect, any proceeds from the sale of Hydrocarbons produced
from the Evaluated Interests that are subject to refund except as
disclosed on Exhibit "C-6". As of the Effective Date, proceeds from
the sale of oil, condensate and gas from the Evaluated Interests
(including payments in accordance with Article IV of the Sonora Gas
Contract) were being received in all respects by Sellers in a timely
manner and were not being held in suspense for any reason, except as
disclosed on Exhibit "C-5". Sellers have not been nor will Sellers
be obligated by virtue of any prepayment made under any production
sales contract or any other contract containing a "take or pay"
clause, or under any production payment, gas balancing, deferred
production or similar arrangement to deliver oil, gas or other
minerals produced from or allocated to any of the Evaluated
Interests at some future time without receiving full payment
therefor at the time of delivery, except as disclosed on Exhibit
"C-6".
38
Except as disclosed on Exhibit "C-6", there are no material gas
imbalances as between any Seller and any third party with respect to
operations relating to the Evaluated Interests.
(n) BASIC DOCUMENTS. To the best of Sellers' knowledge, all material
Basic Documents are described on Exhibit "C-5". Except as disclosed
on Exhibit "C-5", with respect to the Basic Documents: (i) all Basic
Documents are in full force and effect and are the valid and legally
binding obligations of the parties thereto and are enforceable in
accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally, and by
general equitable principles; (ii) to each Seller's best knowledge,
no Seller is in material breach or material default, nor has there
occurred any event, fact or circumstance that, with the lapse of
time or giving of notice, or both, would constitute such a breach or
default by any Seller, with respect to any of its obligations under
any Basic Document; and (iii) neither Sellers nor, to the best of
Sellers' knowledge, any other party to any Basic Document has given
or threatened to give notice of any action to terminate, cancel,
rescind or procure a judicial reformation of any Basic Document or
any provision thereof.
(o) UNIT, POOLING AND COMMUNITIZATION AGREEMENTS. With respect to any
unit agreements, pooling agreements and communitization agreements
creating interests constituting the Evaluated Interests: (i) Sellers
have in all respects fulfilled all requirements for filings,
certificates, disclosures of parties in interest, and other similar
matters contained in (or otherwise applicable thereto by law, rule
or regulation) the Leases or other documents granting or governing
the operation or maintenance of the Evaluated Interests, and each
Seller is fully qualified to own, hold and exercise such rights
under such Leases or other documents; and (ii) there are no express
contractual obligations to drill additional wells or to engage in
other express development operations, except for obligations arising
under offset well provisions and
39
obligations arising under provisions of unit operating agreements
that allow the parties thereto to elect whether or not they will
participate; however, there are no current proposals to drill such
wells except as disclosed on Exhibit "C-7".
(p) OPERATING AGREEMENTS. With respect to the joint, unit or other
operating agreements relating to the Evaluated Interests: (i) except
as disclosed on Exhibit "C-7", there are no outstanding calls or
payments under authorities for expenditures ("AFE'S"); (ii) Sellers
have listed on Exhibit "C-7" the status of all material operations
by less than all parties to the extent that such has an effect upon
Seller's interests in the Evaluated Interests; and (iii) except as
disclosed on Exhibit "C-7", there are no operations under the
operating agreements with respect to which Sellers have become
non-consenting parties.
(q) ENVIRONMENTAL MATTERS. (1) Except as disclosed on Exhibit "C-8": (i)
Sellers have obtained or caused to have been obtained all permits,
licenses and other authorizations that are required under federal,
state and local laws with respect to pollution or protection of the
environment relating to the Assets, including laws relating to
actual or threatened emissions, discharges, or releases of
pollutants, contaminants, or Hazardous Substances or other toxic
materials or wastes into ambient air, surface water, ground water or
land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or Hazardous Substances or
other toxic materials or wastes ("ENVIRONMENTAL LAWS"), and all such
permits, licenses, and other authorizations are currently in full
force and effect; (ii) Sellers and the Evaluated Interests are in
compliance in all material respects with all Environmental Laws and
all terms and conditions of such permits, licenses and
authorizations; and (iii) there has been no Release, and no threat
of a Release, of any Hazardous Substances arising from, based upon,
associated with, or related to any Seller's use, ownership, or
operation of the Assets, except for matters that have been remedied
and have no
40
continuing material adverse effect upon any Seller or the Assets;
and (iv) to each Seller's best knowledge, there has been no Release,
and no threat of a Release of any Hazardous Substances arising from,
based upon, associated with, or related to the use, ownership, or
operation of the Assets by any of Sellers' predecessors in title,
except for matters that have been remedied and have no continuing
material adverse effect upon any Seller or the Assets.
(2) Except as disclosed on Exhibit "C-8", no Seller has
received a written notice of a claim that: (i) such Seller has
violated, or is about to violate, any Environmental Law; (ii) there
has been a Release, or there is a threat of a Release, of Hazardous
Substances on, to, or from the Assets for which such Seller is or
may be liable to any third party for injury to or death of any
person, persons, or other living things, or damage to or loss or
destruction of property; (iii) such Seller may be or is liable, in
whole or in part, for the costs of cleaning up, remediating,
removing, or responding to a Release or a threat of a Release of
Hazardous Substances; or (iv) the Assets are subject to a lien in
favor of any governmental entity for any liability, costs, or
damages under any Environmental Laws arising from, or any costs
incurred by such governmental entity in response to, a Release of
Hazardous Substances.
(r) PLUGGING AND ABANDONMENT. No well identified in Exhibit "B" as of
the Effective Date has been AFE'ed for permanent plugging and
abandonment.
(s) DISBURSEMENT OF PROCEEDS. Except proceeds attributable to the
Evaluated Interests being held in suspense in accordance with
prudent industry practice, all of such proceeds of production have
been and are being accounted for under appropriate division orders,
transfer orders or similar documents signed by or otherwise binding
on the parties receiving such proceeds and reflecting as to each
party the decimal interest of such party.
(t) CERTAIN AGREEMENTS; PAYOUTS. Except as set forth in Exhibit "C-9",
no Evaluated Interest is subject to any area of mutual interest
agreement, or any
41
farm-out or farm-in agreement pursuant to which Purchaser may be
obligated to make assignments after the Effective Date. Except as
set forth on Exhibit "C-9", no Evaluated Interest is subject to any
tax partnership. Where Exhibit "C-9" shows an Evaluated Interest
described therein to be subject to change at "Payout", or similar
designations, such change will occur upon the recovery from the
proceeds or production from such Evaluated Interest of a sum of
money set forth in Exhibit "C-9" as the "PAYOUT AMOUNT".
Section 6.2. DISCLAIMER OF WARRANTIES. THE ASSIGNMENT, BILL OF SALE
AND CONVEYANCE TO BE EXECUTED PURSUANT HERETO SHALL BE EXECUTED WITHOUT ANY
EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION AS TO THE MERCHANTABILITY OF ANY
OF THE ASSETS OR THEIR FITNESS FOR ANY PURPOSE, AND EXCEPT FOR THE SPECIAL
WARRANTY OF TITLE, WITHOUT ANY OTHER EXPRESS OR IMPLIED WARRANTY OR
REPRESENTATION WHATSOEVER. IN ADDITION, EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SELLERS MAKE NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO
THE ACCURACY OR COMPLETENESS OF ANY DATA, INFORMATION OR MATERIALS HERETOFORE OR
HEREAFTER FURNISHED PURCHASER IN CONNECTION WITH THE EVALUATED INTERESTS, OR AS
TO THE QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE
EVALUATED INTERESTS OR THE ABILITY OF THE EVALUATED INTERESTS TO PRODUCE
HYDROCARBONS. PURCHASER EXPRESSLY WAIVES THE PROVISIONS OF CHAPTER 17,
SUBCHAPTER E, SECTION 17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION 17.555,
WHICH IS NOT WAIVED), VERNON'S TEXAS CODE ANNOTATED BUSINESS & COMMERCIAL CODE.
ARTICLE VII.
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to Sellers as of the date hereof
and will so represent and warrant to Sellers on the Closing Date as follows:
(a) ORGANIZATION AND AUTHORITY. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Oklahoma and is duly qualified and in good standing in
the State of Texas. Purchaser has all requisite corporate power and
authority to enter into this Agreement and the other documents and
agreements contemplated hereby and to perform its
42
obligations under this Agreement and the other documents and
agreements contemplated hereby. The execution and delivery of this
Agreement, the execution and delivery of all certificates, documents
and instruments required to be executed and delivered by Purchaser
at the Closing, and the consummation of the transactions
contemplated hereby as of the Effective Date have been duly and
validly authorized by all necessary action on the part of Purchaser.
(b) DUE EXECUTION. This Agreement has been duly executed and delivered
on behalf of Purchaser. At the Closing, all instruments required
hereunder to be delivered at Closing by Purchaser will have been
duly authorized by Purchaser and upon execution and delivery will be
duly executed and delivered by Purchaser. At the Closing, all
corporate action of Purchaser necessary to authorize the
transactions contemplated by this Agreement will have been taken by
Purchaser.
(c) BINDING AGREEMENT. This Agreement constitutes the valid, legal and
binding obligation of Purchaser enforceable against it in accordance
with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally, and by general equitable
principles. All instruments required hereunder to be executed and
delivered by Purchaser at the Closing will, when executed and
delivered, constitute valid, legal and binding obligations of
Purchaser enforceable against Purchaser in accordance with their
terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and by general equitable principles.
(d) NO CONFLICT. Purchaser's execution, delivery and performance of this
Agreement do not and will not conflict with or violate any material
agreement governing Purchaser's management, administration,
organization, business or affairs, including its certificate of
incorporation or by-laws or, in any material respect, any other
agreements or instruments to which Purchaser may be a party or by
which Purchaser or any of its properties are
43
bound, or any material law, administrative regulation or rule or
court order, judgment or decree applicable to Purchaser.
(e) NO BREACH OR DEFAULT. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby does or will constitute a breach of, or an event of default
under, any contract or agreement to which Purchaser is a party; nor
will the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby result in any
liability to Seller under the terms of any contracts or agreements
of employment to which Purchaser is a party.
(f) BANKRUPTCY. There are no bankruptcy, reorganization, or arrangement
proceedings pending, being contemplated by or, to the best knowledge
of Purchaser, threatened against Purchaser.
(g) BROKERS' FEES. Purchaser has not incurred any liability, contingent
or otherwise, for brokers' or finders' fees in respect of this
transaction for which Seller shall have any responsibility
whatsoever.
ARTICLE VIII.
SELLERS' OBLIGATIONS PRIOR TO CLOSING
Section 8.1. OPERATIONS PRIOR TO CLOSING. Except as otherwise
consented to in writing by Purchaser or provided in this Agreement, from the
date hereof to the Closing, Sellers shall cause the Assets to be maintained and
operated in a good and workmanlike manner consistent with prudent oil and gas
practices. Subject to the provisions of Section 8.2 and Section 13.8, Sellers
shall pay or cause to be paid all costs and expenses incurred in connection
therewith until the Closing Date. Except as provided for elsewhere in this
Agreement, Sellers shall not directly or indirectly convey to a third party, or
reserve or retain, any recorded or unrecorded interest in any of the Leases, and
Sellers shall not convey to a third party, or reserve or retain, any recorded or
unrecorded executory rights.
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Section 8.2. RESTRICTIONS ON OPERATIONS.
(A) Except as otherwise consented to in writing by Purchaser or
provided in this Agreement, from the date hereof until the Closing Date, Sellers
shall (or, with respect to non-operated wells, shall use their reasonable
commercial efforts to cause the operator of such wells to): (i) not abandon any
well on any Lease, or release or abandon all or any part of the Evaluated
Interests, or release or abandon all or any portion of any Lease; (ii) not
develop, maintain or operate the Evaluated Interests in a manner materially
inconsistent with prior operations; (iii) not commence any operation on any
Evaluated Interest anticipated to cost in excess of $25,000 per operation net to
Sellers' aggregate interests (except emergency operations, operations required
under presently existing contractual obligations and the on-going commitments
under the AFE's described on Exhibit "C- 7"); (iv) not create or suffer to exist
any lien, security interest or other encumbrance with respect to any Evaluated
Interest (except for Permitted Encumbrances); (v) not enter into any agreement
for the sale, disposition or encumbrance of any Asset; (vi) not dedicate, sell,
encumber or dispose of any oil and gas production attributable to the Assets
except in the ordinary course of business; (vii) not agree to any material
alterations in the Basic Documents and not enter into any new contracts relating
to the Assets (except for contracts terminable without penalty to Sellers on not
more than 30 days notice); (viii) maintain in force all insurance policies
covering the Assets that are presently in force; (ix) pay or cause to be paid
all costs and expenses incurred in connection with the Assets before they become
delinquent; (x) perform all material obligations of Sellers under the Basic
Documents and maintain in all material respects the Assets in a manner
consistent with prior operations; (xi) exercise due diligence in safeguarding
and maintaining secure and confidential all geological and geophysical maps,
confidential reports and data and all other confidential data included in the
Assets or relating in any way to the Evaluated Interests; (xii) furnish
Purchaser with copies of all AFE's on material operations commenced, but not
completed, prior to the Effective Date; (xiii) as to AX, not voluntarily
relinquish its position as operator with respect to any of the Evaluated
Interests; (xiv) use their reasonable efforts to promptly notify Purchaser of
any notice or threatened notice of which any Seller actually becomes aware
relating to any default, inquiry into any possible default, or action to alter,
terminate, rescind, repudiate, or procure a judicial reformation of any Lease or
other Basic Document or any provision thereof; and (xv) use their reasonable
45
efforts to promptly notify Purchaser of any new suits, actions, or other
proceedings before any court, arbitrator, or governmental agency, and any causes
of action that relate to the Assets and that may materially impair the value of
the Assets.
(B) From and after the date of this Agreement until Closing Sellers
shall: (i) arrange (or, where AX is not the operator, endeavor to arrange) for
such persons as Purchaser may designate to have access to the Evaluated
Interests for inspection thereof at the sole cost, risk and expense of
Purchaser; (ii) identify and endeavor to obtain any and all necessary consents,
waivers (including waivers of preferential purchase rights), permissions and
approvals of third parties or governmental authorities in connection with the
sale and transfer of the Evaluated Interests to Purchaser; (iii) afford
Purchaser the right to approve in advance all letters and other documents sent
to any third party concerning consents and preferential rights of such third
party to purchase any portion of the Evaluated Interests or prohibit the sale
thereof to Purchaser; (iv) file or cause to be filed all reports required to be
filed with governmental authorities relating to the Evaluated Interests; (v)
consult with Purchaser from time to time, upon Purchaser's request, concerning
the operation and development of the Evaluated Interests and Sellers' compliance
with their covenants and agreements hereunder; (vi) maintain their respective
organizational statuses as corporations or general or limited partnerships; and
(vii) maintain their relationships with all suppliers, customers and others
having business relationships with Sellers with respect to the Evaluated
Interests so that such relationships will be preserved for Purchaser on and
after the Closing Date.
ARTICLE IX.
ADDITIONAL AGREEMENTS OF THE PARTIES
Section 9.1. BOOKS AND RECORDS.
(A) By not later than ten (10) business days after the Closing Date,
Sellers shall cause all Basic Documents and Records to be delivered to, and in
the possession of, Purchaser. Sellers shall be allowed to copy and retain at
their expense such Basic Documents and Records as they may deem necessary or
appropriate. Sellers will allow Purchaser at Purchaser's expense to copy or
transfer information from computer tapes, discs and data in the possession of
Sellers
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relating to the Records, including land, revenue, royalty, expenditure and other
accounting records as will be necessary to enable Purchaser to set up its own
records with respect to the Leases and the Evaluated Interests, subject to the
same restrictions provided herein with respect to the Records. Notwithstanding
the foregoing, Sellers and Purchaser acknowledge and agree that their lease
records, tax, financial and accounting personnel will be meeting to discuss the
most expeditious means of assuring a smooth transition of ownership of the
Assets and that any agreement of these personnel will take precedence over and
supersede any other agreement contained herein with respect to delivery or
possession of Records that may pertain to lease records, tax, financial and
accounting matters.
(B) With respect to all files, Records, Basic Documents, information
and data delivered to Purchaser by Sellers pursuant to this Agreement or
otherwise delivered by Sellers to Purchaser (all such items being referred to
hereafter in this Article IX as "INFORMATION"), Purchaser agrees that AX may
have access to all such Information at reasonable times during normal business
hours at Purchaser's offices and that AX at AX's sole cost and expense may make
copies of such Information. Purchaser agrees that if Sellers inadvertently
deliver Information to Purchaser which does not relate to the Evaluated
Interests and Purchaser discovers such mistake or if AX notifies Purchaser of
such mistake, Purchaser shall return such Information to AX at AX's expense.
Furthermore, Purchaser agrees to maintain such Information for a period of three
years after the end of the calendar year to which such Information relates in
order to have such Information available to AX for accounting, tax and legal
purposes.
(C) With respect to any geological and geophysical data that relate
(but do not relate exclusively) to the Evaluated Interests, such data shall not
constitute Records, nor be delivered to Purchaser at the Closing; provided,
however, that Sellers agree that after the Closing Purchaser may have access to
all such data at reasonable times during normal business hours at AX's offices
and that Purchaser at Purchaser's sole cost and expense may make copies of such
data, subject to obtaining the waiver of any confidentiality restrictions
existing for the benefit of third parties.
Section 9.2. SAFEGUARDING INFORMATION. Purchaser shall exercise due
diligence in safeguarding and maintaining secure all Information in the
possession of Purchaser relating to the Evaluated Interests. If the transactions
47
contemplated by this Agreement are not consummated, Purchaser shall return to AX
all of the Information that Sellers have delivered to Purchaser hereunder. If
certain of the Evaluated Interests are not conveyed to Purchaser by reason of
Defects or otherwise, Purchaser shall return to AX all of the Information that
Sellers have delivered to Purchaser hereunder that relates to the portions of
the Evaluated Interests which are not conveyed.
Section 9.3. CONFIDENTIALITY OF INFORMATION. If the transactions
contemplated by this Agreement are consummated, the Confidentiality Agreement
will be deemed amended, without further act or evidence, to exclude from
"Evaluation Material", as such term is defined therein, all Information relating
to the Assets delivered to Purchaser by Sellers pursuant to this Agreement.
Section 9.4. COMPLIANCE WITH CONDITIONS. Each party will proceed
diligently to cause all the conditions to the other party's obligations to the
Closing to be satisfied. If the conditions to either party's obligations to
close have been satisfied, or expressly waived by such party, and such party
refuses to close, such party at the option of the other party shall be deemed to
have breached this Agreement.
Section 9.5. DESIGNATION AS OPERATOR. Sellers shall cooperate with
Purchaser in its efforts to ensure that Purchaser is named at the Closing Date
(or as soon thereafter as is reasonably practicable) as operator of all wells
that are operated by AX and to use its reasonable commercial efforts to assist
Purchaser in assuming the timely operation and management of the Evaluated
Interests. At the Closing Date (or as soon thereafter as is reasonably
practicable), where it is possible for Sellers to control such matters, Sellers
and, if required, Purchaser shall enter into amendments to the gas purchase
contracts affecting the Evaluated Interests operated by AX so as to provide that
Purchaser is designated as the sellers' representative under such gas contracts.
Section 9.6. COOPERATION; CLAIMS AND DEMANDS. Purchaser and Sellers
acknowledge that claims may arise relating to the Assets in which Sellers and
Purchaser will have continuing interests or responsibilities. Accordingly,
Sellers and Purchaser agree to cooperate fully with each other to protect and
preserve all such claims and to notify each other of the existence of all such
claims. Purchaser and Sellers acknowledge that, as of the Closing Date, Sellers
may: (i) have unpaid joint interest accounts receivable due
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from joint working interest owners in the Evaluated Interests; (ii) have
erroneously overpaid certain royalty interest owners who have not repaid such
sums; and/or (iii) be entitled to refunds, such as ad valorem taxes,
attributable to the Evaluated Interests prior to the Effective Date. Purchaser
agrees to cooperate with Sellers and to assist in any proper manner to secure
such moneys and to remit to Sellers any such moneys received.
Section 9.7. SUSPENSE ACCOUNTS. By not later than the Closing Date,
AX shall pay to Purchaser all amounts held in suspense by AX that relate to the
Evaluated Interests conveyed at Closing together with a schedule listing all
suspense accounts. Upon receipt thereof from Sellers, Purchaser shall assume
responsibility for and agrees to take and apply such moneys in a manner
consistent with prudent oil and gas business practices.
Section 9.8. HSR ACT. Within seven (7) days following the date of
this Agreement, Sellers (or their respective appropriate affiliates, to the
extent required) and Purchaser (or its appropriate affiliate) shall file
appropriate Notification and Report Forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT") with respect to this
Agreement and the transactions contemplated hereby. Sellers and Purchaser shall
cooperate to coordinate such filings, and to make reasonable efforts to respond
to any governmental request or inquiry with respect thereto. Sellers and
Purchaser shall request early termination of the waiting period under the HSR
Act upon the filing of the Notification and Report Form.
Section 9.9. TRADENAMES AND TRADEMARKS. Purchaser shall, by not
later than the end of the Cure Period, remove all of AX's tradenames, trademarks
and other signs and symbols on the Evaluated Interests and shall not use or
display such tradenames, trademarks or other signs and symbols that AX uses to
identify AX in the conduct of AX's business. AX expressly reserves the sole and
exclusive ownership of its tradenames and trademarks and Purchaser shall not
have any right, title or interest in the tradenames and trademarks of AX.
Section 9.10. OPERATIONS UNTIL THE CLOSING DATE. The parties agree
that AX shall continue to operate the Evaluated Interests until the Closing
Date, at which time AX shall deliver to Purchaser exclusive possession of the
Evaluated Interests operated by AX (other than the Evaluated Interests that were
at Closing excluded under Sections 4.2,
49
4.3 or 4.4 or subject to outstanding requests for waivers of preferential
purchase rights or consents to assignment pursuant to Section 4.5).
Section 9.11. BULK TRANSFERS LAW. Purchaser waives compliance by
Sellers with the Bulk Transfers Law of Chapter 6 of the Texas Uniform Commercial
Code in connection with the sale of the Assets contemplated by this Agreement.
Sellers hereby agree to indemnify and hold Purchaser harmless from and against
any and all Loss incurred by Purchaser as a result of such noncompliance.
Section 9.12. GAS BALANCING. The parties recognize that as of the
Effective Date there may be over and under imbalances with respect to gas
production, processing, or transportation attributable to the Evaluated
Interests and hereby agree that the Evaluated Interests acquired by Purchaser at
Closing will be conveyed at Closing specifically subject to such imbalances,
with Purchaser bearing and assuming all obligations with respect to any
overproduction account or liability disclosed on Exhibit "C-6" and receiving the
benefit of and being credited with any underproduction account or credit
existing as of the Effective Date with respect to the Evaluated Interests. The
parties agree that the overproduction accounts and liabilities disclosed on
Exhibit "C-6" are Permitted Encumbrances hereunder, and, to the extent such
disclosures are accurate, the existence of such overproduction accounts or
liabilities shall not constitute grounds for Purchaser to assert that the
Evaluated Interests affected thereby are Defective Interests. From and after the
Closing, Sellers shall defend, save harmless and indemnify Purchaser, its
successors and assigns, and their respective affiliates, directors, officers,
stockholders and partners, as appropriate, from all Loss arising from
overproduction accounts or liabilities, existing as of the Effective Date with
respect to any Evaluated Interest, that are not disclosed, or are understated,
on Exhibit "C-6". From and after the Closing, Purchaser shall defend, save
harmless and indemnify Sellers, their respective successors and assigns, and
their respective affiliates, directors, officers, stockholders and partners, as
appropriate, from all Loss arising from such overproduction accounts and
liabilities that are disclosed on Exhibit "C-6" to the extent such disclosures
are accurate.
Section 9.13. SEC REPORTS, ETC. Sellers and Purchaser agree to
cooperate with each other in connection with the preparation by such parties of
such reports to the Securities Exchange Commission and other federal, state, or
50
local governmental agencies that are required of such parties as the result of
the execution and delivery of this Agreement or the consummation of the
transactions described in this Agreement.
ARTICLE X.
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Unless otherwise specifically provided herein, the obligations of
Purchaser hereunder at the Closing shall be subject, at its option, to the
conditions that: (i) all representations and warranties of Sellers are at the
date hereof and as of the Closing Date, true and correct with the same force and
effect as if they had been made on the Closing Date and Sellers shall deliver a
certificate at Closing reaffirming all of such representations and warranties as
of the Closing Date and certifying that the covenants specified in Article VIII
and elsewhere in this Agreement to be performed or satisfied by Sellers have
been performed or satisfied by Sellers in all material respects; (ii) Sellers
shall have performed in all material respects at or prior to the Closing all of
the obligations specified in Article XIII and elsewhere in this Agreement to be
performed by Sellers at or prior to the Closing; (iii) no suit, action or other
proceeding shall be pending or threatened before any court or governmental
agency seeking to restrain or prohibit the Closing or seeking damages against
Purchaser as a result of the consummation of this Agreement; (iv) subject to the
provisions of Section 4.5, all material consents, permissions, novations and
approvals by third parties (including governmental agencies) in connection with
the sale and transfer of the Evaluated Interests shall have been received prior
to the Closing, except those governmental consents customarily generated and
received in the ordinary course of business at a post-Closing date, and provided
that any inability or failure to have obtained the consent of Natural Gas
Marketing & Storage Company to assign rights under the Sonora Gas Contract shall
not result in a failure of this condition precedent; and (v) the aggregate of
all adjustments to the Preliminary Purchase Price made pursuant to Section
3.4(B)(5) shall not exceed 5% of the Preliminary Purchase Price.
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ARTICLE XI.
CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS
The obligations of Sellers hereunder at the Closing shall be
subject, at their option, to the conditions that: (i) all representations and
warranties of Purchaser herein are at the date hereof and as of the Closing
Date, true and correct with the same force and effect as if they had been made
on the Closing Date and Purchaser shall deliver a certificate at Closing
reaffirming all of the representations and warranties contained in Article VII
as of the Closing Date and certifying that the covenants specified in this
Agreement to be performed or satisfied by Purchaser have been performed or
satisfied by Purchaser in all material respects; (ii) Purchaser shall have
performed in all material respects at or prior to the Closing all of the
obligations specified in Article XIII and elsewhere in this Agreement to be
performed by Purchaser at or prior to the Closing; (iii) no suit, action or
other proceeding shall be pending or threatened before any court or governmental
agency seeking to restrain or prohibit the Closing or seeking damages against
any Seller as a result of the consummation of this Agreement; (iv) subject to
the provisions of Section 4.5, all material consents, permissions, novations and
approvals by third parties (including governmental agencies) in connection with
the sale and transfer of the Evaluated Interests shall have been received prior
to the Closing, except those governmental consents customarily generated and
received in the ordinary course of business at a post-Closing date, and provided
that any inability or failure to have obtained the consent of Natural Gas
Marketing & Storage Company to assign rights under the Sonora Gas Contract shall
not result in a failure of this condition precedent; and (v) the aggregate of
all adjustments to the Preliminary Purchase Price made pursuant to Section
3.4(B)(5) shall not exceed 5% of the Preliminary Purchase Price.
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ARTICLE XII.
TERMINATION; REMEDIES FOR BREACH
Section 12.1. RIGHT OF TERMINATION. This Agreement and the
transactions contemplated hereby may be terminated in the following instances:
(i) by Sellers if the conditions set forth in Article XI are not satisfied or
waived as of the Closing Date through no fault of Sellers; (ii) by Purchaser if
the conditions set forth in Article X are not satisfied or waived as of the
Closing Date through no fault of Purchaser; (iii) by either Sellers or Purchaser
if, through no fault of the terminating party, the Closing does not occur on or
before August 10, 1995; (iv) by either Purchaser or Sellers if, through no fault
of the terminating party, the transaction cannot be consummated as a result of
the application of the HSR Act; and (v) at any time by the mutual written
agreement of Purchaser and Sellers. In the event of termination of this
Agreement pursuant to this Article XII, the terminating party, provided that it
shall not be in breach hereof, shall have no liability to the nonterminating
party for damages or otherwise.
Section 12.2. SELLERS' REMEDIES FOR BREACH. Upon failure of
Purchaser to comply with its obligations under this Agreement by the Closing
Date, or if the conditions set forth in Article XI (other than the condition set
forth in clause (v) thereof) are not satisfied because of the willful act or
failure to act of Purchaser and through no fault of or breach hereunder by
Sellers (and such conditions are not waived by Sellers), and such default is not
cured within ten (10) days after Sellers' delivery to Purchaser of a notice
specifying such default and Sellers' intention to exercise the remedy provided
in this Section 12.2, then Sellers, at their sole option, may terminate this
Agreement and pursue any remedy that may be available to Sellers.
Section 12.3. PURCHASER'S REMEDIES FOR BREACH. Upon failure of
Sellers to comply with their obligations under this Agreement by the Closing
Date, or if the conditions set forth in Article X (other than the condition set
forth in clause (v) thereof) are not satisfied because of the willful act or
failure to act of Sellers and through no fault of or breach hereunder by
Purchaser (and such conditions are not waived by Purchaser), and such default is
not cured within ten (10) days after Purchaser's delivery to Sellers of a notice
specifying such default and Purchaser's intention to exercise the remedies
provided in this Section 12.3, then Purchaser, at its sole option, may terminate
this
53
Agreement and pursue any remedy that may be available to Purchaser.
Section 12.4. EXTENSION OF CLOSING DATE; WITHDRAWAL OF NOTICE. If
any notice of default and intention to exercise remedies as provided in Section
12.2 or Section 12.3 above is delivered by a party after the tenth day prior to
the Closing Date, then the Closing Date shall automatically be extended to the
date that is the next business day following the first to occur of (i) the tenth
day after any such notice is delivered or (ii) the day on which the cure of the
specified default is effected. If the default is not cured within the permitted
time, this Agreement shall IPSO FACTO terminate and the party giving the notice
shall thereupon be entitled to exercise any remedy or remedies provided above
for its benefit; provided, that at any time prior to the expiration of the cure
period, the party giving such notice may withdraw and rescind the same, thereby
waiving or accepting the specified default complained of, whereupon the parties
shall proceed with the Closing on the next business day following such
withdrawal of notice without any adjustment to the Preliminary Purchase Price on
account of the specified default. In the event the Closing Date is extended
under this Section 12.4 or otherwise pursuant to and in accordance with this
Agreement, all other post-Closing dates specified herein (including without
limitation the expiration date of the Cure Period, the Defect Closing Date and
the Final Settlement Date) shall likewise be extended by the same number of days
that the Closing Date is extended.
ARTICLE XIII.
TRANSACTIONS AT AND AFTER CLOSING; PROCEDURE
Section 13.1. CLOSING DATE PROCEDURE. On or immediately prior to the
Closing Date, the parties shall exchange the documents set forth in Section 13.5
pursuant to the terms of this Agreement and shall cause to be executed,
acknowledged, delivered, filed and recorded after the Closing Date all
instruments, and shall cause all other acts to be done, as shall be reasonably
required to make the sale of the Assets effective under applicable laws.
Section 13.2. CLOSING DOCUMENTS. On or before the Closing Date, each
of the parties shall deliver to the other such instruments and documents as are
reasonably necessary or desirable in order to carry out the purposes of this
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Agreement. Without limiting the preceding sentence of this Section 13.2, no
later than two (2) business days prior to the Closing Date, AX, on behalf of
Sellers, shall prepare and submit to Purchaser for review an initial settlement
statement (the "INITIAL SETTLEMENT STATEMENT") that shall set forth the
Preliminary Purchase Price and each adjustment pursuant to Section 3.4 as
applied at the Closing Date, each of which shall be calculated using the best
information available as of the date of preparation of the Initial Settlement
Statement.
Section 13.3. TIME OF CLOSING. Unless the parties hereto mutually
agree otherwise and subject to the conditions stated in this Agreement, the
Closing shall be held at 10:00 a.m., local time, on the Closing Date.
Section 13.4. PLACE OF CLOSING. The Closing shall be held at the
offices of AX in Houston, Texas, or at such other place as Purchaser and AX may
agree upon in writing.
Section 13.5. CLOSING OBLIGATIONS. At the Closing, the following
events shall occur, each being a condition precedent to the others and each
being deemed to have occurred simultaneously with the others:
(a) Sellers shall execute, acknowledge and deliver to Purchaser an
Assignment, Bill of Sale and Conveyance (in sufficient counterparts to
facilitate recording) in the form of Exhibit "D", warranting title against
claims by, through or under Sellers, but not otherwise (which assignments
and exhibits thereto shall be prepared by Sellers and furnished to
Purchaser for review by not later than the fourth business day prior to
the Closing Date), conveying to Purchaser the Assets (other than such
Assets excluded under Sections 4.2, 4.3 or 4.4 or subject to outstanding
requests for waivers of preferential purchase rights or consents to
assignment pursuant to Section 4.5) effective as of the Effective Date;
(b) AX, on behalf of Sellers, and Purchaser shall execute and
deliver the Initial Settlement Statement, reflecting the amount of the
adjusted Preliminary Purchase Price as provided herein (the "CLOSING
AMOUNT");
(c) Purchaser shall deliver to AX, on behalf of Sellers, the Closing
Amount by wire transfer in
55
immediately available funds to an account to be designated by AX prior to
the Closing Date;
(d) Sellers and Purchaser shall execute, acknowledge and deliver
transfer orders or letters-in-lieu thereof prepared by AX and furnished
to Purchaser for review by not later than the fourth business day prior to
the Closing Date, directing all purchasers of production effective not
later than the Closing Date to make payment to Purchaser of proceeds
attributable to production from the Evaluated Interests (other than
Evaluated Interests excluded under Sections 4.2, 4.3 or 4.4 or subject to
outstanding requests for waivers of preferential purchase rights or
consents to assignment pursuant to Section 4.5);
(e) Sellers shall deliver the certificate referred to in Article
X(i);
(f) Purchaser shall deliver the certificate referred to in Article
XI(i);
(g) Sellers shall deliver to Purchaser fully executed and
acknowledged releases and/or termination statements (in sufficient
counterparts to facilitate recording), in form and substance satisfactory
to Purchaser and its counsel, of all liens and security interests to be
released at the Closing securing indebtedness for borrowed money and
covering any of the Evaluated Interests which are to be conveyed at
Closing, including without limitation, such liens and/or security
interests disclosed in Exhibit "A" hereto;
(h) Sellers shall deliver to Purchaser all executed consents to
assignments and waivers of preferential purchase rights pertaining to the
Evaluated Interests that have been received by Sellers from third parties
as of the Closing, and a list of all other requests for such consents and
waivers then outstanding and a report as to the status thereof as of the
Closing;
(i) Sellers and Purchaser shall take all actions necessary to
transfer to Purchaser Sellers' rights and obligations as lessee under
lease agreements covering compressors and other leased equipment included
in the Operating Equipment;
56
(j) AX shall deliver a certificate signed by an officer of AX under
penalties of perjury, containing the following:
(1) A statement that each Seller's U.S. Taxpayer Identification
Number is as set forth in such certificate;
(2) A statement that each Seller's business address is 1331 Lamar
Street, Suite 900, Houston, Texas 77010-3088; and
(3) A statement that no Seller is a foreign person within the
meaning of Sections 1445 and 7701 of the Internal Revenue Code of
1986, as amended (the "IRC"), (I.E., no Seller is a nonresident
alien, foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the IRC and the
regulations promulgated thereunder));
it being agreed that in the event that AX fails to deliver such
certificate at the Closing or AX delivers such certificate but Purchaser
has actual knowledge that such certificate is false or receives notice as
contemplated by Section 1445(b) of the IRC that the certificate is false,
Purchaser shall be entitled to withhold from the Closing Amount and, if
appropriate, from the Final Purchase Price, as hereinafter defined, a sum
equal to ten percent (10%) of the total amount that otherwise would have
been realized by the affected Seller from such sale, which sum will be
paid by Purchaser to the United States Treasury pursuant to the
requirements of Section 1445 of the IRC and the regulations promulgated
thereunder;
(k) AX, on behalf of Sellers, shall deliver to Purchaser an opinion
of its counsel, Messrs. Weil, Gotshal & Manges and/or Messrs. Patterson,
Belknap, Webb & Tyler, L.L.P., to the effect that the warranties stated in
Sections 6.1(a), 6.1(b), 6.1(c), 6.1(d), and 6.1(e) are true and correct
as of the Closing Date, subject to such qualifications and limitations on
the scope of investigations and inquiry as are deemed reasonably
appropriate by such counsel; and
(l) Purchaser shall deliver to AX, on behalf of Sellers, an opinion
of its counsel, Messrs. Jackson & Walker, L.L.P. and/or David B. Oshel,
General Counsel of
57
Purchaser, to the effect that the warranties stated in Sections (a), (b),
(c), (d), and (e) of Article VII are true and correct, subject to such
qualifications and limitations on the scope of investigations and inquiry
as are deemed reasonably appropriate by such counsel.
Section 13.6. FURTHER ASSURANCES. From time to time after Closing,
Sellers and Purchaser shall execute, acknowledge and deliver to the other such
further instruments, and take such other action as may be reasonably requested
in order more effectively to assure to such party all of the respective
properties, rights, titles, interests and estates intended to be assigned and
delivered in consummation of the transactions contemplated by this Agreement.
Section 13.7. ACCOUNTING FOR PROCEEDS FROM THE SALE OF PRODUCTION.
If after the Closing Sellers receive any proceeds from the sale of production
that are attributable to production from the Evaluated Interests after the
Effective Date, or attributable to the merchantable oil or condensate in the
tanks on the Effective Date, Sellers shall remit such proceeds to Purchaser
within fifteen (15) days after receipt of such proceeds by Sellers. All payments
to be made to Purchaser hereunder shall include the royalty or mineral owners'
share of production that may be received by Sellers and which is not distributed
to the royalty or mineral owners because of title defect or other similar
reasons. In the event that after the Closing Purchaser receives any proceeds
from the sale of production that are attributable to production from the
Evaluated Interests prior to the Effective Date, except for proceeds
attributable to the merchantable oil or condensate in the tanks on the Effective
Date, Purchaser shall remit such proceeds to AX, on behalf of Sellers, within
fifteen (15) days after receipt of such proceeds by Purchaser.
Section 13.8. POST-CLOSING ADJUSTMENTS. As soon as practicable after
the Closing, but not later than ninety (90) days thereafter, AX shall prepare
and deliver to Purchaser, in accordance with this Agreement and generally
accepted accounting principles, a statement (the "INTERMEDIATE SETTLEMENT
STATEMENT") setting forth each adjustment or payment that was not finally
determined as of the Closing and showing the calculation of such adjustments to
the Preliminary Purchase Price. As soon as practicable after receipt of the
Intermediate Settlement Statement, Purchaser shall deliver to AX a written
report containing any changes that Purchaser proposes be made to the
Intermediate
58
Settlement Statement. The parties undertake to and shall endeavor, in good
faith, to agree with respect to the Intermediate Settlement Statement no later
than the 120th day after the Closing Date. If the parties are unable to agree
with respect to the Intermediate Settlement Statement on or prior to such date,
Purchaser's and Sellers' disagreement shall be submitted to binding arbitration
in accordance with the procedures set forth in Section 4.3(E). When the parties
have reached agreement with respect to the Intermediate Settlement Statement or
any arbitration proceedings commenced under this Section 13.8 are completed, as
applicable, the agreement of the parties or the arbitrator's decision, as
applicable, concerning the Intermediate Settlement Statement shall constitute
and be embodied in the "FINAL SETTLEMENT STATEMENT", which shall establish the
"FINAL PURCHASE PRICE". The date upon which the Final Purchase Price is
established shall be the "FINAL SETTLEMENT DATE". In the event that (i) the
Final Purchase Price is more than the Closing Amount, Purchaser shall pay to AX,
on behalf of Sellers, the amount of such difference or (ii) the Final Purchase
Price is less than the Closing Amount, AX, on behalf of Sellers, shall pay to
Purchaser the amount of such difference, in either event by wire transfer in
immediately available funds or, if the amount of such difference is less than
$25,000, by corporate check.
ARTICLE XIV.
MISCELLANEOUS
Section 14.1. NOTICES. All communications required or permitted
under this Agreement shall be in writing and any communication or delivery
hereunder shall be deemed to have been duly made if actually delivered or if
mailed by U.S. Express Mail or registered or certified mail, postage prepaid, or
if sent by recognized overnight courier (e.g., Federal Express), or by telex or
telecopy facsimile transmission (provided that any such telex or telecopy
facsimile transmission is confirmed either orally or by written confirmation),
addressed to the party being notified as set forth below. Any party may, by
written notice so delivered to the other, change the address to which delivery
shall thereafter be made. Notices to Sellers and Purchaser shall be made at the
addresses set forth below:
59
(a) If to Sellers, to:
American Exploration Company
1331 Lamar, Suite 900
Houston, Texas 77010-3088
Attention: John M. Hogan
Senior Vice President
and Chief Financial Officer
Telecopy: 713/659-5620
With a copy to:
Weil, Gotshal & Manges
700 Louisiana
Suite 1600
Houston, Texas 77002
Attention: James L. Rice III
Telecopy: 713/224-9511
(b) If to Purchaser, to:
Louis Dreyfus Natural Gas Corp.
14000 Quail Springs Parkway
Oklahoma City, Oklahoma 73134-2600
Attention: Mark E. Monroe
Chief Operating Officer
Telecopy: 405/749-9385
With a copy to:
Jackson & Walker, L.L.P.
1100 Louisiana, Suite 4200
P.O. Box 4771
Houston, TX 77210-4771
Attention: Michael P. Pearson
Telecopy: 713/752-9221
It is specifically understood and agreed that notices of
Environmental Claims, Defects and casualty losses delivered pursuant to Article
IV may be delivered by telecopy facsimile, and any such notice so delivered
shall be deemed delivered when confirmed as having been received by the intended
recipient.
Section 14.2. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. No person other than Sellers and Purchaser shall have any
60
right, benefit, priority, or interest hereunder or as a result hereof or have
standing to require satisfaction of the provisions hereof in accordance with
their terms.
Section 14.3. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, which taken together shall constitute one and the same
instrument and each of which shall be considered an original for all purposes.
Section 14.4. EXPENSES. Each party hereto will bear and pay its own
expenses of negotiating and consummating the transactions contemplated hereby.
Section 14.5. ARTICLE AND SECTION HEADINGS. The article and section
headings contained in this Agreement are for convenient reference only and shall
not in any way affect the meaning or interpretation of this Agreement.
Section 14.6. ENTIRE AGREEMENT. Subject to Section 9.1, this
Agreement, the documents to be executed hereunder, the exhibits attached hereto
and the Confidentiality Agreement constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof. No supplement,
amendment, alteration, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the parties hereto. All of the
Exhibits referred to in this Agreement are hereby incorporated in this Agreement
by reference and constitute a part of this Agreement.
Section 14.7. GOVERNING LAW. This Agreement, the other documents
delivered pursuant hereto and the legal relations among the parties hereto shall
be governed by and construed in accordance with the laws of the State of Texas
applicable to contracts made and to be wholly performed in such state.
Section 14.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Except for Sellers' representations contained in Section 6.1(q),
which shall not survive the Closing or be actionable thereafter, all
representations, warranties, covenants and agreements made herein by Purchaser
and Sellers shall survive Closing and the delivery of the Assignment, Bill of
Sale and Conveyance to be delivered pursuant hereto until December 31, 1995, and
no party shall have any liability with respect to any breach thereof unless,
within such time period, notice of a claim based upon such breach shall have
been given by the party asserting the claim, with specificity reasonable under
the
61
circumstances, including without limitation the amount required to satisfy such
claim estimated in good faith if necessary. The obligations of the parties under
Article XIII, to the extent the same are by mutual agreement not performed at
Closing, shall also survive the Closing. Notwithstanding the foregoing, the
terms and provisions of the Assignment, Bill of Sale and Conveyance to be
delivered by Seller at the Closing and the terms and provisions of Article V
hereof shall survive the delivery of such instrument and the Closing hereunder
without limitation as to time.
Section 14.9. CONCERNING SELLERS. All representations, warranties,
covenants, agreements and undertakings of Sellers hereunder are several and not
joint. Notwithstanding the foregoing or anything else in this Agreement that may
be to the contrary: (i) Purchaser shall tender payment of the Closing Amount and
any other amount that may be required to be paid by Purchaser hereunder only to
a single account designated by AX, and Purchaser shall have no responsibility to
see to the subsequent application of any such payments from such account to or
among the respective accounts of Sellers, and Sellers hereby fully and forever
release Purchaser, its successors and assigns, from any liability in that
regard; (ii) for purposes of asserting Defects and, if necessary, adjusting the
Preliminary Purchase Price in consequence thereof, the interests of Sellers in
the Evaluated Interests shall be aggregated and any required adjustment shall be
made to the entire Preliminary Purchase Price, without regard to whether or not
the interests of less than all Sellers in the affected Evaluated Interest cause
such Evaluated Interest to be a Defective Interest or whether or not Sellers'
respective interests are Defective Interests to an extent that is
disproportionate to their respective ownership interests in the affected
Evaluated Interest; and (iii) Purchaser shall have no obligation to close
hereunder unless and except all Sellers can and do tender performance hereunder
simultaneously on the Closing Date.
Section 14.10. PUBLIC ANNOUNCEMENTS. The parties hereto agree that
prior to making any public announcement or statement with respect to the
transactions contemplated by this Agreement, the party desiring to make such
public announcement or statement shall consult with the other parties hereto and
endeavor in good faith to (i) agree upon the text of a joint public announcement
or statement to be made by both of such parties or (ii) obtain approval of the
other party hereto to the text of a public announcement or statement to be made
solely by Sellers or Purchaser, as the
62
case may be; provided, however, if any Seller or Purchaser is required by law to
make such public announcement or statement, then the same may be made without
the approval of the other party. The opinion of counsel of either party shall be
conclusive evidence of such requirement by law.
Section 14.11. TAXES. Sellers shall assume responsibility for, and
shall bear and pay, all federal income taxes, state income taxes, and other
similar taxes (including any applicable interest or penalties) incurred or
imposed with respect to the transactions described in this Agreement. Purchaser
shall assume responsibility for, and shall bear and pay, all state sales and use
taxes (including any applicable interest or penalties) incurred or imposed with
respect to the transactions described in this Agreement. Sellers shall assume
responsibility for, and shall bear and pay, all ad valorem, property, severance,
production, excise, and similar taxes and assessments based upon or measured by
the ownership of the Assets, the production of Hydrocarbons, or the receipt of
proceeds therefrom, but exclusive of income taxes (including any applicable
penalties and interest), assessed against the Assets by any taxing authority for
any period prior to the Effective Date, and Purchaser shall be responsible for,
and shall bear and pay, all such taxes and assessments assessed against the
Assets by any taxing authority for any period that begins on or after the
Effective Date.
Section 14.12. AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by the parties hereto against whom enforcement is
sought.
Section 14.13. WAIVER; RIGHTS CUMULATIVE. Any of the terms,
covenants, representations, warranties, or conditions hereof may be waived only
by a written instrument executed by or on behalf of the party hereto waiving
compliance. No course of dealing on the part of Sellers or Purchaser, or their
respective officers, employees, agents, or representatives, nor any failure by
Sellers or Purchaser to exercise any of its rights under this Agreement shall
operate as a waiver thereof or affect in any way the right of such party at a
later time to enforce the performance of such provision. No waiver by any party
of any condition, or any breach of any term, covenant, representation, or
warranty contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of any other condition or of any breach of
any other term, covenant, representation, or warranty. The rights of Sellers and
Purchaser under this Agreement shall be cumulative, and the
63
exercise or partial exercise of any such right shall not preclude the exercise
of any other right.
Section 14.14. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any rule of law
or public policy, 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 any adverse
manner to any party. Upon such determination that any term or other provision is
invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
64
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of June 12, 1995.
SELLERS:
AMERICAN EXPLORATION COMPANY
By:
John M. Hogan
Senior Vice President and
Chief Financial Officer
ANCON PARTNERSHIP LTD.,
by American Exploration
Company, General Partner
By: John M. Hogan
Senior Vice President and
Chief Financial Officer
NEW YORK LIFE OIL & GAS PRODUCTION
PARTNERSHIP II-B;
NEW YORK LIFE OIL & GAS PRODUCTION
PARTNERSHIP II-C;
NEW YORK LIFE OIL & GAS PRODUCTION
PARTNERSHIP II-E;
NEW YORK LIFE OIL & GAS PRODUCTION
PARTNERSHIP II-F;
NEW YORK LIFE OIL & GAS PRODUCTION
PARTNERSHIP II-G;
NEW YORK LIFE OIL & GAS OPERATING
PRODUCTION PARTNERSHIP III-B; and
NEW YORK LIFE OIL & GAS NET PROFITS
PRODUCTION PARTNERSHIP III-B;
by American Exploration
Production Company,
General Partner
By: John M. Hogan
Senior Vice President and
Chief Financial Officer
65
PURCHASER:
LOUIS DREYFUS NATURAL GAS CORP.
By: Mark E. Monroe
Chief Operating Officer
66
<PAGE>
Exhibit 12
AMERICAN EXPLORATION COMPANY
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS, EXCEPT FOR RATIO AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX YEAR ENDED DECEMBER 31,
MONTHS ENDED ---------------------------------------------------------
6/30/95 1994 1993 1992 1991 1990
------------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
(+) Pretax income from continuing
operations ....................................... 506 (60,690) (18,681) (68,791) (24,006) 4,298
(+) Interest expense (b) ............................... 3,851 6,638 6,847 9,485 13,609 10,322
(+) Amortization of debt expense ....................... 303 2,779 739 1,292 -- --
(+) Rent representative of interest factor ............. 471 1,284 1,533 1,726 1,697 1,245
------ ------- ------- ------- ------- ------
5,131 (49,989) (9,562) (56,288) (8,700) 15,865
------ ------- ------- ------- ------- ------
FIXED CHARGES:
(+) Interest expensed or capitalized (b) ............... 4,545 8,134 9,193 12,786 17,081 10,322
(+) Amortization of debt expense ....................... 303 2,779 739 1,292 -- --
(+) Rent representative of interest factor ............. 471 1,284 1,533 1,726 1,697 1,245
------ ------- ------- ------- ------- ------
5,319 12,197 11,465 15,804 18,778 11,567
------ ------- ------- ------- ------- ------
PREF. STOCK DIV. REQUIREMENTS (a) ...................... 900 1,800 75 -- 65 244
------ ------- ------- ------- ------- ------
COVERAGE EXCESS (DEFICIENCY) ........................... (1,088) (63,986) (21,102) (72,092) (27,543) 4,054
====== ======= ======= ======= ======= ======
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS ...................................... 0.83 (3.57) (8.83) (3.56) (0.46) 1.34
====== ======= ======= ======= ======= ======
</TABLE>
(a) There was no preferred stock outstanding during 1992.
(b) For 1991 and prior, financing costs are included in interest expense.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 8,972
<SECURITIES> 0
<RECEIVABLES> 12,515
<ALLOWANCES> 0
<INVENTORY> 228
<CURRENT-ASSETS> 74,604
<PP&E> 284,203
<DEPRECIATION> 134,390
<TOTAL-ASSETS> 225,581
<CURRENT-LIABILITIES> 36,133
<BONDS> 90,045
<COMMON> 591
0
4
<OTHER-SE> 93,702
<TOTAL-LIABILITY-AND-EQUITY> 225,581
<SALES> 38,159
<TOTAL-REVENUES> 39,562
<CGS> 0
<TOTAL-COSTS> 35,357
<OTHER-EXPENSES> (152)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,851
<INCOME-PRETAX> 506
<INCOME-TAX> (11)
<INCOME-CONTINUING> 495
<DISCONTINUED> 0
<EXTRAORDINARY> 2,456
<CHANGES> 0
<NET-INCOME> 2,951
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION TO RETROACTIVELY
REFLECT FOR THE PERIODS PRESENTED THE COMPANY'S ONE-FOR-TEN REVERSE SPLIT OF ITS
COMMON STOCK WHICH WAS EFFECTED IN JUNE 1995. THIS INFORMATION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR
THE QUARTER ENDED JUNE 30, 1995, SPECIFICALLY NOTE 5 THERETO, AND SUCH
STATEMENTS FOR EACH OF THE PERIODS ENDED MARCH 31, 1995, DECEMBER 31, 1994 AND
SEPTEMBER 30, 1994.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1994
<PERIOD-END> MAR-31-1995 DEC-31-1994 SEP-30-1994
<CASH> 13,098 9,973 13,716
<SECURITIES> 0 0 0
<RECEIVABLES> 12,077 15,140 11,362
<ALLOWANCES> 0 0 0
<INVENTORY> 230 293 454
<CURRENT-ASSETS> 26,375 26,127 27,491
<PP&E> 341,875 330,983 322,157
<DEPRECIATION> 143,097 135,578 130,570
<TOTAL-ASSETS> 228,226 223,894 221,588
<CURRENT-LIABILITIES> 30,042 30,229 27,589
<BONDS> 99,088 100,840 99,124
<COMMON> 591 574 431
0 0 0
4 4 4
<OTHER-SE> 93,057 87,132 89,643
<TOTAL-LIABILITY-AND-EQUITY> 228,226 223,894 221,588
<SALES> 17,832 50,033 33,866
<TOTAL-REVENUES> 18,837 51,359 34,706
<CGS> 0 0 0
<TOTAL-COSTS> 17,529 102,792 52,483
<OTHER-EXPENSES> (121) 2,619 (517)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,971 6,638 5,340
<INCOME-PRETAX> (542) (60,690) (22,600)
<INCOME-TAX> (47) (455) 90
<INCOME-CONTINUING> (495) (60,235) (22,690)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 2,456 5,419 4,993
<CHANGES> 0 0 0
<NET-INCOME> 1,961 (54,816) (17,697)
<EPS-PRIMARY> .13 (7.02) (2.61)
<EPS-DILUTED> .13 (7.02) (2.61)
<PAGE>
</TABLE>
