SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 30, 1998
PEASE OIL AND GAS COMPANY
(Exact name of registrant as specified in its charter)
Nevada 0-6580 87-0285520
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
751 Horizon Court, Suite 203, Grand Junction, Colorado 81506-8718
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (970) 245-5917
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Item 5. OTHER EVENTS.
On September 30, 1998 Registrant completed the disposition of
Registrant's interest in: (a) 93 oil and gas wells in Weld and Larimer Counties
in Colorado and corresponding reserves of oil and natural gas; (b) the
Registrant's entire interest in its oil and gas supply store business; (c) the
Registrant's entire interest in its oil and natural gas well servicing business;
and (d) the Registrant's entire interest in its natural gas processing facility.
The Registrant did not sell its interest in its remaining Rocky Mountain assets
consisting of 39 oil and gas wells (and corresponding reserves) located in the
Denver-Julesburg Basin, principally in eastern Colorado and western Nebraska.
However, these properties are still being marketed and held for sale. The assets
were sold to Magpie Operating, Inc. for $2.0 million in cash paid at closing. As
additional future consideration for the assets, the purchaser shall pay to
Registrant one-half of the gross proceeds it receives from sale or salvage of
the components of the gas plant facility which until completion of the sale was
utilized to process natural gas produced from the properties sold. In late 1997,
the Registrant had announced it was seeking to sell the assets and negotiated
with a number of potential purchasers. Ultimately, the terms of the transaction
were negotiated with the purchaser directly based on estimated oil and natural
gas reserves, expected revenue from the assets and other factors. There is no
material relationship between the purchaser and the Registrant or any of its
affiliates, any director or officer of the Registrant or any associate of any
such director or officer.
The net book value of the assets disposed of approximated the selling
price of $2.0 million. The Registrant had previously recognized impairment
charges on the assets sold in the fourth quarter of 1997 as described in
Registrant's Current Report on Form 8-K dated December 24, 1997 and Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1997, as filed
April 1, 1998.
The Registrant has obtained the consent of holders of the required
principal amount of outstanding 10% Subordinated Collateralized Debentures
authorizing an amendment to the terms of such debentures. Accordingly, a
security interest in the oil and gas properties sold as described in Item 2
above was released and the terms of the outstanding debentures have been amended
to provide that the debentures are unsecured obligations of Registrant. In
connection with the consents, the Registrant agreed to and has used
approximately $1.2 million of the proceeds received from the sale of such
properties to repay 30% of the outstanding unpaid principal amount of all
outstanding 10% Convertible Debentures. Following the principal repayment, the
remaining principal amount of the outstanding debentures is approximately $2.79
million.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) and (b) Not applicable
(c) Exhibits - The following exhibits are filed as a part of this
report:
Exhibit 10.1 Asset Purchase and Sale Agreement dated July 31,
1998.
Exhibit 10.2 Amendment to Purchase and Sale Agreement,
dated September 25, 1998.
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 hereunto duly authorized.
Date: October 8, 1998
PEASE OIL AND GAS COMPANY
By /s/ Willard H. Pease, Jr.
Willard H. Pease, Jr., President
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EXHIBIT INDEX
Exhibit Description
10.1 Asset Purchase and Sale Agreement dated July 31, 1998.
10.2 Amendment to Purchase and Sale Agreement dated September
25, 1998.
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Table of Contents
1. Property Being Sold................................................1
(a) Leaseholds................................................1
(b) Wells.....................................................1
(c) Contract Rights...........................................1
(d) Rights in Production......................................2
(e) Easements.................................................2
(f) Permits...................................................2
(g) Equipment.................................................2
(h) Supply Store..............................................2
(i) Services Assets...........................................2
(j) Gas Plant.................................................3
(k) Vehicles..................................................3
(l) Remaining Interests.......................................3
2. Price to be Paid...................................................3
(a) Purchase Price............................................3
(b) Additional Consideration; Security Interest...............3
3. Closing............................................................4
(a) Conveyance................................................5
(b) Payment...................................................5
(c) Taxes.....................................................5
(i) Severance and Conservation Taxes.................5
(ii) Real Property Taxes..............................5
(iii) Personal Property Taxes..........................6
(iv) Third Party Taxes................................6
(v) Sales Taxes......................................6
(vi) Assessment Reporting.............................6
(vii) Third Party Funds................................7
(d) Designations of Operator..................................7
(e) Delivery of Data..........................................7
(f) Adjustments...............................................7
(g) Maintenance of Insurance..................................7
(h) Conditions to Closing.....................................7
4. Post-Closing Adjustments...........................................7
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5. Representations and Warranties of Sellers..........................8
(a) Corporate Authority. .....................................8
(b) Valid Agreement...........................................8
(c) Authorization.............................................9
(d) Sale of Production........................................9
(e) Leases....................................................9
(f) Brokers...................................................9
(g) New Well Operations.......................................9
(h) Maintenance of Interests..................................9
(i) Operating Agreements.....................................10
(j) Suits and Claims.........................................10
(k) Access...................................................10
(l) Financial Data. ........................................10
(m) Consents.................................................11
(n) Payout and Carried Interests.............................11
(o) Special Warranty of Title................................11
(p) Sellers' Disclaimer......................................11
6. Representations and Warranties of Buyer...........................12
(a) Corporate Authority......................................12
(b) Valid Agreement..........................................12
(c) Governmental Approvals...................................12
(d) Brokers..................................................13
(e) Suits and Claims.........................................13
(f) Bankruptcy...............................................13
(g) Sufficient Funds.........................................13
(h) Sophisticated Investor...................................13
(i) No Payments to Employees.................................13
(j) Continue to Closing......................................13
7. Files and Records.................................................13
8. Title Examination; Title and Other Defects........................14
(a) Title Defects............................................14
(b) Notice of Defects........................................14
(c) Defect Defined...........................................14
(d) Permitted Encumbrances...................................15
(e) Procedure Regarding Title Defects Claimed by Buyer.......16
(1) Exhibit "B" Reflects Values.........................16
(2) Maximum Claim for Title Defect......................17
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(3) Discrepancies in Working and Net Revenue Interests..17
(4) Mandatory Negotiations..............................17
(5) Sellers' Right to Cure as to Defect Adjustments.....17
(f) Preferential Rights......................................18
9. Costs and Revenues, Before and After Effective Time...............18
10. Assumption of Obligations.........................................19
11. Gas Plant Insurance...............................................19
12. Environmental Matters.............................................20
(a) Physical and Environmental Conditions....................20
(b) General Environmental Indemnity..........................20
(c) Environmental Laws.......................................20
13. Indemnity.........................................................21
(a) By Sellers...............................................21
(b) By Buyer.................................................21
(c) Time Bar.................................................21
14. Warranties; Inspection............................................22
15. Miscellaneous.....................................................22
(a) Brokers..................................................22
(b) Further Assurances.......................................22
(c) Entire Agreement.........................................22
(d) Confidentiality..........................................22
(e) Notices..................................................22
(f) Binding Effect...........................................23
(g) Counterparts.............................................23
(h) Law Applicable...........................................23
(i) Waivers..................................................23
(j) Incorporation of Exhibits................................23
(k) Survival.................................................23
Signatures.....................................................24-25
List of Exhibits..................................................26
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PURCHASE AND SALE AGREEMENT
AGREEMENT dated the day of July, 1998, between Pease Oil and Gas
Company, a Nevada corporation ("Pease"); Pease Oilfield Supply, Inc., a Colorado
corporation, ("Supply"); Pease Oilfield Services, Inc., a Colorado corporation,
("Services"); Loveland Gas Processing Co., Ltd., a Colorado Partnership
("Processing"); and Pease Operating Company, Inc., a Colorado corporation
("Operating"), all of whom may be collectively referred to herein as "Sellers,"
with an address of 751 Horizon Court, Suite 203, Grand Junction, Colorado 81506,
and Magpie Operating, Inc., 11138 Wildhorse Peak, Littleton, Colorado 80127, a
Colorado corporation ("Buyer").
In consideration of their mutual promises, Buyer and Sellers agree to
the purchase and sale of the Subject Property described below, under the
following terms:
1. Property Being Sold. Subject to the terms and conditions of this
Agreement, Sellers agree to sell and convey and Buyer agrees to purchase and
accept the Subject Property for the Purchase Price as defined hereinafter. The
"Subject Property" shall mean:
(a) Leaseholds. All of Sellers' right, title, and
interest in oil and gas leaseholds, oil, gas and other minerals,
including working interests, carried working interests, overriding
royalty interests, rights of assignment and reassignment, net revenue
interests, operating rights, record title interests, and all other
interests under or in oil, gas, or mineral leases, and interests in
rights to explore for and produce oil, gas, or other minerals which are
described in Exhibit "A" attached hereto (hereinafter the "Leases") and
Sellers' interests in the lands covered thereby (hereinafter the
"Land");
(b) Wells. All of Sellers' right, title and interest
in producing, non-producing, and shut-in oil and gas wells, saltwater
disposal wells, and water wells used or obtained in connection with the
property described in Exhibit "A" (hereinafter the "Wells"). All such
Wells and allocated values thereof are listed on Exhibit "B";
(c) Contract Rights. All of Sellers' right, title,
and interest in or derived from unit agreements, orders and decisions
of state and federal regulatory authorities establishing or relating to
units, unit operating agreements, communitization or pooling
agreements, enhanced recovery and injection agreements, joint operating
agreements, gas purchase agreements, gathering agreements,
transportation agreements, processing agreements, farmout agreements
and farmin agreements (and any leasehold interests, working interests,
royalty interests, or other interests acquired or reserved pursuant
thereto), subleases, and any other agreements relating to any of the
interests described in Exhibits "A" and "B" (hereinafter the
"Contracts");
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(d) Rights in Production. All of Sellers' right,
title, and interest in reversionary interests, backin interests,
production payments, mineral and royalty interests in the production of
oil, gas, or other minerals, and further including oil, gas, casinghead
gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons,
products refined and manufactured therefrom, other minerals, and the
accounts and proceeds from the sale of all of the foregoing
(hereinafter collectively referred to as the "Production") to the
extent the Production is produced under the terms of the Leases and the
Contracts after the Effective Time;
(e) Easements. All of Sellers' right, title, and
interest in the rights-of-way, easements, licenses, servitudes and
franchises appurtenant to or used in connection with the property as
described in Exhibits "A" and "B" (hereinafter the "Easements");
(f) Permits. All of Sellers' right, title, and
interest in permits and licenses of any nature owned, held, or operated
in connection with operations for the exploration and production of
oil, gas, or other minerals to the extent the same are used or obtained
in connection with any of the property described in Exhibits "A" and
"B"; (hereinafter the "Permits");
(g) Equipment. All of Sellers' right, title, and
interest in all personal property, surface equipment, down-hole
equipment and pipelines, gathering lines, buildings and inventory used
or obtained in connection with the Leases, Lands, Easements, Wells,
Contracts, Production, or Permits (hereinafter the "Equipment"). The
surface equipment is listed as, but is not limited to, those items
described in Exhibit "C".
(h) Supply Store. In addition to the foregoing, the
Subject Property shall further include all of Sellers' right, title and
interest in the supply store owned and operated by Supply, including,
but not limited to, all inventory, accounts receivable, buildings and
structures, all furniture and fixtures, computers and software
pertaining to the inventory control, communications equipment, and
vehicles, permits, leases, licenses, and pertinent franchises and
supplier agreements, of every kind used in or pertaining to the
operations and business of the Supply Store and of Supply, including,
but not limited to, the Pease Oil Field Supply Asset Listing described
in Exhibit "D" hereto, all of which may be collectively referred to
herein as the "Supply Store."
(i) Services Assets. In addition to the foregoing,
the Subject Property shall further include all of Sellers' right,
title, and interest in the machinery, equipment, fixtures, tools,
supplies, inventory, tanks, office furniture, communications equipment,
pipes, valves, fittings, tubing, vehicles, leases, contracts,
agreements, permits, licenses, franchises, and supplier agreements
reasonably required for and/or related to the operation of the Pease
Oil Field Services' business, including, but not limited to, the Pease
Oil Field Services assets described in Exhibit "E" hereto.
(j) Gas Plant. In addition to the foregoing, the
Subject Property shall further include all of Sellers' right, title,
and interest in the Loveland Gas Processing Plant,
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currently owned and operated by Processing, including, but not limited
to, the pertinent surface lease for such facilities, the machinery,
equipment, tanks, fixtures, appliances, pipes, valves, fittings, and
materials of every nature and kind comprising the gas gathering
facilities, compression facilities, gas dehydration facilities, gas
processing facilities, and fractionization facilities reasonably
related to the Loveland Gas Processing Plant, the Loveland Gas
Processing Plant site, all buildings and structures of every kind
located on the Loveland Gas Processing Plant site and reasonably
required for the operation of the Loveland Gas Processing Plant, and
all leases, contracts, agreements, permits, rights-of-way, easements,
licenses, options, and orders reasonably required for and/or related to
the operation of the Loveland Gas Processing Plant, including without
limitation, all rights and obligations in and to any and all wellhead
gas purchase agreements, residue gas sales agreements, and liquid
product sales agreements, all of which are collectively referred to
herein as the "Gas Plant," including, but not limited to, the trade
name of "LOVELAND GAS PROCESSING CO., LTD." and the Gas Plant assets
which are described in Exhibit "F" hereto.
(k) Vehicles. In addition to the foregoing, the
Subject Property shall further include all of Operating's right, title,
and interest in the vehicles described in Exhibit "G" attached hereto.
(l) Remaining Interests. All other rights and
interests in, to, under, or derived from the Subject Property, even
though imperfectly described in this Agreement or in the Exhibits
attached hereto. It is the expressed intent of the parties that all of
Sellers' right, title, and interest in any and all of the Subject
Property, whether or not the same may be correctly described in
Exhibits "A," "B," "C," "D," "E," "F," and "G," be assigned to Buyer
hereunder. If, prior to Closing, the parties hereto discover that an
error or omission exists with respect to any of the pertinent Exhibits
hereto, the Buyer and Sellers agree to correct or amend the pertinent
Exhibit to accurately reflect the Subject Property.
2. Price to be Paid. Buyer agrees to pay to Sellers for the Subject
Property the following:
(a) Purchase Price. The sum of Two Million
One Hundred Thousand Dollars ($2,100,000.00), adjusted, if
need be, pursuant to the terms of this Agreement, payable at
Closing to Sellers in immediately available funds (herein
the "Purchase Price"); and,
(b) Additional Consideration; Security
Interest. When Buyer terminates the use of the Gas Plant for
its own account, both Buyer and Sellers will actively pursue
efforts to sell the Gas Plant to a third party, converting
the Gas Plant to cash. Accordingly, upon Buyer's subsequent
sale of the Gas Plant, either in
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whole or in part, to a third party, Buyer shall pay to
Sellers, as additional consideration, an amount equal to
one-half of the gross proceeds from any such sale, less any
actual out-of-pocket, direct sale expenses which either
Buyer or Sellers may incur in selling the Gas Plant. The
parties hereto agree that the term "direct sale expenses"
shall not include costs of replacement of parts or
refurbishment of any part of the Gas Plant unless the same
may be required by the third party purchaser. In addition,
Buyer shall pay to Sellers an amount equal to one-half (1/2)
of the gross revenues which Buyer may receive from
sub-leasing all or any part of the Gas Plant or from any
other revenue producing activity to which the Gas Plant may
be placed after Buyer terminates its own operation of the
Gas Plant. Payment of such proceeds pursuant to this
Subparagraph 2(b) shall be referred to herein as the
"Additional Consideration" and shall be due and payable to
Buyer immediately upon the sale of any or all of the Gas
Plant or within seven (7) days of receipt by Buyer of income
from any other revenue producing activity, except for
revenue which Buyer receives from its own operation of the
Gas Plant. To secure Buyer's obligations under this
Subparagraph 2(b) and also under Paragraph 11 of this
Agreement, Buyer will execute and deliver to Sellers a
Security Agreement and Financing Statement in the form
attached as Exhibit "J," granting to Sellers a security
interest in the Gas Plant, together with all additions,
accessions, and substitutions thereto, including revenue
Buyer may receive from third parties after Buyer terminates
its own use of the Gas Plant (the "Collateral"). The lien
granted pursuant to this Subparagraph 2(b) will be a first
lien on the Collateral.
Sellers shall allocate the Purchase Price and the Additional
Consideration among themselves; Sellers and each of them agree that Buyer shall
be held harmless from any claim of misallocation among the Sellers.
3. Closing. The conveyance of the Subject Property to Buyer shall be
effective as of August, 1, 1998, at 12:01 a.m., where the properties are
located, the ("Effective Time") but shall be delivered at the "Closing," which
shall take place on or before August 31, 1998, or at some other time mutually
agreed upon by the parties. The Closing shall be held at the offices of the Bank
of Cherry Creek, Denver, Colorado. Sellers shall be entitled to all amounts of
income realized from and accruing to the Subject Property or any of them prior
to the Effective Time, including the right to all Production in storage,
processing, and inventory, and Sellers shall be responsible for the payment of
all expenses for the development, operation, maintenance, and continued business
operations of the Subject Property or any of them prior to the Effective Time.
Buyer shall be entitled to any amounts of income realized from and accruing to
the Subject Property or any of them subsequent to the Effective Time, and Buyer
shall be responsible for the payment of all expenses for the development,
maintenance, operation, and continued business operations of the Subject
Property or any of them subsequent to the Effective Time, except operational
losses on a cash flow basis for the month of August, 1998, if any, which will be
paid by Sellers and shall become a post-Closing adjustment. All such income and
expense shall become a post-Closing adjustment.
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At the Closing, the following shall occur:
(a) Conveyance. Sellers shall execute, acknowledge,
and deliver to Buyer: (i) an Assignment, Conveyance and Bill of Sale in
a mutually satisfactory and recordable form, containing a special
warranty of title, a form of which is attached hereto as Exhibit "H";
(ii) counterpart assignments of operating rights and of record title to
the Leases on officially approved forms to satisfy applicable
governmental requirements; (iii) letters-in- lieu of transfer orders;
(iv) appropriate transfers of title to all titled motor vehicles; and
(v) such other appropriate instruments to assign, transfer, and convey
to Buyer all of Sellers' rights, title, and interest in and to the
Subject Property.
(b) Payment. Buyer shall deliver the Purchase Price,
as adjusted pursuant to this Agreement, together with the
administrative overhead amounts set forth above in this Paragraph 3, to
Pease Oil and Gas Company by certified check.
(c) Taxes. The Purchase Price will be adjusted
post-Closing pursuant to Article 4 below to reflect the proration of
taxes based upon the ownership of the Subject Property, in the
following manner, as of the Effective Time:
(i) Severance and Conservation Taxes:
Severance and Conservation Taxes assessed
against Production from the Subject Property
prior to the Effective Time, based on the
ownership of such Production, shall be paid
by Sellers. Any unpaid severance taxes,
including any fines or penalties, shall also
be a post-Closing
adjustment.
(ii) Real Property Taxes: Real property ad
valorem taxes ("Real Property Taxes") shall
be prorated to the Effective Time based upon
the following:
a. Real Property Taxes based on
production prior to the 1998
production year shall be paid by
Sellers.
b. Real Property Taxes based on 1998
production, to be assessed in 1999
and to be paid on or before April
30, 2000, shall be prorated to the
Effective Time based upon Production
and shall be a post-Closing
adjustment.
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(iii) Personal Property Taxes: Ad valorem
taxes on Equipment, the Supply Store, the
Service assets, the Gas Plant, the Vehicles,
and any Remaining Assets ("Personal Property
Taxes") shall be prorated to the Effective
Time as follows:
a. All Personal Property Taxes for
any calendar year prior to 1998
shall be paid by the Sellers. Any
unpaid taxes, including unpaid
interest and fines, of Personal
Property Taxes for any year prior to
1998 shall be a post-Closing
adjustment.
b. Personal Property Taxes for 1998
to be assessed on January 1, 1998,
and to be paid on or before April
30, 1999, shall be prorated to the
Effective Time and paid by Buyer and
shall be a post-closing adjustment,
and the amount shall be determined
by using the actual 1997 tax notices
received by the Sellers.
(iv) Third Party Taxes: All third party
taxes which have been collected by Sellers
shall be delivered to the Buyer
post-Closing.
(v) Sales Taxes: All sales taxes owing prior
to the Effective Time are the responsibility
of and shall be paid by Sellers. Any amounts
owed for sales after the Effective Time and
before Buyer has taken possession, shall be
reported and paid by Sellers pursuant to the
Rules and Regulations of the Colorado
Department of Revenue. If a determination is
ever made that a sales tax or other transfer
tax applies to the transaction contemplated
in this Agreement, Buyer shall be liable for
the payment of such tax. Solely for the
purposes of this Paragraph 3, an allocation
of the Purchase Price to the personal
property included in the Subject Property is
set forth on Exhibit "B." Buyer shall also
be liable for any applicable conveyance,
transfer, and recording fees, real estate
transfer stamps or taxes imposed on any
transfer of property pursuant to this
Agreement, and any Vehicle license fees and
taxes.
(vi) Assessment Reporting: By May 1, 1998,
Sellers shall have processed all tax
assessment reports required in the pertinent
states for the 1997 production year and
shall deliver copies of the same to Buyer.
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(vii) Third Party Funds: Assignment of the
Subject Property from Sellers to Buyer at
the Closing will also constitute an
assignment of all of Sellers' rights in the
funds which have been withheld by the
operator from Sellers' Production from the
Subject Property for accrual of taxes, and
Buyer will be deemed to have assumed the
obligation to pay all taxes coming due after
the Closing with respect to the Subject
Property. All production proceeds of third
parties held in suspense and all rights of
Sellers against any third-party operator
with respect to the payment of property and
production taxes shall also be deemed to be
assigned to Buyer at Closing, and the
Purchase Price shall be adjusted to reflect
any shortfall or excess in any such rights
and escrow or suspense accounts. All
production proceeds of third parties held in
suspense shall be paid to Buyer at the end
of the month following Closing.
(d) Designations of Operator. Sellers shall execute
and deliver any designations of operator requested by Buyer and any
other instruments necessary to aid in the transfer of operations to
Buyer.
(e) Delivery of Data. Sellers shall deliver the Data
(as defined hereinafter) to Buyer. Sellers shall deliver exclusive
possession of the Subject Property to Buyer.
(f) Adjustments. Any adjustments to the Purchase
Price which may be required to be made in accordance with the terms of
this Agreement will be made post- Closing.
(g) Maintenance of Insurance. Until Closing, Sellers
shall maintain all existing insurance policies affecting the Subject
Property or any Equipment located on the Subject Property.
(h) Conditions to Closing. The parties further agree
that (i) if the Subject Property is burdened by a lien or encumbrance
which affects all or substantially all of the Subject Property and
which cannot be released prior to closing (ii) if the Sellers have not
been able to obtain a third party gas processing agreement or (iii)
Buyer is unable to close due solely to the failure or refusal of
Buyer's lending institutions to fund a loan(s) to Buyer and such
failure or refusal is beyond the control of Buyer, then either or both
of the parties hereto may elect to extend the closing or terminate this
Agreement and end the transactions contemplated herein, without any
further liability to the other party for any costs, damages, fees,
expenses, or charges of any nature arising from this Agreement or the
negotiations hereunder.
4. Post-Closing Adjustments. Within sixty (60) days after Closing,
Sellers shall prepare and deliver to Buyer, in accordance with this Agreement, a
Final Settlement Statement setting forth each adjustment or payment which was
not finally determined as of the Closing and showing the calculation of each
such adjustment. As soon as practicable after receipt of the Final Settlement
Statement, Buyer shall deliver to Sellers a written report containing any
changes which Buyer proposes be made to the Final Settlement Statement. The
parties shall undertake to agree with
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respect to the amounts due pursuant to such post-Closing adjustments no later
than thirty (30) days after delivery of the Final Settlement Statement. The date
upon which such agreement is reached or upon which the Purchase Price, as fully
adjusted in accordance with all pertinent provisions of this agreement (herein
the "Final Purchase Price") is established, shall be called the "Final
Settlement Date." If the Final Purchase Price is more than the amount paid to
Sellers at Closing, then Buyer shall pay to Pease Oil and Gas Company, in
immediately available funds, the amount of such difference. If the Final
Purchase Price is less than the amount paid to Sellers at Closing, Pease Oil and
Gas Company shall pay to Buyer, in immediately available funds, the amount of
such difference. Payment of such difference, either by Buyer or by Pease Oil and
Gas Company, on behalf of Sellers, shall be made within five days of the Final
Settlement Date. The parties agree that any and all disputes arising under or
relating to this Paragraph 4, "Post-Closing Adjustments," shall be referred to
arbitration pursuant to the Commercial Rules of Arbitration of the American
Arbitration Association. Venue for any such arbitration proceeding shall be
Denver, Colorado.
5. Representations and Warranties of Sellers. Sellers represent and
warrant to Buyer as of the date hereof and will represent and warrant at the
Closing, as follows:
(a) Corporate Authority. Pease, Supply, Services, and
Operating are each corporations duly organized and in good standing
under the laws of their respective states of incorporation as set forth
hereinabove, and each is duly qualified to carry on its business in the
states where the Subject Property is located and has all the requisite
power and authority to enter into and perform this Agreement and carry
out the transactions contemplated under this Agreement. Pease is duly
qualified to hold interests in State, and Federal oil and gas leases
and has good right and lawful authority to sell and convey the Subject
Property to Buyer. Processing is a general partnership in the State of
Colorado and Pease, as a general partner, has the requisite power and
authority to enter into and perform this Agreement and carry out the
transactions contemplated by this Agreement. Buyer acknowledges that it
has been advised that, although Loveland Gas Processing is termed a
limited partnership, no certificate of limited partnership was ever
filed with the Colorado Secretary of State by the original general
partner from whom Pease acquired the general partnership interest.
Therefore, no limited partnership was ever created, and Processing is
in fact a general partnership.
(b) Valid Agreement. This Agreement constitutes the
legal, valid and binding Agreement of Sellers and each of them. At the
Closing, all instruments required hereunder to be executed and
delivered by Sellers shall be duly executed and delivered to Buyer and
shall constitute legal, valid and binding obligations of Sellers. The
execution and delivery by Sellers of this Agreement, the consummation
of the transactions set forth herein, and the performance by Sellers of
Sellers' obligations hereunder have been duly and validly authorized by
all requisite corporate action on the part of Sellers and will not
conflict with or result in any violation of any provision of (i) any
agreement, contract, mortgage, lease, license or other instrument to
which Sellers are parties or by which Sellers are bound; (ii) any
governmental franchise, license, permit, or authorization or any
judgment or order of a judicial or governmental body applicable to
Sellers, or (iii) any law, statute, decree, rule or regulation of any
jurisdiction in the United States to which Sellers are subject.
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(c) Authorization. This Agreement has been duly
authorized, executed, and delivered by Sellers. All instruments
required to be delivered by Sellers at the Closing shall be duly
authorized, executed, and delivered by Sellers. This Agreement and all
documents executed by Sellers in connection with this Agreement shall
constitute legal, valid, and binding obligations of Sellers,
enforceable against Sellers in accordance with their terms, subject
only to the effects of bankruptcy, insolvency, reorganization,
moratorium, and similar laws from time to time in effect, as well as
general principles of equity.
(d) Sale of Production. To the best of Sellers'
knowledge, information, and belief, no hydrocarbons produced from the
Subject Property are subject to a sales contract (other than a contract
or division order terminable upon no more than 30 days notice). Sellers
are receiving proceeds from the sale of production from the Wells from
the production purchasers or from operators of the Subject Property in
a timely manner, and the proceeds payable to Sellers are not being held
in suspense by any production purchaser or operator and are not subject
to refund.
(e) Leases. To the best of Sellers' knowledge,
information, and belief, the Leases are in full force and effect and
are valid and subsisting documents covering the entire estates which
they purport to cover, and all royalties, rentals, and other payments
due under the Leases have been fully, properly, and timely paid.
(f) Brokers. Sellers have incurred no obligation or
liability, contingent or otherwise, for broker's or finders' fees in
respect to this transaction for which Buyer shall have any obligation
or liability.
(g) New Well Operations. From the date of execution
of this Agreement, until the Closing, Sellers shall not commence or
consent to the commencement of and shall not elect to go nonconsent in
operations for the drilling of any new well or the frac'ing or
recompletion of any existing Well without the prior written consent of
Buyer. Buyer shall respond promptly and timely to any requests for such
consent.
(h) Maintenance of Interests. Sellers will continue
to use their best efforts from the date of execution of this Agreement
until the Closing, to maintain and operate the Subject Property in a
reasonable and prudent manner, in full compliance with applicable laws
and orders of any governmental authority, to maintain insurance now in
force with respect to the Subject Property, to pay when due all costs
and expenses coming due and payable in connection with the Subject
Property, and to perform all of the covenants and conditions contained
in the Leases and all related agreements. Without the prior written
consent of Buyer, Sellers will not: (i) develop, maintain, or operate
the Subject Property in a manner
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substantially inconsistent with prior operations or introduce any new
method of operation or accounting with respect to any of the Subject
Property; (ii) enter into any new agreements or commitments with
respect to any of the Subject Property; (iii) incur any liabilities
other than in the ordinary course for normal operating expenses on any
of the Subject Property; (iv) abandon or consent to abandonment of any
producing or shut-in Well or any injection well located on the Subject
Property, nor release or abandon all or any portion of the Leases; (v)
modify or terminate any of the Leases, permits, licenses, or franchise,
supplier or related agreements or waive any right thereunder; or (vi)
encumber, sell, or otherwise dispose of any of the Subject Property,
other than personal property which is replaced with equivalent property
or consumed in the ordinary course of operations of the Subject
Property and other than hydrocarbons or inventory sold in the ordinary
course of business (except that Sellers will not enter into any new
production purchase agreement relating to the Subject Property).
(i) Operating Agreements. With respect to any and all
operating agreements affecting any of the Subject Property: (1) there
are no outstanding calls or payments in excess of $5,000 under
authorities for expenditures for payment which are due from Sellers or
which Sellers have committed to make which have not been made; (2)
there are no material operations, with respect to which, either Sellers
are a non-consenting party or parties, or the Subject Property is
subject to a prior non-consent election; and (3) except for an
emergency, Sellers will not authorize any expenditure in excess of
$5,000 after the date of this Agreement without first obtaining the
written consent to such expenditure from Buyer, which consent will not
be unreasonably withheld.
(j) Suits and Claims. Except as set forth in Exhibit
" I", no suit, action, claim, audit, investigation, or other
proceeding, including, but not limited to, environmental liability
issues, is now pending or, to Sellers' knowledge, threatened before any
court or governmental agency, including, but not limited to, the United
States Environmental Protection Agency or its State of Colorado
counterpart, which might result in material impairment of the value or
operation of any Subject Property, and Sellers shall promptly notify
Buyer of any such proceeding which arises or is threatened prior to the
Closing.
(k) Access. To the same extent that Sellers have such
right, at all times prior to the Closing, Buyer and the employees and
agents of Buyer have had and shall continue to have access to the
Subject Property at Buyer's sole cost, risk, and expense, at all
reasonable times, and shall have the right to conduct production tests,
equipment inspections, environmental audits, and any other inventory or
investigation of the Subject Property, upon prior notice to Sellers and
upon agreement with Sellers as to time and place of such actions.
(l) Financial Data. Financial information provided by
Sellers, through December 31, 1997, has been fairly presented in
accordance with generally accepted accounting principles.
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(m) Consents. Sellers will use their reasonable
efforts: (i) to obtain all necessary consents from non-operators for
Buyer to become operator; (ii) to obtain waivers of any preferential
rights of third parties to purchase any part of the Subject Property;
and (iii) to obtain all necessary consents to the transfer of all
licenses, permits, and franchise or supplier agreements relating to any
part of the Subject Property.
(n) Payout and Carried Interests. To Sellers' good
faith belief, its working interests and net revenue interests are not
subject to being reduced by virtue of the exercise by a third party of
a reassignment, reversionary, back-in or other similar right.
(o) Special Warranty of Title. Sellers shall warrant
and defend title to the Subject Property to Buyer against all persons
claiming to hold title by, through or under Sellers, and each of them,
but not otherwise.
(p) Sellers' Disclaimer. The parties agree that, to
the extent required by applicable law to be operative, the disclaimers
of certain warranties contained in this subparagraph are "conspicuous"
disclaimers for the purposes of any applicable law, rule, or order.
Except as otherwise expressly set forth in this Agreement, Sellers make
no representation or warranty of any kind, express or implied. WITHOUT
LIMITING THE GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE AND
WITHOUT LIMITING THE WARRANTIES AND REPRESENTATIONS OF SELLERS SET
FORTH IN THIS AGREEMENT, SELLERS EXPRESSLY DISCLAIM AND NEGATE ANY
IMPLIED, EXPRESS, OR STATUTORY WARRANTY (i) OF MERCHANTABILITY, (ii) OF
FITNESS FOR A PARTICULAR PURPOSE, (iii) OF CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS, AND/OR (iv) OF TITLE (EXCEPT WARRANTY OF TITLE
BY, THROUGH, OR UNDER SELLERS, BUT NOT OTHERWISE) OR AGAINST
INFRINGEMENTS. IT IS UNDERSTOOD AND AGREED THAT, SUBJECT TO THE
REPRESENTATIONS AND WARRANTIES OF SELLERS EXPRESSLY SET FORTH IN THIS
AGREEMENT, BUYER SHALL ACCEPT ALL OF THE SUBJECT PROPERTY IN AN "AS IS,
WHERE IS" CONDITION, AND, AFTER MARCH 31, 2000, SELLERS DISCLAIM ANY
LIABILITY ARISING IN CONNECTION WITH ANY ENVIRONMENTALLY HAZARDOUS
SUBSTANCES OR CONDITIONS OR NATURALLY OCCURRING RADIOACTIVE MATERIALS
ON OR RELATED TO THE SUBJECT PROPERTY. IN ADDITION, SELLERS MAKE NO
REPRESENTATION OR WARRANTY AS TO THE QUALITY OR QUANTITY OF OIL AND GAS
RESERVES (IF ANY) ATTRIBUTABLE TO THE SUBJECT PROPERTY OR, EXCEPT AS
OTHERWISE SET FORTH IN THIS AGREEMENT, AS TO THE ABILITY TO PRODUCE
OIL, GAS, OR OTHER MINERALS FROM THE SUBJECT PROPERTY. ANY AND ALL
DATA, INFORMATION, AND OTHER MATERIALS FURNISHED BY SELLERS, THEIR
AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, OR REPRESENTATIVES ARE
PROVIDED TO BUYER AS A CONVENIENCE, AND ANY RELIANCE ON OR USE OF THE
SAME BY THE BUYER SHALL BE AT BUYER'S SOLE RISK, UNLESS OTHERWISE
EXPRESSLY SET FORTH HEREIN. EXCEPT AS
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AND TO THE EXTENT SET FORTH IN THIS AGREEMENT, SELLERS DISCLAIM AND
BUYER HEREBY RELEASES SELLERS FROM ALL LIABILITY AND RESPONSIBILITY FOR
ANY STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN
WRITING) TO BUYER.
SELLERS MAKE NO REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER WITH
RESPECT TO THE QUANTITY, QUALITY, CONDITION, SIZE, WEIGHT,
SERVICEABILITY OR ANY OTHER ASPECT OF THE WELLS, WELLBORES, THE GAS
PLANT, FIXTURES, INVENTORY, EQUIPMENT, VEHICLES, OR OTHER PERSONAL
PROPERTY INCLUDED AMONG THE SUBJECT PROPERTY, WHICH SHALL BE CONVEYED
TO BUYER "AS IS, WHERE IS," WITH ALL FAULTS AND DEFECTS, AND IN THEIR
PRESENT CONDITION AND STATE OF REPAIR. SELLERS SPECIFICALLY DISCLAIM,
WITHOUT LIMITATION, ALL WARRANTIES, EXPRESS OR IMPLIED, OF
MERCHANTABILITY AND FITNESS.
6. Representations and Warranties of Buyer. Buyer represents and
warrants to Sellers as of the date hereof and will represent and warrant at the
Closing, as follows:
(a) Corporate Authority. Buyer is a corporation duly
organized and in good standing under the laws of the State of Colorado,
is duly qualified to carry on its business in the state where the
Subject Property is located, and has all the requisite power and
authority to enter into and perform this Agreement and carry out the
transactions contemplated under this Agreement.
(b) Valid Agreement. This Agreement constitutes the
legal, valid and binding Agreement of Buyer. At the Closing, all
instruments required hereunder to be executed and delivered by Buyer
shall be duly executed and delivered by Buyer and shall constitute
legal, valid, and binding obligations of Buyer. The execution and
delivery by Buyer of this Agreement, the consummation of the
transactions set forth herein, and the performance by Buyer of Buyer's
obligations hereunder have been duly and validly authorized by all
requisite corporate action on the part of Buyer and will not conflict
with or result in any violation of any provision of (i) any agreement,
contract, mortgage, lease, license, or other instrument to which Buyer
is a party or by which Buyer is bound; (ii) any governmental franchise,
license, permit or authorization, or any judgment or order of a
judicial or governmental body applicable to Buyer; or (iii) any law,
statute, decree, rule, or regulation of any jurisdiction in the United
States to which Buyer is subject.
(c) Governmental Approvals. On or before Closing,
Buyer shall obtain all required local, federal governmental and/or
agency permissions, approvals, permits, bonds, and consents, together
with all license and franchises as may be required to assume Sellers'
obligations and responsibilities attributable to the Subject Property.
(d) Brokers. Buyer has not incurred any liability,
contingent or otherwise, for brokers' or finders' fees relating to the
transactions contemplated by this Agreement for which Sellers shall
have any responsibility whatsoever.
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(e) Suits and Claims. To the best of Buyer's
knowledge and belief, there are no actions, suits, or proceedings
pending against Buyer which might materially delay, prevent, or hinder
the consummation of the transactions contemplated hereby or which might
result in any material adverse change in the financial ability of Buyer
to consummate the transactions contemplated hereby.
(f) Bankruptcy. To the best of Buyer's knowledge and
belief, there are no bankruptcy, reorganization, or arrangement
proceedings pending, being contemplated by, or threatened against
Buyer.
(g) Sufficient Funds. Buyer has sufficient cash,
available lines of credit, or other sources of immediately available
funds to enable it to pay the Purchase Price to Sellers contemplated by
this Agreement.
(h) Sophisticated Investor. Buyer is an experienced
and knowledgeable investor in oil and gas properties and has the
financial and business expertise to evaluate the merits and risks of
the transactions contemplated by this Agreement. Buyer has sought the
advice of persons it deems appropriate concerning this Agreement. Buyer
is acquiring the Subject Property for its own account and is not
acquiring interests in the Subject Property in contemplation of a
distribution of the Subject Property in violation of any applicable
Federal or state securities laws.
(i) No Payments to Employees. Buyer has not given any
commissions, payments, gifts of substantial value, kickbacks, lavish or
extensive entertainment, or other things of substantial value to any
employee or agent of Sellers or any of them in connection with this
Agreement, and Buyer acknowledges that the giving of any such items is
strictly in violation of this Agreement and may result in its
termination.
(j) Continue to Closing. The representations and
warranties of Buyer and Sellers set forth in this Agreement shall be
true and in effect at and as of Closing.
7. Files and Records. Sellers will make available to Buyer all title
opinions and other information available in Sellers' files relating to the
Subject Property. Existing abstracts and title opinions will not be brought down
to date by Sellers. All such material, and the material referred to hereinbelow,
shall be made available at Sellers' office in either Grand Junction, Colorado or
Loveland, Colorado during normal working hours. Sellers will also permit Buyer
to examine and copy at Buyer's expense the following files and records:
(i) All production records, gas pricing
certifications, and contracts;
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(ii) All land, geological, geophysical, production,
engineering, and other records necessary to assume operations
of the Subject Property; and
(iii) Buyer will be given all original lease, well,
contract, permit, license, franchise or supplier agreement,
inventory, sales, and production files pertaining to the
Subject Property at Closing or as soon thereafter as is
practicable. Buyer will preserve all such files for a period
of three years after the Closing and will afford Sellers
access thereto during normal working hours at Buyer's address
shown in Subparagraph 15 (e), which address may be changed by
notice to Sellers. The files, documents, books, and records
delivered to Buyer by Sellers pursuant to this Agreement
(collectively the "Data") shall not include any information
which, if disclosed, would cause Sellers to breach any
contract or agreement. A list of any such excluded Data shall
be provided to Buyer.
8. Title Examination; Title and Other Defects.
(a) Title Defects. Buyer shall have until August 7,
1998, within which it may examine title to the Subject Property. Upon
execution of and pursuant to the terms of this Agreement, Buyer shall
have the right, during normal business hours, to conduct its
investigation into the status of the title of the Subject Property.
(b) Notice of Defects. At any time before , August 7,
1998, Buyer may notify Sellers in writing of any portion of the Subject
Property affected by one or more Title Defects, giving full particulars
about each Title Defect.
(c) Defect Defined. "Title Defect" shall mean any
material encumbrance, irregularity or defect in Sellers' title to any
of the Subject Property that renders such title not defensible, due
consideration being given to the length of time hydrocarbons have been
produced from the affected properties among the Subject Property. With
regard to the Subject Property and as used herein, the term "Defensible
Title" shall mean such title, whether held by Sellers or by a third
party for the benefit of Sellers, that, subject to and except for the
Permitted Encumbrances (as hereinafter defined): (i) entitles Sellers
to receive not less than the net revenue interest ("NRI") set forth in
Exhibit "B" of all oil, gas and associated liquid and gaseous
hydrocarbons produced, saved, and marketed from each corresponding Well
described on Exhibit "B"; (ii) obligates Sellers to bear a share of
costs and expenses relating to the maintenance, development, and
operation of a Well not greater than the working interest ("WI") for
each such Well as set forth in Exhibit "B"; and (iii) is free and clear
of encumbrances, liens, and Title Defects other than Permitted
Encumbrances. In the case of federal or state leases, if any, included
within the Subject Property, such title may be in the nature of record
title or operating rights. Sellers may at their option elect to cure
any such Title Defects at their expense. If any such Title Defects have
not been cured to Buyer's reasonable satisfaction by Closing, the
following shall occur:
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(i) Buyer may nevertheless elect in
writing to waive any Title Defects; or
(ii) In the case of interest discrepancies
which can be substantiated, the Purchase Price shall
be adjusted post-Closing in the manner provided for
herein, by an amount to be agreed between Buyer and
Sellers based upon the allocated value on Exhibit
"B"; or
(iii) In the case of any Title Defects other
than interest discrepancies, the interest so impaired
shall be excluded from this Agreement and the
Purchase Price shall be reduced, post-Closing, by an
amount to be agreed between Buyer and Sellers based
upon the allocated value on the pertinent Exhibit. In
the event the parties are unable to agree upon the
reduced amount, Buyer shall have the option of either
(i) accepting the interest affected by the Title
Defect without adjustment or (ii) excluding the
interest affected by the Title Defect from the sale
and reducing the Preliminary Purchase Price by the
corresponding amount set forth on the pertinent
Exhibit.
(iv) Notwithstanding the foregoing, all
liens and encumbrances, except Permitted Encumbrances
(as defined below), affecting the Subject Property
shall be released prior to Closing.
(d) Permitted Encumbrances. Title Defects discovered
after August 7, 1998, shall not cause an adjustment to the Purchase
Price and shall not be actionable. The Purchase Price shall also not be
adjusted for any of the following Permitted Encumbrances, which shall
not be considered Title Defects:
(i) Preferential rights to purchase and
required third party consents to assignments and
similar agreements with respect to which waivers or
consents are obtained from the appropriate parties or
the appropriate time period for asserting the rights
has expired without an exercise of the rights;
(ii) Materialman's, mechanic's repairman's,
employee's, contractor's, operator's, tax and other
similar liens or charges arising in the ordinary
course of business, (i) if they have not been filed
pursuant to law, or (ii) if filed, they have not yet
become due and payable or payment is being withheld
as provided by law, or (iii) if their validity is
being contested in good faith by appropriate action;
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(iii) 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
which customarily obtained subsequent to the sale or
conveyance;
(iv) Easements, rights-of-way, servitudes,
permits, surface leases and other rights in respect
of surface operations;
(v) All rights reserved to or vested in any
governmental, statutory or public authority to
control or regulate any of the Subject Property in
any manner, and all applicable laws, rules and orders
of governmental authority;
(vi) Sales contracts covering oil, gas, or
associated liquid or gaseous hydrocarbons or
unitization and pooling designations and agreements;
(vii) Rights of reassignment;
(viii) Liens and encumbrances to be
released at Closing;
(ix) The terms and conditions of all Leases,
Contracts, agreements, orders, instruments, and
documents in Sellers' files, including, without
limitation, all terms and conditions relating to
calls on production previously reserved by third
parties, and any matters of record pertaining to the
Subject Property to the extent that the net
cumulative effect of such recorded matters do not
operate to reduce Sellers' effective net revenue
interest and/or working interest in any Well to less
than the net revenue interest and/or working interest
for such Well as set forth in Exhibit "B";
(x) Depth restrictions involving presently
nonproductive formations in respect of Leases and
other instruments in Sellers' chain of title; and
(xi) Title conditions of the type
customarily accepted by sophisticated oil and gas
operators in dealing with their own oil and gas
properties.
(e) Procedure Regarding Title Defects Claimed by
Buyer.
(1) Exhibit "B" Reflects Values. Buyer and
Sellers agree that Exhibit "B" reflects the value of
the Subject Property for the purpose of adjusting the
Purchase Price to reflect the possible diminunition
in value of the Subject Property caused by the
existence of any Title Defect.
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(2) Maximum Claim for Title Defect. The
maximum claim for a Title Defect shall be the
Allocated Value for that portion of the Subject
Property affected by the claimed Title Defect. Such
requested exclusion shall, however, remain subject to
the other provisions of this Agreement, including
Sellers' right to object, cure, or terminate as
provided below.
If notice of a Title Defect is not
timely delivered, as provided above, the Buyer shall
thereafter have no right to claim a Purchase Price
adjustment; provided that such waiver shall not apply
to any claim by Buyer for breach of the special
warranty of title contained in the assignment of the
Subject Property delivered by Sellers at the Closing
or to any claims by Buyer pursuant to the survival
and indemnification provisions set forth in this
Agreement.
(3) Discrepancies in Working and Net Revenue
Interests. In the case of substantiation of
proportionate changes in working and net revenue
interests from those represented on Exhibit "B," the
Purchase Price shall be adjusted to reflect such
proportionate change in accordance with the Allocated
Value for the affected Well(s) or spacing unit(s). If
the interest discrepancy is less than one-half of one
percent (.5%) it shall be deemed non-material and
shall not be considered a Title Defect. If the
interest discrepancy is disproportionate between the
working and net revenue interests set forth in
Exhibit "B," then the Purchase Price adjustment shall
be based on revised economics determined by Buyer and
agreed to by Sellers using the same economic
parameters as those used to determine the Allocated
Value for the affected Well(s) or spacing unit(s).
(4) Mandatory Negotiations. Upon timely
delivery of a Title Defect notice pursuant to
Subparagraph 8(b), above, Buyer and Sellers shall
promptly meet and in good faith use their best
efforts to agree on the validity of the claim and the
amount, if any, by which the Purchase Price should be
adjusted ("Defect Adjustment"). If the existence of a
Title Defect, or the appropriate Defect Adjustment
cannot be mutually agreed upon, the parties shall
proceed with the Closing (if otherwise permitted by
this Agreement) and the Purchase Price shall be
adjusted to account for the claimed Defect
Adjustment(s) and the exclusion, if any, of any
Subject Property pursuant to Subparagraph 8(e)(5)
below.
(5) Sellers' Right to Cure as to Defect
Adjustments. If Buyer receives and Sellers suffer a
Defect Adjustment at Closing, or if any Subject
Property is excluded pursuant to this Paragraph 8,
Sellers shall have until the Final Settlement Date
to cure the underlying Title Defect at its sole cost.
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If by such date Sellers can demonstrate to Buyer's
reasonable satisfaction that such Title Defect has
been cured, then Sellers shall be entitled to
reimbursement from Buyer for the amount of the Title
Defect Adjustment received by Buyer at Closing as a
result of such Title Defect and, if applicable, to
convey any Subject Property to Buyer that may have
been excluded. Buyer shall pay such amount to Sellers
within five business days of the date Sellers
demonstrate to Buyer's reasonable satisfaction that
such Title Defect has been cured.
(f) Preferential Rights. If any of the Subject
Property is subject to preferential purchase rights, rights of first
refusal, or similar rights (collectively, "Preferential Rights") ,
Sellers shall notify the holders thereof of its intention to sell such
Leases or Wells, and of the value attributed thereto. Buyer and Sellers
shall assign a value to each separately designated lease/well/unit
within the Subject Property. Such values are set forth on Exhibit "B"
attached hereto and incorporated herein and are herein referred to as
"Allocated Values." If any of the Leases or Wells are identified to be
subject to consents to assign, Lessor's approvals or similar rights
(collectively, "Consents") , Sellers shall notify the holders thereof
of its intention to sell such Leases and request their consent to the
assignment to Buyer. Sellers shall promptly notify Buyer if the
Preferential Rights are exercised, waived or deemed waived, or if any
Consents are denied. If Sellers are unable to obtain the required
waivers of Preferential Rights or Consents prior to the Closing and if
the time period for asserting such rights has not then expired (other
than Consents ordinarily obtained after Closing), the portion of the
Subject Property affected will be excluded from this sale and the
Purchase Price decreased by the corresponding Allocated Value;
provided, however, that if the time period for asserting such rights
expires within sixty (60) days of Closing or if the holder of such
Preferential Right fails to consummate the purchase of the Subject
Property covered by such right within 60 days of Closing, then Sellers
shall so notify Buyer, and, within fifteen (15) days after Buyer's
receipt of such notice from Sellers, Sellers shall sell to Buyer and
Buyer shall purchase from Sellers for the corresponding Allocated
Value, and upon other terms of this Agreement, the interest to which
the Preferential Right applied.
9. Costs and Revenues, Before and After Effective Time. Sellers shall
be responsible for the payment of all costs, liabilities, and expenses, except
to the extent that Environmental Liabilities are limited by Paragraph 12, below,
which have been incurred in the ownership and operation of the Subject Property
prior to the Effective Time and not yet paid or satisfied. Buyer shall be
responsible for payment (at Closing or thereafter) of all costs, liabilities,
and expenses, including Environmental Liabilities pursuant to Paragraph 12,
below, incurred in the ownership and operation of the Subject Property after the
Effective Time, except surface damages and location preparation, including
roustabout work, concrete pad for a compressor, if necessary, and hookup charges
not to exceed in total the sum of Ten Thousand Dollars ($10,000.00), all
associated with the hookup of the Subject Properties to Duke Energy Field
Services, Inc.'s gathering system located in Section 30, Township 5 North, Range
67 West, Weld County, Colorado. Such costs and expenses shall include any
necessary and reasonable expenses incurred by Sellers in the operation,
protection or maintenance of the Subject Property from the Effective Time to
Closing. All hydrocarbons produced from the Subject Property prior to the
Effective Time and all proceeds from the sale thereof
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shall be the property of Sellers. All hydrocarbons produced after the Effective
Time shall be the property of Buyer. Sellers shall remit production proceeds, if
any, received by Sellers from sale of hydrocarbons belonging to Buyer, less
expenses which Buyer is responsible for paying pursuant to this Paragraph 9, to
Buyer immediately upon receipt. Adjustments shall be made post-Closing to
account for such costs and revenues. The Parties hereto shall allocate such
crude oil production in the following manner: the Purchase Price shall be
adjusted upward for crude oil in the tanks above the load line based on Sellers'
July 31, 1998, gauge reports which are allocated to the Subject Property. The
adjustment shall be made as of the Effective Time on the same basis of price as
set forth in the pertinent crude oil purchase contract.
10. Assumption of Obligations. From and after the Closing, Buyer
assumes and agrees to perform all express or implied covenants and obligations
of Sellers relating to the Subject Property, including obligations under the
rules and regulations of the Colorado Oil and Gas Conservation Commission and of
the Colorado State Board of Land Commissioners. Buyer also assumes and agrees to
perform and pay Sellers' proportionate part of the expenses and costs of
plugging and abandoning wells and restoring and reclaiming well locations,
reserve or mud pits, pipelines, and operation sites, including restoration and
reclamation of the Gas Plant site, all in accordance with the applicable laws,
rules, regulations, and contractual provisions and shall indemnify, defend, and
hold harmless Sellers, their employees, officers, directors, consultants, and
agents (hereinafter the "Sellers' Indemnified Parties") from all costs and
expenses therefor. Buyer shall assume the risk of any change in the condition of
the Subject Property from the Effective Time to the Closing, except to the
extent any change of condition is attributable to the willful misfeasance or
negligence of Sellers occurring while the Subject Property is under Sellers'
control. Buyer shall also assume the risk of any change in applicable laws,
rules, and regulations that may occur after the Effective Time. After Closing,
Buyer shall assume all risk of loss to the Subject Property.
11. Gas Plant Insurance. Buyer shall insure the Gas Plant against
physical loss or damage in an amount not less than Five Hundred Thousand Dollars
($500,000.00). If Buyer terminates its own operation of the Gas Plant, Buyer
shall, by facsimile transmittal, advise the Sellers of the premiums for such
insurance, and Sellers shall then have the election in their sole discretion, to
pay to Buyer an amount equal to one-half (1/2) of the insurance premium cost
prorated to the time Buyer terminated its own operation of the Gas Plant. If
Sellers elect to share the premium cost, then within twenty-four (24) hours
after receiving Buyer's notice of the premium cost Sellers shall deposit their
check for payment of one-half of the prorated premium cost, payable to Buyer,
into the United States mail addressed to Buyer and Buyer shall furnish Sellers a
copy of the insurance certificate showing Sellers as named insured. Thereafter,
Sellers shall pay one-half of the annual premium cost when invoiced by Buyer
until such time as the Gas Plant is sold. Buyer shall be totally responsible for
paying all premiums in full to the insurance carrier. Thereafter, if, before
Buyer sells the Gas Plant to a third party, the Gas Plant is damaged or
destroyed by fire or other casualty and if Sellers have paid to Buyer one-half
of the premium cost, then Buyer shall pay to Sellers one-half (1/2) of the
insurance proceeds which Buyer may receive in connection with such loss, if any.
If Sellers have not paid to Buyer one-half of the premium cost, then Sellers
shall not be entitled to any insurance proceeds which Buyer may receive in
connection with such loss, if any.
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12. Environmental Matters.
(a) Physical and Environmental Conditions. Buyer agrees and
acknowledges that (i) prior to the Closing it has had access to and the
opportunity to inspect the Subject Property for all purposes, including
without limitation, for the purposes of detecting the presence of hazardous or
toxic substances, pollutants or other contaminants, environmental hazards,
naturally occurring radioactive materials (NORM) and produced water
contamination of the surface and/or subsurface; (ii) prior to Closing, it will
have satisfied itself as to the physical and environmental condition of the
Subject Property and the method of their respective operation and, except as
set forth herein, agrees, subject to Sellers' representations, warranties, and
indemnities, to accept an assignment of the Subject Property at Closing on an
"AS IS, WHERE IS" basis, "WITH ALL FAULTS."
(b) General Environmental Indemnity. If the Closing occurs,
then, except as limited in this Subparagraph 12(b), Buyer hereby assumes and
shall be responsible for and agrees to indemnify, defend, and hold harmless
the Sellers' Indemnified Parties, from and against any and all losses arising
under any Environmental Laws, as defined below, including damage to property,
injury to or death of persons or other living things, natural resource
damages, CERCLA response costs, environmental remediation and restoration
costs, fines and penalties (collectively, "Environmental Liabilities") arising
out of or attributable to, in whole or in part, either directly or indirectly,
the ownership or operation of the Subject Property at any time after the
Effective Time; provided, however, that until the earlier of March 31, 2000,
or the Buyer's sale, exchange, transfer, or assignment of all or any portion
of the Subject Property to a third party, Sellers shall indemnify, defend, and
hold harmless Buyer, its employees, officers, directors, consultants, and
agents (the "Buyer's Indemnified Parties") from and against any and all losses
arising under any Environmental Laws, as defined below, including damage to
property, injury to or death of persons or other living things, natural
resource damages, CERCLA response costs, environmental remediation and
restoration costs, or fines or penalties (collectively, "Environmental
Liabilities") arising out of or attributable to, in whole or in part, either
directly or indirectly, the Sellers' ownership or operation of the Subject
Property prior to the Effective Time. Subsequent to the earlier of March 31,
2000 or of Buyer's exchange, sale, transfer, or assignment to a third party,
Sellers' indemnification of Buyer, as provided in this Subparagraph 12(b),
shall cease, and Buyer shall thereafter indemnify, defend, and hold harmless
the Sellers' Indemnified Parties, for all such Environmental Liabilities
regardless of when they may have arisen; it is provided, however, that, in the
event of an exchange, sale, transfer or assignment to a third party before
March 31, 2000, Sellers' indemnification of Buyer under this subparagraph
shall cease only as to that portion of the Subject Property so exchanged,
sold, transferred, or assigned to a third party by Buyer.
(c) Environmental Laws. As used herein, the term
"Environmental Laws" shall mean any and all federal, state, and local statutes,
regulations, rules, orders, ordinances, or permits of any governmental authority
pertaining to health, the environment, wildlife or natural resources in effect
in any and all jurisdictions in which the Subject Property is located,
including, without limitation: the Clean Air Act, as amended; the Federal Water
Pollution Control Act, as amended; the Rivers and Harbors Act of 1899, as
amended; the Safe Drinking Water Act, as amended; the
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Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
as amended; the Superfund Amendments and Reauthorization Act of 1986 (SARA), as
amended; the Resource Conservation and Recovery Act (RCRA) , as amended; The
Hazardous and Solid Water Amendments Act of 1984, as amended; the Toxic
Substances Control Act, as amended; the Occupational Safety and Health Act
(OSHA) , as amended; and the Hazardous Materials Transportation Act, as amended.
The term "Environmental Laws" does not include obligations which may arise under
the Rules and Regulations of the Colorado Oil and Gas Conservation Commission,
the Colorado State Board of Land Commissioners, or of any similar agency in
another jurisdiction in which the Subject Property may be located.
13. Indemnity.
(a) By Sellers. Except for Environmental Liabilities,
indemnification for which is controlled by Paragraph 12 and except for
obligations assumed under Paragraph 10, above, to the extent
permissible under applicable law, Sellers shall indemnify and hold
harmless Buyer, its employees and agents, from all loss, cost,
liability, and expense arising out of, in connection with, or resulting
from Sellers' ownership or operation of the Subject Property prior to
the Effective Time. Sellers further covenant and agree to defend any
suits brought against Buyer on account of any such claims and to pay
any judgments, costs, and expenses incident to the foregoing indemnity;
provided, Buyer shall have the right, if it so elects, to participate
in the defense of any such suit or suits in which it may be a party, at
its own expense, without relieving Sellers of the obligation to defend
the same.
(b) By Buyer. Except for Environmental Liabilities,
indemnification for which is controlled by Paragraph 12, above, to the
extent permissible under applicable law, Buyer shall indemnify and hold
harmless Sellers' Indemnified Parties from any and all loss, costs,
liability, and expense of any kind or character arising out of, in
connection with, or resulting from Buyer's ownership or operation of
the Subject Property after the Effective Time. Buyer further covenants
and agrees to defend any suits brought against Sellers on account of
any such claims and to pay any judgments, costs, and expenses incident
to the foregoing indemnity; provided, Sellers shall have the right if
they so elect, to participate in the defense of any such suit or suits
in which it may be a party, at their own expense, without relieving
Buyer of the obligation to defend the same.
(c) Time Bar. It is the intent of the parties that
the earlier of March 31, 2000, or the exchange, sale, transfer, or
assignment of all or any part of the Subject Property from Buyer to a
third party as provided in Subparagraph 12(b) above, shall act as a bar
date, beyond which no further claims of any nature, kind, or character,
which would otherwise invoke Sellers' indemnity obligations relating to
the Subject Property, may be made upon Sellers.
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14. Warranties; Inspection. Notwithstanding any provision in this
Agreement to the contrary, it is understood that the Assignment, Conveyance and
Bill of Sale in the form of Exhibit "H" hereto and any other necessary
assignments of interests in the Subject Property to be delivered at Closing
shall be made with a special warranty of title. It is specifically understood
that the personal property and fixtures are being sold hereunder AS IS, WHERE
IS, and WITH ALL FAULTS.
15. Miscellaneous.
(a) Brokers. Each party agrees that it will hold the
other party harmless from any claim by any broker or finder asserting
it was employed by such party in connection with the transactions
contemplated hereby.
(b) Further Assurances. Sellers agree to execute any
documents which they and each of them have the authority to execute,
whether before or after the Closing, to aid Buyer in clearing or
perfecting title and ownership to the Subject Property, assuming duties
as operator or owner of the Subject Property, and to facilitate the
receipt of the proceeds of the sale of the production therefrom and
attributable thereto. Buyer shall make any request for execution of
such document in writing and shall provide Sellers with a copy of the
document and an appropriate explanation of its significance and
purpose.
(c) Entire Agreement. This Agreement together with
the Exhibits attached hereto and Data delivered hereunder, shall
constitute the complete agreement between the parties hereto and shall
supersede all prior agreements, whether written or oral, and any
representations or conversations with respect to the Subject Property.
(d) Confidentiality. If the Closing does not occur,
Buyer will return all Data within three (3) days after notice that the
Closing will not occur and will use its best efforts to keep the
information furnished by Sellers to Buyer hereunder or in contemplation
hereof strictly confidential and will not use any of such information
to Buyer's advantage or in competition with Sellers, except to the
extent such information (i) was already known to Buyer, (ii) is
developed by Buyer independently from the information supplied by
Sellers, or (iii) is furnished to Buyer by a third party independently
of Buyer's investigation pursuant to the transaction contemplated by
this Agreement.
(e) Notices. All communications required or permitted
under this agreement shall be in writing and shall be deemed made when
actually received, or if mailed by registered or certified mail,
postage prepaid, addressed as set forth below, shall be deemed made
three days after such mailing. Either party may, by written notice to
the other, change its mailing address for such notices.
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Notices to Sellers:
Pease Oil and Gas Company
P. O. Box 60219
Grand Junction, Colorado 81506
Attn: Willard Pease, Jr., President
Notices to Buyer:
MAGPIE OPERATING, Inc.
11138 Wildhorse Peak
Littleton, CO 80127
Attn: James M. Warner, President
(f) Binding Effect. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, and their
successors and assigns; provided, no assignment by either party shall
be made without the express consent of the other party and if such
consent is granted, no assignment shall relieve such party of any of
its obligations.
hereunder.
(g) Counterparts. This Agreement may be executed in
any number of counterparts, which taken together shall constitute one
instrument and each of which shall be considered an original.
(h) Law Applicable. This Agreement shall be governed
by and construed in accordance with the laws of the State of Colorado
applicable to contracts made and performed entirely therein. The
prevailing party in any dispute resolution hereunder shall be entitled
to recover its attorneys' fees and costs.
(i) Waivers. No parties' rights hereunder will be
deemed waived except by a writing signed by such party.
(j) Incorporation of Exhibits. All exhibits and
schedules referred to herein are attached hereto and are made a part
hereof by this reference.
(k) Survival. Except as otherwise provided herein,
the provisions of this Agreement shall survive the Closing hereof and
shall not merge into the assignment documents to be delivered
hereunder.
Signed and delivered the day and year first above set forth.
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SELLERS:
ATTEST: PEASE OIL AND GAS COMPANY
BY
Secretary President
DATE:
ATTEST: PEASE OILFIELD SUPPLY, INC.
BY
Secretary President
DATE:
ATTEST: PEASE OILFIELD SERVICES, INC.
BY
Secretary President
DATE:
ATTEST: PEASE OPERATING COMPANY, INC.
BY
Secretary President
DATE:
LOVELAND GAS PROCESSING CO., LTD.
ATTEST: By: Pease Oil and Gas Company,
a General Partner
BY
Patrick J. Duncan, Secretary
Willard H. Pease, Jr., President
ATTEST: By: Pease Operating Company, Inc.
a General Partner
BY
Patrick J. Duncan, Secretary
Willard H. Pease, Jr., President
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BUYER:
ATTEST: MAGPIE OPERATING, INC.
By
Secretary President
DATE:
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LIST OF EXHIBITS
A. Leases
B. Wells, Working Interests, Net Revenue Interests, and Allocated Values
C. Well Equipment
D. Oilfield Supply; Supply Store
E. Oilfield Services Assets
F. Gas Plant; Associated Easements
G. Operating Company Vehicles
H. Form of Assignment
I. Litigation, Claims, Demands, Preferential Rights
J. Security Agreement & Financing Statement
October 7, 1998
James M. Warner
Magpie Operating, Inc.
11138 Wild Horse Peak
Littleton, CO 80127
Re: Amendment to Purchase and Sale Agreement Dated July 31, 1998
Dear Mr. Warner:
The parties to that certain Purchase and Sale Agreement dated July 31, 1998
("Agreement"), namely Pease Oil and Gas Company, et al, as Sellers, and Magpie
Operating, Inc., as Buyer, hereby agree to amend the Purchase and Sale Agreement
as follows:
1. The Purchase Price in Paragraph 2. (a), Page 3, shall be
changed from $2,100,000.00 to $2,000,000.00.
2. The Effective Time in Paragraph 3, Page 4, shall be changed
from August 1, 1998, at 12:01 a.m. to October 1, 1998, at
12:01 a.m.
3. The Closing in Paragraph 3, Page 4, shall be changed from on
or before August 31, 1998, to on or before September 30, 1998.
All other terms and provisions of the Agreement shall remain the same.
Please acknowledge your agreement and acceptance of this amendment by executing
this letter in the space provided below.
Sincerely,
PEASE OIL AND GAS COMPANY
PEASE OILFIELD SUPPLY, INC.
PEASE OILFIELD SERVICES, INC.
LOVELAND GAS PROCESSING CO., LTD.
PEASE OPERATING COMPANY, INC.
By: _____________________________________
Willard H. Pease, Jr., President
ACKNOWLEDGED, AGREED AND ACCEPTED this ________day of September, 1998.
MAGPIE OPERATING, INC.
By: _____________________________________
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