<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
3
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18886
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HS RESOURCES, INC.
- - -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3036864
- - ---------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Maritime Plaza, Fifteenth Floor
San Francisco, California 94111
- - ---------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 433-5795
---------------------
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock, $.001 par value, outstanding as of the close
of business on August 2, 1996: 16,975,884 after deducting 141,977 shares in
treasury.
<PAGE> 2
HS RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- - ------------------------------
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets - June 30, 1996 (Unaudited) and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations - For the
Three Months and Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholders' Equity - For
the Year Ended December 31, 1995 and the Six Months Ended
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
- - ---------------------------
Item 1. Legal Proceedings & Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 4,478,800 $ 116,581
Margin deposits 2,290,311 ---
Accounts receivable
Oil and gas sales 29,357,210 6,344,672
Trade 2,844,774 1,300,244
Other 4,673,944 2,461,966
Lease and well equipment inventory, at cost 955,180 709,613
Prepaid expenses and other 2,177,817 152,569
------------- ------------
Total current assets 46,778,036 11,085,645
------------- ------------
OIL AND GAS PROPERTIES, at cost, using
the full cost method
Undeveloped acreage 56,009,627 26,778,702
Costs subject to depreciation, depletion
and amortization 715,409,954 341,382,375
Less accumulated depreciation,
depletion and amortization (103,846,875) (89,350,067)
------------- ------------
Net oil and gas properties 667,572,706 278,811,010
------------- ------------
GAS GATHERING AND TRANSPORTATION FACILITIES,
net of accumulated depreciation of $881,782 at June 30, 1996
and $739,010 at December 31, 1995. 4,955,968 4,913,692
------------- ------------
OTHER ASSETS
Deferred charges and other 5,073,483 3,652,769
Office and transportation equipment and other property, net of
accumulated depreciation of $2,944,142 at June 30, 1996
and $2,457,070 at December 31, 1995. 4,803,106 3,626,149
Investment in Oil and Gas Limited Partnership 983,042 ---
------------- ------------
Total other assets 10,859,631 7,278,918
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TOTAL ASSETS $ 730,166,341 $302,089,265
============= ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE> 4
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable
Trade $ 22,059,356 $ 4,638,286
Revenue 6,583,258 2,091,073
Gas purchases 8,078,096 ---
Accrued expenses
Ad valorem and production taxes 7,439,465 4,386,969
Interest 2,360,780 1,494,667
Other 7,915,022 2,159,324
Short-term note --- 12,400,000
Current portion of long-term debt 30,000 30,000
------------ ------------
Total current liabilities 54,465,977 27,200,319
------------ ------------
ACCRUED AD VALOREM TAXES 9,674,054 6,574,405
LONG-TERM OIL AND GAS PRODUCTION NOTE PAYABLE 734,696 ---
LONG-TERM BANK DEBT, net of current portion 301,000,000 51,000,000
9 7/8% SENIOR SUBORDINATED NOTES, due 2003,
net of unamortized discount of $433,875 and $463,125
at June 30, 1996 and December 31, 1995, respectively 74,566,125 74,536,875
ASSET MONETIZATION DEBT 23,500,000 ---
DEFERRED INCOME TAXES 80,818,599 23,603,540
MINORITY INTEREST (54,774) ---
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 15,000,000 shares
authorized; none issued and outstanding at
June 30, 1996 and December 31, 1995 --- ---
Common stock, $.001 par value, 30,000,000 shares authorized;
17,117,861 and 10,948,680 shares issued and outstanding
at June 30, 1996 and December 31, 1995, respectively 17,118 10,949
Additional paid-in capital 162,879,064 97,717,908
Retained earnings 24,320,299 22,484,572
Treasury stock, at cost, 141,977 shares at June 30, 1996
and 75,077 shares at December 31, 1995 (1,754,817) (1,039,303)
------------ ------------
Total stockholders' equity 185,461,664 119,174,126
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $730,166,341 $302,089,265
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE> 5
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $21,282,730 $14,477,857 $34,962,160 $29,792,238
Trading and transportation 4,853,241 --- 4,853,241 ---
Other gas revenues 630,641 332,090 1,104,704 754,343
Interest income and other 62,991 44,004 103,782 62,312
----------- ----------- ----------- -----------
Total revenues 26,829,603 14,853,951 41,023,887 30,608,893
----------- ----------- ----------- -----------
EXPENSES
Production taxes 1,624,833 1,368,302 2,689,821 2,856,059
Lease operating 3,110,448 2,457,133 5,936,771 4,998,003
Cost of trading and transportation 4,732,728 --- 4,732,728 ---
Depreciation, depletion and amortization 9,084,532 7,156,599 15,191,958 14,331,518
General and administrative 899,501 1,019,618 1,762,293 2,183,830
Interest 4,720,530 2,562,326 7,744,682 4,907,738
----------- ----------- ----------- -----------
Total expenses 24,172,572 14,563,978 38,058,253 29,277,148
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,657,031 289,973 2,965,634 1,331,745
PROVISION FOR INCOME TAXES 1,012,330 110,480 1,129,907 512,145
----------- ----------- ----------- -----------
NET INCOME $1,644,701 $179,493 $1,835,727 $819,600
=========== =========== =========== ===========
EARNINGS PER SHARE
Earnings per common and common
equivalent share $0.14 $0.02 $0.16 $0.07
=========== =========== =========== ===========
Earnings per common and common
equivalent share assuming full dilution $0.14 $0.02 $0.16 $0.07
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Weighted average number of common
and common equivalent shares 12,058,000 11,505,000 11,604,000 11,486,000
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares
assuming full dilution 12,058,000 11,505,000 11,604,000 11,486,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE> 6
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Additional
----------
Common Stock Paid-In Retained Treasury Stock
------------ ------- -------- --------------
Shares Amount Capital Earnings Shares Amount
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 10,948,680 $10,949 $97,713,613 $15,951,796 (28,913) $ (377,591)
Common stock options
exercised, including
income tax benefit -- -- 5,945 -- 1,500 19,590
Purchase of treasury stock -- -- -- -- (13,500) (233,962)
Exercise of options by
issuance of stock,
including income tax
benefit -- -- 798 -- 600 7,854
Net income -- -- -- 6,258,620 -- --
---------- ------- ------------ ----------- ------- -----------
Balance, December 31, 1994 10,948,680 10,949 97,720,356 22,210,416 (40,313) (584,109)
Purchase of treasury
stock -- -- -- -- (63,700) (846,625)
Transfer of treasury
stock to 401(k) Plan -- -- 3,328 -- 26,536 358,287
Exercise of options by
issuance of stock,
including income tax
benefit -- -- (5,776) -- 2,400 33,144
Net income -- -- -- 274,156 -- --
---------- ------- ------------ ----------- ------- -----------
Balance, December 31, 1995 10,948,680 10,949 97,717,908 22,484,572 (75,077) (1,039,303)
Purchase of treasury
stock -- -- -- -- (77,567) (846,931)
Issuance of common
stock for Tide
West acquisition 6,169,181 6,169 65,159,977 -- -- --
Exercise of options by
issuance of stock,
including income tax
benefit -- -- 1,179 -- 10,667 131,417
Net income -- -- -- 1,835,727 -- --
---------- ------- ------------ ----------- ------- ----------
Balance, June 30, 1996
(Unaudited) 17,117,861 $17,118 $162,879,064 $24,320,299 (141,977) $(1,754,817)
========== ======= ============ =========== ======= ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE> 7
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30,
--------
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,835,727 $819,600
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 15,191,958 14,331,518
Amortization of deferred charges
and debenture issue costs 403,913 394,703
Transfer of treasury stock to the 401(k) Plan --- 378,141
Loss (gain) on sale of fixed assets (12,175) (7,162)
Deferred income tax provision 1,125,315 508,358
Changes in assets and liabilities net of effect from
purchase of Tide West:
Decrease (increase) in accounts and notes receivable (49,891,109) 1,801,275
Increase in accounts payable and accrued expenses 15,582,670 1,085,433
Increase (decrease) in unearned income, net --- (346,136)
Other (2,013,353) 918,206
----------- ----------
Net cash provided by operating activities (17,777,054) 19,883,936
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Exploration and development costs (30,615,568) (36,568,412)
Purchase of unproved and proved properties (129,613,524) ---
Cash payment for the purchase of Tide West, net of
cash acquired (85,125,084) ---
Gas gathering and transportation facilities additions (185,048) (366,524)
Other property additions (378,368) (223,584)
Proceeds from the sale of fixed assets and other property 12,175 346,788
Increase (decrease) in property related payables 9,619,169 (2,686,047)
----------- ----------
Net cash used in investing activities (236,286,248) (39,497,779)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 398,593,596 28,000,000
Repayments of debt (136,758,900) (8,000,000)
Tide West acquisition costs (2,694,840) ---
Exercise of options 132,596 ---
Purchase of treasury stock (846,931) (256,650)
----------- ----------
Net cash provided by financing activities 258,425,521 19,743,350
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,362,219 129,507
CASH AND CASH EQUIVALENTS, beginning of year 116,581 657,383
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $4,478,800 $786,890
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid, net of capitalized interest $6,486,655 $4,500,675
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
7
<PAGE> 8
HS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General
HS Resources, Inc., a Delaware Corporation (the "Company") was organized
in January 1987. The Company, directly or through subsidiaries, acquires,
develops and exploits oil and gas properties. The interim financial data are
unaudited; however, all adjustments (which are of a normal and recurring nature)
have been made which are, in the opinion of management, necessary for a fair
statement of the financial position of the Company at June 30, 1996, and its
results of operations and cash flows for the interim periods presented. Because
of various factors, results of operations for these periods are not necessarily
indicative of results to be expected for the full year. For a more complete
understanding of the Company's operations and financial position these
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's December 31, 1995 Annual Report on
Form 10-K previously filed with the Securities and Exchange Commission.
Note 2. Basin and Tide West Acquisitions
The Company acquired a portion of Basin Exploration, Inc.'s ("Basin")
Denver-Julesburg ("D-J") Basin oil and gas properties as of March 1996 for $38
million. Subsequently, the Company sold $23.5 million of such assets to a
limited liability company (the "Third Party") under an arrangement whereby the
Third Party assumed all of the Company's liability for (and the Company was
fully released from) $23.5 million of the Company's debt (the "Chase Asset
Monetization Arrangement"). Although the Company has no liability of any sort
for the assumed debt, the Third Party purchase is not recognized for financial
reporting purposes pursuant to generally accepted accounting principles and
reporting requirements promulgated by the Securities and Exchange Commission,
and accordingly, the Company has consolidated in the accompanying financial
statements the activities of the assets sold to the Third Party.
On June 7, 1996, HS Resources completed the acquisition of the
remaining D-J Basin assets of Basin comprised of certain oil and gas properties
located in the Wattenberg field area near Denver, Colorado for approximately
$87.5 million. The acquisition was accounted for using the purchase method of
accounting. The Company began consolidating the results of these operations as
of June 1, 1996.
On June 17, 1996, the Company completed the merger of Tide West Oil
Company ("Tide West") into a wholly owned subsidiary of the Company. Pursuant
to the merger, Tide West shareholders received 0.6295 shares of HS Resources
common stock and $8.704 cash for each outstanding share of Tide West common
stock for an aggregate consideration of $187.7 million. HS Resources issued
6,169,181 shares of common stock, bringing its total shares outstanding to 17.1
million shares. Tide West was an independent oil and gas company with principal
operations in portions of the Anadarko and Arkoma geologic basins located within
Oklahoma and Texas, as well as additional operations located in Southern
Oklahoma, Texas and New Mexico. The Company accounted for the merger using the
purchase method of accounting and began consolidating Tide West's results as of
June 17, 1996.
8
<PAGE> 9
Note 3. Pro forma Statements
The following table sets forth condensed unaudited pro forma operating results
of the Company for the six months ended June 30, 1996 and 1995. The condensed
pro forma operating results assume that both Basin acquisitions and the Tide
West merger (as discussed in Note 2) had occurred on January 1, 1995, instead
of June 1996. The condensed pro forma results are not necessarily indicative
of the results of operations had the acquisition been consummated on January 1,
1995, and may not necessarily be indicative of future performance.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Revenues $120,517,875 $101,857,472
Net income (loss) $ 3,625,577 $ (2,999,261)
Net income (loss) per common share $ .20 $ (0.17)
Weighted average common shares outstanding 17,772,681 17,751,444
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
General. During 1996 the Company continued drilling and development
activity in the D-J Basin and completed the Basin and Tide West acquisitions.
At June 30, 1996, the Company owned interests in approximately 3,590 producing
wells (of which it operated approximately 2,640) compared to approximately
1,160 wells (of which it operated more than 960) at June 30, 1995. The Company
reported an increase in oil and gas sales for the quarter due to an increase in
prices and production. The increase in production reflects the impact of the
Company's first quarter drilling program in addition to the production acquired
as a result of the Basin and Tide West acquisitions.
Comparison of Three Months and Six Months Ended June 30, 1996 and June 30, 1995
Oil and Gas Revenues. For the comparative three month periods, oil
production increased from 429 MBbls to 471 MBbls and gas production increased
from 5,762 MMcf to 7,092 MMcf, or 10% and 23%, respectively. Oil prices
increased by 22% from $16.67 to $20.40 per Bbl and gas prices increased by 30%
from $1.27 to $1.65 per Mcf. The net effect of these changes resulted in an
increase in oil and gas revenues from $14,477,857 to $21,282,730 or 47%. The
Company also recognized $630,641 in other gas revenues from the sale of tax
credits with respect to its Section 29 tax credit agreements.
9
<PAGE> 10
For the comparative six month periods, oil production decreased from
914 MBbls to 766 MBbls and gas production increased from 11,214 MMcf to 12,054
MMcf, or 16% and 7%, respectively. Oil prices increased by 21% from $16.38 to
$19.78 per Bbl and gas prices increased by 24% from $1.32 to $1.64 per Mcf.
The net effect of these changes resulted in an increase in oil and gas revenues
from $29,792,238 to $34,962,160 or 17%. The Company also recognized $1,104,704
in other gas revenues from the sale of tax credits with the respect to its
Section 29 tax credit agreements.
The Company, through its gas marketing division and its wholly owned
subsidiary, Tide West Trading & Transport Company, actively markets its own
natural gas production, markets natural gas to third parties and supplies
natural gas to end-users. Trading and transportation net margins were $120,513
for the second quarter of 1996 including $24,313 for Tide West Trading and
Transportation Company for the period June 17 to June 30, 1996. There were no
comparable revenues in 1995.
Interest Income and Other Income. Interest and other income increased
by $18,987, or 43%, for the three month comparative periods and by $41,470, or
67% for the six month comparative periods. The increase in interest and other
income was mainly due to short term investing of the Company's available funds.
Production Expenses. Lease operating expenses increased by $653,315,
or 27%, for the three month comparative periods and by $938,768, or 19% for the
six month comparative periods due to an increase in the number of producing
wells. On a Boe basis, lease operating expenses increased from $1.77 to $1.88
for the three month comparative periods and from $1.80 to $2.14 for the six
month comparative periods. Production taxes, increased by $256,531, or 19%, for
the three month comparative periods and decreased by $166,238, or 6% for the six
month comparative periods. Production taxes in 1996 reflect an adjustment for a
reduction in the Company's severance tax rate. A cumulative rate adjustment for
1995 was recorded in the third quarter of 1995.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $1,927,933, or 27%, for the three month comparative
periods and by $860,440, or 6% for the six month comparative periods due to an
increase in production for the quarter and an increase in the depletion rate.
As a result of the Basin and Tide West acquisitions the Company adjusted its
depletion rate in June from $5.15 to $5.65 per Boe.
General and Administrative Expense. General and administrative
expense reflects costs incurred net of administrative costs directly
attributable to drilling and well operations. Such costs are included in lease
operating expenses or are capitalized. General and administrative expenses
decreased $120,117, or 12%, for the three month comparative periods and by
$421,537, or 19% for the six month comparative periods due to a staff reduction
and realignment which occurred in November 1995 as well as an increase in COPAS
reimbursements in 1996 as a result of the Basin acquisitions. On a Boe basis,
general and administrative expenses decreased from $.73 to $.54 for the three
month comparative periods and from $.78 to $.64 for the six month comparative
periods.
Interest Expense. Interest expense increased $2,158,204, or 84%, for
the three month comparative periods and by $2,836,944, or 58% for the six month
comparative periods due to increased borrowings on the Company's long-term bank
debt.
10
<PAGE> 11
CAPITAL COMMITMENTS, LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments. The Company's primary activities involve the
acquisition, development, and exploitation of oil and gas properties. Whenever
possible, the Company structures its operating activities so as to minimize
long term operational commitments and, thus, retain maximum flexibility to
respond to opportunities and to changes in its cash flows. The Company's
ongoing capital expenditure program assumes certain economic factors, including
current and projected oil and gas prices, and can be adjusted from time to time
to respond to changing economic conditions.
The Company's development program is currently focused in three
principal areas. The first component of the Company's capital expenditure
program is development of its D-J Basin properties. To further consolidate the
Company's position in the Wattenberg field area, the Company acquired a portion
of Basin's D-J Basin oil and gas properties as of March 1996 for $38 million.
Subsequently, the Company sold $23.5 million of such assets to the Third Party
under an arrangement whereby the Third Party assumed all of the Company's
liability for (and the Company was fully released from) $23.5 million of the
Company's debt. Although the Company has no liability of any sort for the
assumed debt, the Third Party purchase is not recognized for financial reporting
purposes pursuant to generally accepted accounting principles and reporting
requirements promulgated by the Securities and Exchange Commission. In June
1996, the Company acquired the remainder of Basin's D-J Basin oil and gas
properties for approximately $87.5 million. The Company also incurred
approximately $25.9 million in capital expenditures for drilling and
recompleting wells and building gathering systems on the Company's existing
Wattenberg field area properties during the six months ended June 30, 1996,
compared to $12.1 million in 1995. The 1996 amount also includes costs incurred
in 1996 on wells in progress at December 31, 1995.
As part of its D-J Basin focus, in 1994, the Company entered into a
D-J Basin exploration agreement with Union Pacific Resources Company ("UPRC"),
pursuant to which it committed to spend (or cause to be spent) $9.25 million
during the two years ending June 1996, and to meet certain other minimum
obligations. All such commitments were met. In 1996, the Company elected to
extend the agreement and has committed to spend approximately $2.4 million by
June 1997. The Company has also entered into a number of other standard
industry arrangements which require the drilling of wells or other activities.
The Company believes that it will meet its obligations under these arrangements
which individually and in the aggregate are not material.
The second component of the Company's capital expenditure program is
to develop onshore exploration prospects in the Gulf Coast region. In November
1995, the Company formed SouthTech Exploration, L.L.C. ("SouthTech"), a joint
venture with Aspect Resources Limited-Liability Company. The joint venture uses
advanced 3-D seismic and coherence technology to evaluate potential prospects.
The Company funded approximately $2 million under the SouthTech agreement in
1995 for seismic, leasehold and overhead costs. In 1996, the Company is
committed to spend $2.9 million for similar costs and for drilling, of which
$1.2 million was funded as of June 30, 1996. In a separate transaction, the
Company entered into an exploration and development agreement with GeoSearch,
Inc. ("GeoSearch"), in June 1996, in which the Company purchased
11
<PAGE> 12
from GeoSearch interests in properties in the Gulf Coast for a total of $1.9
million, of which $1.2 million was paid in cash while the remaining portion was
funded with a promissory note. Under the terms of the agreement, GeoSearch
will be responsible for the generation and development of prospects in the
project areas. Although the Company has no current obligation to do so, it
anticipates spending approximately $4.3 million for seismic, leasehold, drilling
and overhead costs in 1996.
The third component of the Company's capital expenditure program is
the continued exploitation of the properties acquired as a result of the merger
effective June 17, 1996 with Tide West. The Company is currently evaluating a
variety of opportunities which include increased density drilling,
recompletions and field extensions.
As of June 30, 1996, the Company incurred total exploration and
development capital expenditures of $30.6 million, including $25.9 million
attributable to drilling approximately 100 wells in the D-J Basin. For the
balance of 1996, the Company currently estimates capital expenditures will be
$15 million to $25 million, which will be allocated in varying amounts to
activities in the Rocky Mountains, the mid-continent properties recently
acquired in the Tide West merger and the Company's Gulf Coast projects. The
Company continuously evaluates its inventory of drilling opportunities and
adjusts the amount and allocation of its capital program based on a number of
factors including seismic results, prospect readiness, product prices, service
company availability and rates, acquisitions and capital positions.
Accordingly, the Company's capital expenditure program in the second half of
1996 might be higher or lower than the range described above.
In May 1995, the Company was named as one of several respondents by
the United States Environmental Protection Agency ("EPA") in an administrative
order brought by it against a third-party evaporation pit owner and operator.
The Company does not believe that its share of reclamation costs will have a
material impact on its financial position or results of operations. See Part
II - Other Information - Legal Proceedings and Environmental Issues.
Liquidity and Capital Resources.
The Company funded the cash portion of its capital expenditures
primarily with borrowings under the Company's bank credit facility. On June 7,
1996, the Company entered into a $180 million revolving and senior term credit
facility with The Chase Manhattan Bank, N.A., as Agent. On June 14, 1996 the
Company amended the terms of its senior credit facility to increase the maximum
credit amount to $350 million. Under the terms of the credit facility, no
principal payments are required until June 14, 2001, assuming the Company
maintains a borrowing base sufficient to support the outstanding loan balance.
The borrowing base, currently $340 million, is based on the underlying value of
the Company's oil and gas properties. This facility bears interest at a base
rate plus 0% to .5% or LIBOR plus .75% to
12
<PAGE> 13
1.5%. As part of the senior credit financing, Tide West's senior bank debt in
the amount of $39.5 million was fully repaid.
In connection with the Chase Asset Monetization Arrangement, the Third
Party, assumed debt of the Company in the amount of $23.5 million. The Company
is currently considering entering into a similar arrangement with the Third
Party covering the Second Basin acquisition. If the Chase Asset Monetization
Arrangement is utilized in connection with the second Basin acquisition, the
Third Party would assume approximately $60 million of Company debt. Although
the Company has no obligation, direct or indirect, with respect to such assumed
indebtedness ("Third Party Indebtedness"), under generally accepted accounting
principles and the reporting requirements promulgated by the Securities and
Exchange Commission, financial statements of the Company are required to be
consolidated with the financial statements of the Third Party.
During the second quarter of 1995, the Company entered into an
interest rate exchange agreement with a financial institution to hedge its
interest rate on $40 million of the Company's borrowings at 7.76% through May
2002. Under the terms of the agreement, the difference between the Company's
fixed rate of 7.76% and the three month LIBOR rate plus 1.125% is received or
paid by the Company.
The Company, through the merger with Tide West, was assigned interest
rate exchange agreements with two financial institutions to hedge its interest
rate on $40 million of the Company's borrowings at 8.7% for 1996 and 8.8% for
1997 through 1999. Under the terms of the agreement, the difference between
the Company's fixed rate and three month LIBOR rate is received or paid by the
Company.
In support of the Company's ongoing oil and gas producing operations,
the Company enters into various gas and oil product price hedging agreements.
Under the agreements the difference between the current value for the Company's
oil and gas, based upon current market prices, and a fixed price is received or
paid by the Company. The Company records the payments received or made under
these agreements in its oil and gas sales. In connection with the merger with
Tide West the Company acquired additional agreements of this type.
13
<PAGE> 14
In August 1995, the Company signed a Term Sheet with TCW covering a
proposed $90 million non-recourse, volumetric overriding royalty monetization
facility (the "TCW Facility"). The TCW Facility may be used by the Company for
a variety of corporate purposes, including acquisitions of new properties,
exploration and development drilling, or the monetization of existing corporate
properties, with the proceeds being used substantially at the Company's
discretion, including repayment of bank debt.
The Company anticipates that its available borrowing capacity of $39
million, at June 30, 1996, combined with its operating cash flow and its TCW
Facility provide the Company with the financial resources and flexibility to
fund current and ongoing development activities and to meet other financial
obligations. In addition, the Company is evaluating certain non-core properties
and plans to make divestitures of such properties in the coming months. It is
anticipated that the Company will apply the proceeds of such divestitures to
outstanding indebtedness. The nature of the Company's current development
strategies and other activities provide the Company with considerable
flexibility in terms of the timing and magnitude of its capital expenditures.
The Company has developed its capital expenditure programs based on its
currently available financial resources and expected cash flow from operations.
If the Company experiences unforeseen changes in its working capital position or
capital resources, management will revise the capital expenditure program
accordingly or alternatively supplement the capital position through the
issuance of additional debt or equity securities or by entering into joint
venture arrangements.
The Company is currently evaluating its sources of capital and is
considering the most appropriate utilization of (i) the Chase Asset Monetization
Arrangement, (ii) the TCW Facility, (iii) other off-balance sheet and/or
non-recourse financing arrangements, (iv) divestitures of non-core assets of the
Company, including assets acquired in connection with the Basin and Tide West
acquisitions, and/or (v) possible issuances of new debt or equity securities of
the Company. The Company is committed to reducing its long-term debt and is
studying the various means by which it can do so. The Company believes that it
will be able to arrange a favorable combination of financings to provide
necessary capital to fund its ongoing capital requirements and to achieve a
reduced level of debt.
STATEMENTS MADE IN THIS 10-Q AS TO FUTURE EVENTS OR PLANS ARE
UNCERTAIN AND SUBJECT TO CHANGE. MANY FACTORS MAY AFFECT THE COMPANY'S
EXPECTATIONS AND PLANS. CAPITAL EXPENDITURE AND FINANCING PLANS MAY CHANGE IN
CONNECTION WITH THE SUCCESS OF DRILLING ACTIVITIES, THE GENERAL AVAILABILITY OF
CAPITAL, INTEREST RATES, AND CASH FLOW AVAILABLE FROM OPERATIONS. CASH FLOW
AVAILABLE FROM OPERATIONS MAY CHANGE DEPENDING ON COSTS OF MATERIALS AND
SERVICES, REGULATORY BURDENS AND COMMODITY PRICES.
THE COMPANY'S EXPECTATIONS AND PLANS DEPEND SIGNIFICANTLY ON FUTURE
PRODUCT PRICES. OIL AND NATURAL GAS PRICES ARE VOLATILE, AND THERE ARE SEVERAL
POTENTIALLY SIGNIFICANT ADVERSE EFFECTS TO THE COMPANY WHICH CAN RESULT IF
PRODUCT PRICES DECLINE MATERIALLY. FIRST, LOWER
14
<PAGE> 15
PRODUCT PRICES WILL ADVERSELY IMPACT THE COMPANY'S CASH FLOW AND COULD CAUSE
THE COMPANY TO (A) CURTAIL ITS CAPITAL PROGRAM, (B) BORROW ADDITIONAL AMOUNTS
UNDER ITS REVOLVING CREDIT AGREEMENT, OR (C) ISSUE ADDITIONAL DEBT OR EQUITY
SECURITIES. SECOND, LOWER PRODUCT PRICES COULD CAUSE THE BORROWING BASE UNDER
THE COMPANY'S BANK CREDIT AGREEMENT TO BE REDUCED AND CERTAIN COVENANT TESTS TO
BE ADVERSELY AFFECTED. THIRD, UNDER RULES PROMULGATED BY THE SECURITIES AND
EXCHANGE COMMISSION, COMPANIES THAT FOLLOW THE FULL COST ACCOUNTING METHOD ARE
REQUIRED TO MAKE QUARTERLY "CEILING TEST" CALCULATIONS. USING JUNE PRICES THE
COMPANY WOULD HAVE A CEILING WRITE-DOWN. HOWEVER, THE SEC GUIDELINES ALLOW FOR
THE RECOMPUTATION OF THE CEILING IF INCREASED PRICES BETWEEN THE PERIOD END
DATE AND THE FILING DATE ARE SIGNIFICANT AND ARE MORE THAN SUFFICIENT TO COVER
CAPITALIZED COSTS. JULY PRICES IN THE CEILING CALCULATION RESULT IN A CUSHION
AND THEREFORE THE COMPANY HAS NOT REPORTED A CHARGE AGAINST EARNINGS FOR THE
PERIOD. IF PRODUCT PRICES REMAIN LOW OR DECLINE FURTHER AND CANNOT BE OFFSET
BY ADDITIONAL RESERVES, THE COMPANY COULD BE REQUIRED TO WRITE-DOWN ITS OIL AND
GAS PROPERTIES IN A FUTURE PERIOD.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings & Environmental Issues
Legal Proceedings. During 1994, the Company was named as one of
three defendants in a quiet title action brought by certain landowners in
Colorado and filed in Weld County District Court, Colorado (Civil Action No.
94-S-2118) challenging certain mineral reservations by the Company's assignor
in its original surface conveyance. This action addresses two small tracts of
the Company's mineral interests.
In February 1995, the Company was named as one of many defendants in
a suit brought in the District Court of Yuma County, Colorado (Case No.
95-CV-5) by several northeast Colorado royalty owners seeking royalty payment
on certain deductions from gas sales.
While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of any or all such actions will have a material impact on
its financial condition or results of operations.
The Company is involved in no other material litigation, however,
the Company may be involved from time to time in various claims and lawsuits
incidental to its business.
Environmental Issues. The owner of an oil field waste disposal
facility, a major oil company and the Company were named as respondents by the
EPA in an administrative order brought by the EPA against Weld County Waste
Disposal, Inc. ("WCWDI") under section 7003 of the Resource Conservation and
Recovery Act ("RCRA") on May 11, 1995. WCWDI operated and continues to own an
evaporation pit in Colorado for the disposal of non-hazardous production
wastes. The EPA order requires that work be performed to abate a perceived
endangerment to health or the environment. The respondents have been working
together with the EPA developing interim plans and studies, have permanently
closed the facility and are mitigating the situation.
The Company has utilized the facility in the past to dispose of its
production and flowback water and believed that the facility was operating in
compliance with all applicable legal requirements and, along with other oil and
gas operators, paid fees to WCWDI to use the facility. There were a number of
other significant contributors to the facility during the period reviewed by
the EPA (1988 through 1994) and additional contributors during the period from
1977, when it was constructed, through 1988. The Company and the major oil
company were named because they were deemed the major contributors of waste
volumes to the facility for the period reviewed by the EPA. Certain other
contributors are participating in their share of the reclamation costs.
16
<PAGE> 17
Based on the Company's current knowledge and its expectation of
proportionate reimbursement from other parties utilizing the facility, the
Company does not believe that its share of the reclamation costs will have a
material impact on its financial condition or results of operations. While
technically the Company's liability in connection with this reclamation project
is joint and several, based on the financial capability of the other named
respondent and its similar legal position to the Company's, the Company
believes it is highly unlikely that its liability for the project will exceed
50%. Furthermore, based on the Company's current knowledge of the project,
100% of the cost burden thereof would not have a material impact on the
Company's financial condition or results of operations.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of the stockholders on June 17,
1996. The following matter was submitted to a vote of the stockholders.
1. To elect P. Michael Highum and Michael J. Savage to serve as
directors of the Company.
The matter was approved by the Company's stockholders at the meeting.
The Company held a special meeting of the stockholders on June 17,
1996 in connection with the Tide West merger. The following matter was
submitted to a vote of the stockholders.
1. The approval of the issuance of 7,161,312 shares of the Company's
common stock.
The matter was approved by the Company's stockholders at the meeting.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed one Form 8-K dated June 6, 1996 regarding the
completion of the Basin acquisition on June 6, 1996 and the merger with Tide
West on June 17, 1996.
a. List of Exhibits.
17
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of April 29, 1996, among,
HSR, Merger Sub and Tide West (Incorporated by reference as Annex A to Amendment No. 2
to the Company's Registration Statement on Form S-4, No. 333-01991, filed on May 2,
1996).
3.1 Amended and Restated Certificate of Incorporation of HSR (Incorporated by reference to
Exhibit 3.1 to HSR's Form S-1, No. 33-52774, filed on October 2, 1992 (the "HSR 1992
Form S-1")).
3.2 Second Amended and Restated By-Laws of HSR (Incorporated by reference to Exhibit 3.2 to
the HSR 1992 Form S-1).
4.7 Form of Indenture dated December 1, 1993 entered into between the Company and the
Trustee. (Incorporated by reference as Exhibit 4.7 to Amendment No.3 to the Company's
Registration Statement on Form S-3 (file no. 33-70354), filed November 23, 1993).
10.1 Amended Note and Warrant Purchase Agreement dated January 15, 1991, among NGP, Resolute
Resources, Inc., and the Company. (Incorporated by reference as Exhibit 4.4.1 to the
Company's quarterly report on Form 10-Q for the quarter ended December 31, 1990, filed
February 14, 1991.)
10.1.1 Amendment No. 1 to Note and Warrant Purchase Agreement dated June 28, 1991, between the
Company and NGP. (Incorporated by reference as Exhibit 4.4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991, filed September 30, 1991.)
10.1.2 Second Amendment to Note and Warrant Purchase Agreement dated August 17, 1992, between
the Company and NGP. (Incorporated by reference as Exhibit 4.2.2 as Exhibit to
Amendment No. 2 to the Company's Registration Statement on Form S-1 (file no. 33-52774),
filed November 19, 1992).
10.1.3 Third Amendment to Note and Warrant Purchase Agreement dated October 21, 1993, between
the Company and NGP. (Incorporated by reference as Exhibit 4.1.3 to Amendment No. 3 to
the Company's Registration Statement on Form S-3 (file no. 33-70354), filed November 23,
1993).
10.2 Amended and Restated Warrant Agreement dated January 15, 1991, between NGP and the
Company. (Incorporated by reference as Exhibit 4.5.1 to the Company's quarterly report
on Form 10-Q for the quarter ended December 31, 1990, filed February 14, 1991.)
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
10.3 Amended Warrant No. W-1, dated January 15, 1991, and issued by the Company to NGP.
(Incorporated by reference as Exhibit 4.6.1 to the Form 8, Second Amendment to Form 10
filed April 8, 1991.)
10.3.1 Amendment No. 1 to Amended Warrant No. W-1, dated December 30, 1991, and issued by the
Company to NGP. (Incorporated by reference as Exhibit 4.6.2 to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1991, filed on February 14,
1991.)
10.4 Form of Warrant No. W-10, dated January 28, 1992, and issued by the Company to NGP.
(Incorporated by reference as exhibit 4.16 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (file no. 33-52774), filed November 9, 1992).
10.5 Amended and Restated Employee Stock Incentive Plan. (Incorporated by reference as
Exhibit 10.2.1 to Amendment No. 1 to the Company's Registration Statement on Form S-1
(file no. 33-52774), filed November 9, 1992).
10.6 Common Stock Purchase Warrant dated July 12, 1990 by the Company to James E. Duffy.
(Incorporated by reference as Exhibit 10.5 to the Form 8, Second Amendment to Form 10
filed April 8, 1991.)
10.7 HS Resources, Inc. Rule 701 Compensatory Benefit Plan. (Incorporated by reference as
Exhibit 10.5.2 to the Form 8, Second Amendment to Form 10 filed April 8, 1991.)
10.8 1992 Directors' Stock Option Plan. (Incorporated by reference as Exhibit 10.10 to
Amendment No. 1 to the Company's Registration Statement on Form S-1 (file no. 33-52774),
filed November 9, 1992).
10.8.1 1993 Directors' Stock Option Plan. (Incorporated by reference as Exhibit 10.8.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, filed
March 31, 1994 (as amended by Form 10-K/A-1 on April 8, 1994)).
10.9 Form of Indemnification Agreement for Directors of the Company. (Incorporated by
reference as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, filed March 25,1996).
10.10 Lease Agreement dated October 6, 1993, between the Company and JMB Group Trust IV and
Endowment and Foundation Realty, Ltd.--JMB III for the premises at One Maritime Plaza,
San Francisco, California. (Incorporated by reference as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, filed March 31,
1994 (as amended by Form 10-K/A-1 on April 8, 1994)).
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
10.11 Stock Purchase Agreement dated July 30, 1993, between the Stockholders of BMR
Corporation, as Sellers, and the Company, as Buyer. (Incorporated by reference to
Exhibit 2.1 to the Company's current report on Form 8-K, filed August 13, 1993.)
10.12 Lease Agreement dated March 28, 1994, between the Company and 1999 Broadway Partnership
for the premises at 1999 Broadway, Denver, Colorado. (Incorporated by reference as
Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, filed August 12, 1994).
10.13 Interest exchange agreement between Chase and the Company dated
May 9, 1995. (Incorporated by reference as exhibit 10.19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, filed August 14, 1995).
10.14 Agreement and Plan of Merger, dated as of February 25, 1996, among the Company, HSR
Acquisition, Inc. and Tide West. (Incorporated by reference to Exhibit A to the
Company's Schedule 13D filed on March 6, 1996.)
10.15 Agreement for Purchase and Sale of Assets (Monetization), dated as of February 24, 1996,
among the Company, Basin Exploration, Inc. ("Basin") and Orion Acquisition, Inc.
("Orion"). (Incorporated by reference to Exhibit 2.3 to the Company's Form 8-K filed on
March 12, 1996.)
10.16 Agreement for Purchase and Sale of Assets, dated as of February 24, 1996, among the
Company, Orion and Basin. (Incorporated by reference to Exhibit A to the Company's
Schedule 13D filed on March 6, 1996.)
10.17 Purchase and Sale Agreement, dated December 1, 1995, between the Company and Wattenberg
Gas Investments, LLC. (Incorporated by reference as Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, filed March 25,
1996).
10.18 Rights Agreement, dated as of February 28, 1996, between the Company and Harris Trust
Company of California as Rights Agent. (Incorporated by reference as Exhibit 1 to HSR's
Form 8-A filed on March 11, 1996.)
10.19 Purchase and Sale Agreement dated March 25, 1996 between Orion Acquisition, Inc., the
Company and Wattenberg Resources Land, L.L.C. (Incorporated by reference as Exhibit
10.28 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, filed May 15, 1996).
10.20@ Credit Agreement, dated as of June 7, 1996, among the Company and The Chase Manahattan
Bank, N.A. ("Chase"), as Agent of the Banks signatory thereto.
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
10.21@ Amended and Restated Credit Agreement, dated as of June 14, 1996, among the Company,
Chase, as Agent and the Banks signatory thereto.
10.22@ First Amendment to Amended and Restated Credit Agreement dated as of June 17, 1996, by
and among the Company and Chase, in its individual capacity and as agent for the
Lenders.
10.23@ Assignment of Liens and Amendment of Amended, Restated and Consolidated Mortgage,
Assignment of Production, Security Agreement and Financing Statement, dated June 14,
1996, among Chase (Assignor), Chase (Assignee) and HS Resources, Inc.
10.24@ Guaranty Agreement by HSR Acquisition, Inc. in favor of Chase, as Agent, dated June 14,
1996.
10.25@ Guaranty Agreement by Orion Acquisition, Inc. in favor of Chase, as Agent, dated June
14, 1996.
10.26@ First Amendment to Guaranty Agreement dated as of June 17, 1996, by and among Orion
Acquisition, Inc. and Chase, in its individual capacity and as agent for the Lenders.
10.27@ First Amendment to Guaranty Agreement dated as of June 17, 1996, by and among HSRTW,
Inc. (formerly HSR Acquisition, Inc.) and Chase, in its individual capacity and as agent
for the Lenders.
10.28@ Third Amendment and Supplement to Amended, Restated and Consolidated Mortgage,
Assignment of Production, Security Agreement and Financing Statement, dated as of July
15, 1996, by and between the Company and Chase.
10.29@ Hedging agreement between Chase and the Company dated May 1, 1996.
10.30@ Hedging agreement between Chase and the Company dated May 1, 1996
10.31@ Hedging agreement between Chase and the Company dated June 1, 1996
10.32@ Purchase and Sale Agreement between HS Resources, Inc. and Wattenberg Gas Investments,
LLC dated April 25, 1996.
10.33@ Purchase and Sale Agreement between Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC dated May 21, 1996.
10.34@ Purchase and Sale Agreement between Orion Acquisition, Inc. and Wattenberg Gas
Investments, LLC dated June 14, 1996.
10.35@ Purchase and Sale Agreement between Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC dated June 14, 1996.
10.36@ Purchase and Sale Agreement between Orion Acquisition, Inc. and Wattenberg Gas
Investments, LLC dated June 14, 1996.
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
10.37@ Purchase and Sale Agreement between HS Resources, Inc. and Wattenberg Gas Investments,
LLC dated June 28, 1996.
27@ Financial Data Schedule
</TABLE>
___________________________________
@ Filed herewith.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, HS Resources, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
HS RESOURCES, INC.
Dated: August 14, 1996 By: /s/ JAMES E. DUFFY
-------------------------------
James E. Duffy
Vice President and Chief Financial
Officer
By: /s/ ANNETTE MONTOYA
-------------------------------
Annette Montoya
Vice President and Principal
Accounting Officer
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of April 29, 1996, among,
HSR, Merger Sub and Tide West (Incorporated by reference as Annex A to Amendment No. 2
to the Company's Registration Statement on Form S-4, No. 333-01991, filed on May 2,
1996).
3.1 Amended and Restated Certificate of Incorporation of HSR (Incorporated by reference to
Exhibit 3.1 to HSR's Form S-1, No. 33-52774, filed on October 2, 1992 (the "HSR 1992
Form S-1")).
3.2 Second Amended and Restated By-Laws of HSR (Incorporated by reference to Exhibit 3.2 to
the HSR 1992 Form S-1).
4.7 Form of Indenture dated December 1, 1993 entered into between the Company and the
Trustee. (Incorporated by reference as Exhibit 4.7 to Amendment No.3 to the Company's
Registration Statement on Form S-3 (file no. 33-70354), filed November 23, 1993).
10.1 Amended Note and Warrant Purchase Agreement dated January 15, 1991, among NGP, Resolute
Resources, Inc., and the Company. (Incorporated by reference as Exhibit 4.4.1 to the
Company's quarterly report on Form 10-Q for the quarter ended December 31, 1990, filed
February 14, 1991.)
10.1.1 Amendment No. 1 to Note and Warrant Purchase Agreement dated June 28, 1991, between the
Company and NGP. (Incorporated by reference as Exhibit 4.4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991, filed September 30, 1991.)
10.1.2 Second Amendment to Note and Warrant Purchase Agreement dated August 17, 1992, between
the Company and NGP. (Incorporated by reference as Exhibit 4.2.2 as Exhibit to
Amendment No. 2 to the Company's Registration Statement on Form S-1 (file no. 33-52774),
filed November 19, 1992).
10.1.3 Third Amendment to Note and Warrant Purchase Agreement dated October 21, 1993, between
the Company and NGP. (Incorporated by reference as Exhibit 4.1.3 to Amendment No. 3 to
the Company's Registration Statement on Form S-3 (file no. 33-70354), filed November 23,
1993).
10.2 Amended and Restated Warrant Agreement dated January 15, 1991, between NGP and the
Company. (Incorporated by reference as Exhibit 4.5.1 to the Company's quarterly report
on Form 10-Q for the quarter ended December 31, 1990, filed February 14, 1991.)
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
10.3 Amended Warrant No. W-1, dated January 15, 1991, and issued by the Company to NGP.
(Incorporated by reference as Exhibit 4.6.1 to the Form 8, Second Amendment to Form 10
filed April 8, 1991.)
10.3.1 Amendment No. 1 to Amended Warrant No. W-1, dated December 30, 1991, and issued by the
Company to NGP. (Incorporated by reference as Exhibit 4.6.2 to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1991, filed on February 14,
1991.)
10.4 Form of Warrant No. W-10, dated January 28, 1992, and issued by the Company to NGP.
(Incorporated by reference as exhibit 4.16 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (file no. 33-52774), filed November 9, 1992).
10.5 Amended and Restated Employee Stock Incentive Plan. (Incorporated by reference as
Exhibit 10.2.1 to Amendment No. 1 to the Company's Registration Statement on Form S-1
(file no. 33-52774), filed November 9, 1992).
10.6 Common Stock Purchase Warrant dated July 12, 1990 by the Company to James E. Duffy.
(Incorporated by reference as Exhibit 10.5 to the Form 8, Second Amendment to Form 10
filed April 8, 1991.)
10.7 HS Resources, Inc. Rule 701 Compensatory Benefit Plan. (Incorporated by reference as
Exhibit 10.5.2 to the Form 8, Second Amendment to Form 10 filed April 8, 1991.)
10.8 1992 Directors' Stock Option Plan. (Incorporated by reference as Exhibit 10.10 to
Amendment No. 1 to the Company's Registration Statement on Form S-1 (file no. 33-52774),
filed November 9, 1992).
10.8.1 1993 Directors' Stock Option Plan. (Incorporated by reference as Exhibit 10.8.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, filed
March 31, 1994 (as amended by Form 10-K/A-1 on April 8, 1994)).
10.9 Form of Indemnification Agreement for Directors of the Company. (Incorporated by
reference as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, filed March 25,1996).
10.10 Lease Agreement dated October 6, 1993, between the Company and JMB Group Trust IV and
Endowment and Foundation Realty, Ltd.--JMB III for the premises at One Maritime Plaza,
San Francisco, California. (Incorporated by reference as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, filed March 31,
1994 (as amended by Form 10-K/A-1 on April 8, 1994)).
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
10.11 Stock Purchase Agreement dated July 30, 1993, between the Stockholders of BMR
Corporation, as Sellers, and the Company, as Buyer. (Incorporated by reference to
Exhibit 2.1 to the Company's current report on Form 8-K, filed August 13, 1993.)
10.12 Lease Agreement dated March 28, 1994, between the Company and 1999 Broadway Partnership
for the premises at 1999 Broadway, Denver, Colorado. (Incorporated by reference as
Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, filed August 12, 1994).
10.13 Interest exchange agreement between Chase and the Company dated
May 9, 1995. (Incorporated by reference as exhibit 10.19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, filed August 14, 1995).
10.14 Agreement and Plan of Merger, dated as of February 25, 1996, among the Company, HSR
Acquisition, Inc. and Tide West. (Incorporated by reference to Exhibit A to the
Company's Schedule 13D filed on March 6, 1996.)
10.15 Agreement for Purchase and Sale of Assets (Monetization), dated as of February 24, 1996,
among the Company, Basin Exploration, Inc. ("Basin") and Orion Acquisition, Inc.
("Orion"). (Incorporated by reference to Exhibit 2.3 to the Company's Form 8-K filed on
March 12, 1996.)
10.16 Agreement for Purchase and Sale of Assets, dated as of February 24, 1996, among the
Company, Orion and Basin. (Incorporated by reference to Exhibit A to the Company's
Schedule 13D filed on March 6, 1996.)
10.17 Purchase and Sale Agreement, dated December 1, 1995, between the Company and Wattenberg
Gas Investments, LLC. (Incorporated by reference as Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, filed March 25,
1996).
10.18 Rights Agreement, dated as of February 28, 1996, between the Company and Harris Trust
Company of California as Rights Agent. (Incorporated by reference as Exhibit 1 to HSR's
Form 8-A filed on March 11, 1996.)
10.19 Purchase and Sale Agreement dated March 25, 1996 between Orion Acquisition, Inc., the
Company and Wattenberg Resources Land, L.L.C. (Incorporated by reference as Exhibit
10.28 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, filed May 15, 1996).
10.20@ Credit Agreement, dated as of June 7, 1996, among the Company and The Chase Manahattan
Bank, N.A. ("Chase"), as Agent of the Banks signatory thereto.
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
10.21@ Amended and Restated Credit Agreement, dated as of June 14, 1996, among the Company,
Chase, as Agent and the Banks signatory thereto.
10.22@ First Amendment to Amended and Restated Credit Agreement dated as of June 17, 1996, by
and among the Company and Chase, in its individual capacity and as agent for the
Lenders.
10.23@ Assignment of Liens and Amendment of Amended, Restated and Consolidated Mortgage,
Assignment of Production, Security Agreement and Financing Statement, dated June 14,
1996, among Chase (Assignor), Chase (Assignee) and HS Resources, Inc.
10.24@ Guaranty Agreement by HSR Acquisition, Inc. in favor of Chase, as Agent, dated June 14,
1996.
10.25@ Guaranty Agreement by Orion Acquisition, Inc. in favor of Chase, as Agent, dated June
14, 1996.
10.26@ First Amendment to Guaranty Agreement dated as of June 17, 1996, by and among Orion
Acquisition, Inc. and Chase, in its individual capacity and as agent for the Lenders.
10.27@ First Amendment to Guaranty Agreement dated as of June 17, 1996, by and among HSRTW,
Inc. (formerly HSR Acquisition, Inc.) and Chase, in its individual capacity and as agent
for the Lenders.
10.28@ Third Amendment and Supplement to Amended, Restated and Consolidated Mortgage,
Assignment of Production, Security Agreement and Financing Statement, dated as of July
15, 1996, by and between the Company and Chase.
10.29@ Hedging agreement between Chase and the Company dated May 1, 1996.
10.30@ Hedging agreement between Chase and the Company dated May 1, 1996
10.31@ Hedging agreement between Chase and the Company dated June 1, 1996
10.32@ Purchase and Sale Agreement between HS Resources, Inc. and Wattenberg Gas Investments,
LLC dated April 25, 1996.
10.33@ Purchase and Sale Agreement between Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC dated May 21, 1996.
10.34@ Purchase and Sale Agreement between Orion Acquisition, Inc. and Wattenberg Gas
Investments, LLC dated June 14, 1996.
10.35@ Purchase and Sale Agreement between Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC dated June 14, 1996.
10.36@ Purchase and Sale Agreement between Orion Acquisition, Inc. and Wattenberg Gas
Investments, LLC dated June 14, 1996.
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
10.37@ Purchase and Sale Agreement between HS Resources, Inc. and Wattenberg Gas Investments,
LLC dated June 28, 1996.
27@ Financial Data Schedule
</TABLE>
___________________________________
@ Filed herewith.
<PAGE> 1
CREDIT AGREEMENT
DATED AS OF JUNE 7, 1996
AMONG
HS RESOURCES, INC.
AS BORROWER,
THE CHASE MANHATTAN BANK, N.A.,
AS AGENT,
AND
THE LENDERS SIGNATORY HERETO
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.03 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE II
COMMITMENTS
Section 2.01 Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.02 Borrowings, Continuations, Conversions and Letters of Credit . . . . . . . . . . . . . . . . . 19
Section 2.03 Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.04 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.05 Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.06 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.07 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.08 Borrowing Base and Threshold Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.09 Assumption of Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.10 Obligation to Reimburse and to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.11 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.02 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.02 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.03 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.04 Non-receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.05 Set-off, Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Section 4.06 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.02 Limitation on Eurodollar Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03 . . . . . . . . . . . . . . . . . . . 36
Section 5.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.02 Initial and Subsequent Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.03 Conditions Relating to Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.05 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.07 Use of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.08 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.10 Titles, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.11 No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.12 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.13 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.15 Location of Business and Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.16 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.18 Compliance with the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 7.20 Hedging Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.21 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.03 Maintenance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.04 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.05 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.06 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.07 Engineering Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.08 ERISA Information and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.09 Subsidiary Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.02 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.03 Investments, Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.04 Dividends, Distributions and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.05 Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.06 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.07 Limitation on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.08 Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.09 Proceeds of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.10 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.11 Sale or Discount of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.12 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.13 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.14 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.15 Sale of Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.17 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.19 Negative Pledge Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.20 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.21 SEC 10 Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE XI
THE AGENT
Section 11.01 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.02 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.04 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.05 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.06 Non-Reliance on Agent and other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.07 Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.08 Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 12.03 Payment of Expenses, Indemnities, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 12.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 12.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.06 Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.07 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.08 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.09 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.12 NO ORAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.14 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
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<PAGE> 6
Annex I - List of Maximum Credit Amounts
Exhibit A - Form of Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D-1 - Form of Legal Opinion of Vinson & Elkins L.L.P.
Exhibit D-2 - Form of Legal Opinion of Davis, Graham & Stubbs
Exhibit E - Form of Assignment Agreement
Exhibit F - Lists of Security Instruments
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.20 - Hedging Agreements
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
-v-
<PAGE> 7
THIS CREDIT AGREEMENT dated as of June 7, 1996 is among: HS
RESOURCES, INC., a corporation formed under the laws of the State of Delaware
(the "Borrower"); each of the lenders that is a signatory hereto or which
becomes a signatory hereto as provided in Section 12.06 (individually, together
with its successors and assigns, a "Lender" and, collectively, the "Lenders");
and THE CHASE MANHATTAN BANK, N.A., a national banking association (in its
individual capacity, "Chase"), as agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Agent").
R E C I T A L S
A. The Borrower has requested that the Lenders provide certain
loans and extensions of credit on behalf of the Borrower; and
B. The Lenders have agreed to make such loans and extensions of
credit subject to the terms and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans, extensions of credit and commitments hereinafter
referred to, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement,
the terms "Agent," "Borrower," "Chase," "Lender" and "Lenders"shall have the
meanings indicated above.
Section 1.02 Certain Defined Terms. As used herein, the
following terms shall have the following meanings (all terms defined in this
Article I or in other provisions of this Agreement in the singular to have the
same meanings when used in the plural and vice versa):
"Acquisitions" shall mean the Basin Acquisition and the Tide
West Acquisition.
"Acquisition Documents" shall mean the documents or
instruments related or pertaining to the Acquisitions other than the
Loan Document.
"Additional Costs" shall have the meaning assigned such term
in Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term in
Section 5.04.
<PAGE> 8
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control with
such first Person, (ii) any director or officer of such first Person or
of any Person referred to in clause (i) above and (iii) if any Person
in clause (i) above is an individual, any member of the immediate
family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more
members of such immediate family and any Person who is controlled by
any such member or trust. For purposes of this definition, any Person
which owns directly or indirectly 10% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation or 10% or more of the partnership or other
ownership interests of any other Person (other than as a limited
partner of such other Person) will be deemed to "control" (including,
with its correlative meanings, "controlled by" and "under common
control with") such corporation or other Person.
"Agreement" shall mean this Credit Agreement, as the same may
from time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03 hereof.
"Aggregate Maximum Credit Amounts" at any time shall equal the
sum of the Maximum Credit Amounts of the Lenders ($180,000,000), as
the same may be reduced pursuant to Section 2.03(b).
"Applicable Lending Office" shall mean, for each Lender and
for each Type of Loan, the lending office of such Lender (or an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other offices of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify
to the Agent and the Borrower as the office by which its Loans of such
Type are to be made and maintained.
"Applicable Margin" shall mean for Base Rate Loans or
Eurodollar Loans or the commitment fee pursuant to Section 2.04(a) the
following rate per annum as applicable based on the Threshold
Utilization Percentage in effect from time to time:
-2-
<PAGE> 9
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Threshold Utilization Eurodollar Base Rate Commitment
Percentage Loans Loan Fee
----------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than or equal to 100% 1.500% 0.500% 0.500%
----------------------------------------------------------------------------
Greater than or equal to 80%, 1.250% 0.250% 0.375%
but less than 100%
----------------------------------------------------------------------------
Greater than or equal to 60%, 1.1250% 0.1250% 0.375%
but less than 80%
----------------------------------------------------------------------------
Greater than or equal to 40%, 1.000% 0.000% 0.375%
but less than 60%
----------------------------------------------------------------------------
Less than 40% 0.750% 0.000% 0.300%
----------------------------------------------------------------------------
</TABLE>
"Assignment" shall have the meaning assigned such term in
Section 12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan,
for any day, the higher of (i) the Federal Funds Rate for any such day
plus 1/2 of 1% or (ii) the Prime Rate for such day. Each change in
any interest rate provided for herein based upon the Base Rate
resulting from a change in the Base Rate shall take effect at the time
of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"Basin" shall mean Basin Exploration, Inc., a Delaware
corporation.
"Basin Acquisition" shall mean the purchase by Orion of
certain Oil and Gas Properties from Basin for a purchase price of
approximately $87,000,000.
"Borrowing Base" shall mean at any time an amount equal to the
amount determined in accordance with Section 2.08.
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in New York, New
York and, where such term is used in the definition of "Quarterly
Date" or if such day relates to a borrowing or continuation of, a
payment or prepayment of principal of or interest on, or a conversion
of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Borrower with respect to any such borrowing or continuation,
payment, prepayment, conversion or Interest Period, any day which is
also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
"Closing Date" shall mean June 7, 1996 .
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<PAGE> 10
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to
make Loans up to the lesser of such Lender's Maximum Credit Amount or
the Lender's Percentage Share of the amount equal to the then
effective Borrowing Base and to participate in the Letters of Credit
as provided in Section 2.01(c).
"Consolidated Net Income" shall mean with respect to the
Borrower and its Consolidated Subsidiaries, for any period, the
aggregate of the net income (or loss) of the Borrower and its
Consolidated Subsidiaries after allowances for taxes for such period,
determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any
Person in which the Borrower or any Consolidated Subsidiary has an
interest (which interest does not cause the net income of such other
Person to be consolidated with the net income of the Borrower and its
Consolidated Subsidiaries in accordance with GAAP), except to the
extent of the amount of dividends or distributions actually paid in
such period by such other Person to the Borrower or to a Consolidated
Subsidiary, as the case may be; (ii) the net income (but not loss) of
any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by
that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary,
or is otherwise restricted or prohibited in each case determined in
accordance with GAAP; (iii) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to
the date of such transaction; (iv) any extraordinary gains or losses,
including gains or losses attributable to Property sales not in the
ordinary course of business; and (v) the cumulative effect of a change
in accounting principles and any gains or losses attributable to
writeups or writedowns of assets.
"Consolidated Subsidiaries" shall mean each Subsidiary of the
Borrower (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in
accordance with GAAP.
"Debt" shall mean, for any Person the sum of the following
(without duplication and not necessarily as reflected on the balance
sheet of such Person under GAAP): (i) all obligations of such Person
for borrowed money or evidenced by bonds, debentures, notes or other
similar instruments (including principal, interest, fees and charges);
(ii) all obligations of such Person (whether contingent or otherwise)
in respect of bankers' acceptances, letters of credit, surety or other
bonds and similar instruments; (iii) all obligations of such Person
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<PAGE> 11
to pay the deferred purchase price of Property or services (other than
for borrowed money); (iv) all obligations under leases which shall
have been, or should have been, in accordance with GAAP, recorded as
capital leases in respect of which such Person is liable (whether
contingent or otherwise); (v) all obligations under leases which
require such Person or its Affiliate to make payments over the term of
such lease, including payments at termination, which are substantially
equal to at least eighty percent (80%) of the purchase price of the
Property subject to such lease plus interest as an imputed rate of
interest; (vi) all Debt (as described in the other clauses of this
definition and other obligations of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such
Person; (vii) all Debt (as described in the other clauses of this
definition) and other obligations of others guaranteed by such Person
or in which such Person otherwise assures a creditor against loss of
the debtor or obligations of others; (viii) all obligations or
undertakings of such Person to maintain or cause to be maintained the
financial position or covenants of others or to purchase the Debt or
Property of others; (ix) the undischarged balance of any production
payment created by such Person or for the creation of which such
Person directly or indirectly received payment; (x) the mark to market
value of all obligations of such Person under Hedging Agreements; (xi)
obligations to deliver goods or services including Hydrocarbons in
consideration of advance payments; (xii) any capital stock of such
Person in which such Person has a mandatory obligation to redeem such
stock; (xiii) obligation under contracts with terms longer than one
year to pay for goods or services whether or not such goods or
services are actually received or utilized by such Person and (xiv)
any Debt of a Special Entity for which such Person is liable either by
agreement or because of a Governmental Requirement.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDA" shall mean, for any period, the sum of Consolidated
Net Income for such period plus the following expenses or charges to
the extent deducted from Consolidated Net Income in such period:
interest, taxes, depreciation, depletion and amortization.
"Engineering Reports" shall have the meaning assigned such
term in Section 2.08.
"Environmental Laws" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any
and all jurisdictions in which the Borrower or any Subsidiary is
conducting or at any time has
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<PAGE> 12
conducted business, or where any Property of the Borrower or any
Subsidiary is located, including without limitation, the Oil Pollution
Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended,
the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act,
as amended, and other environmental conservation or protection laws.
The term "oil" shall have the meaning specified in OPA, the terms
"hazardous substance" and "release" (or "threatened release") have the
meanings specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA;
provided, however, that (i) in the event either OPA, CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such
broader meaning shall apply subsequent to the Closing Date of such
amendment and (ii) to the extent the laws of the state in which any
Property of the Borrower or any Subsidiary is located establish a
meaning for "oil," "hazardous substance," "release," "solid waste" or
"disposal" which is broader than that specified in either OPA, CERCLA
or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any
Subsidiary would be deemed to be a "single employer" within the
meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or
(o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) the
withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice
of intent to terminate a Plan or the treatment of a Plan amendment as
a termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan.
"Eurodollar Loans" shall mean Loans the interest rates on
which are determined on the basis of rates referred to in the
definition of "Fixed Rate".
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<PAGE> 13
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age
pension or public liability obligations not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (iii)
operators', vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction or other like Liens
arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of
Oil and Gas Properties or statutory landlord's liens, each of which is
in respect of obligations that have not been outstanding more than 90
days or which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been maintained in
accordance with GAAP; (iv) any Liens reserved in leases or farmout
agreements for rent or royalties and for compliance with the terms of
the farmout agreements or leases in the case of leasehold estates, to
the extent that any such Lien referred to in this clause does not
materially impair the use of the Property covered by such Lien for the
purposes for which such Property is held by the Borrower or any
Subsidiary or materially impair the value of such Property subject
thereto; (v) encumbrances (other than to secure the payment of
borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any rights of way or other
Property of the Borrower or any Subsidiary for the purpose of roads,
pipelines, transmission lines, transportation lines, distribution
lines for the removal of gas, oil, coal or other minerals or timber,
and other like purposes, or for the joint or common use of real
estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any
rights of way or other Property which in the aggregate do not
materially impair the use of such rights of way or other Property for
the purposes of which such rights of way and other Property are held
by the Borrower or any Subsidiary or materially impair the value of
such Property subject thereto; and (vi) deposits of cash or securities
to secure the performance of bids, trade contracts, leases, statutory
obligations and other obligations of a like nature incurred in the
ordinary course of business.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on overnight federal funds
transactions with a member of the Federal Reserve System arranged by
federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding
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<PAGE> 14
such day, provided that (i) if the date for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business
Day as so published on the next succeeding Business Day, and (ii) if
such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Agent on such day on
such transactions as determined by the Agent.
"Fee Letter" shall mean that certain letter agreement from the
Agent to the Borrower dated of even date with this Agreement
concerning certain fees in connection with this Agreement and any
agreements or instruments executed in connection therewith, as the
same may be amended or replaced from time to time.
"Financial Statements" shall mean the financial statement or
statements of the Borrower and its Consolidated Subsidiaries described
or referred to in Section 7.02.
"Fixed Rate" shall mean, with respect to any Eurodollar Loan,
the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) quoted by the Agent at approximately 11:00 a.m. London time
(or as soon thereafter as practicable) two (2) Business Days prior to
the first day of the Interest Period for such Loan for the offering by
the Agent to leading banks in the London interbank market of Dollar
deposits having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan to be
made by the Lenders for such Interest Period.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction
over any such Person or such Person's Property, and any court, agency,
department, commission, board, bureau or instrumentality of any of
them including monetary authorities which exercises valid jurisdiction
over any such Person or such Person's Property. Unless otherwise
specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable,
the Borrower, its Subsidiaries or any of their Property or the Agent,
any Lender or any Applicable Lending Office.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or
other directive or requirement (whether or not having the force of
law), including, without limitation,
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<PAGE> 15
Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"Guarantor" shall mean any Subsidiary that executes a Guaranty
Agreement.
"Guaranty Agreement" shall mean a guaranty agreement in form
and substance acceptable to the Agent to be executed by a Subsidiary
as required pursuant to Section 8.09.
"Hedging Agreements" shall mean any commodity, interest rate
or currency swap, rate cap, rate floor, rate collar, forward agreement
or other exchange or rate protection agreements or any option with
respect to any such transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender,
the maximum nonusurious interest rate, if any, that at any time or
from time to time may be contracted for, taken, reserved, charged or
received on the Notes or on other Indebtedness under laws applicable
to such Lender which are presently in effect or, to the extent allowed
by law, under such applicable laws which may hereafter be in effect
and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles,
interests and estates now or hereafter acquired in and to oil and gas
leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, overriding royalty and
royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever
nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined or
separated therefrom.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower to the Agent and/or Lenders in connection with
the Loan Documents, the Letter of Credit Agreements and any Hedging
Agreements now or hereafter arising between the Borrower and any
Lender and permitted by the terms of this Agreement and all renewals,
extensions and/or rearrangements of any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 12.03(b).
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<PAGE> 16
"Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or inquiries),
claims, demands and causes of action made or threatened against a
Person and, in connection therewith, all losses, liabilities, damages
(including, without limitation, consequential damages) or reasonable
costs and expenses of any kind or nature whatsoever incurred by such
Person whether caused by the sole or concurrent negligence of such
Person seeking indemnification.
"Indenture" shall mean the Indenture between the Borrower, as
Issuer, and Harris Trust and Savings Bank, as Trustee, providing for
the issuance of $75,000,000 of Senior Subordinated Notes due December
1, 2003 and all renewals, extensions and modifications permitted by
the terms of this Agreement.
"Initial Funding" shall mean the funding of the initial Loans
or issuance of the initial Letters of Credit pursuant to Section 6.01
hereof.
"Initial Reserve Report," collectively, shall mean the reserve
reports of the Borrower with respect to the Oil and Gas Properties of
the Borrower and Basin as of January 1, 1996 a copy of each has been
delivered to the Agent.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the period commencing on the date such Eurodollar Loan is made
and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Borrower may select
as provided in Section 2.02 (or such longer period as may be requested
by the Borrower and agreed to by the Majority Lenders), except that
each Interest Period which commences on the last Business Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Business Day of the appropriate subsequent calendar
month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after the Revolving Credit Termination Date;
(ii) each Interest Period which would otherwise end on a day which is
not a Business Day shall end on the next succeeding Business Day (or,
if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) no
Interest Period shall have a duration of less than one month and, if
the Interest Period for any Eurodollar Loans would otherwise be for a
shorter period, such Loans shall not be available hereunder.
"LC Commitment" at any time shall mean $20,000,000.
"LC Exposure" at any time shall mean the difference between
(i) aggregate face amount of all undrawn and uncancelled Letters of
Credit and the aggregate of all amounts drawn under all Letters of
Credit and not yet reimbursed, minus
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<PAGE> 17
(ii) the aggregate amount of all cash securing outstanding Letters of
Credit pursuant to Section 2.10(c).
"Letter of Credit Agreements" shall mean the written
agreements with the Agent, as issuing lender for any Letter of Credit,
executed or hereafter executed in connection with the issuance by the
Agent of the Letters of Credit, such agreements to be on the Agent's
customary form for letters of credit of comparable amount and purpose
as from time to time in effect or as otherwise agreed to by the
Borrower and the Agent.
"Letters of Credit" shall mean the letters of credit issued
pursuant to Section 2.01(c) and all reimbursement obligations
pertaining to any such letters of credit, and "Letter of Credit" shall
mean any one of the Letters of Credit and the reimbursement
obligations pertaining thereto.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of
the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed or
contingent, and including but not limited to (i) the lien or security
interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes or (ii) production payments and the
like payable out of Oil and Gas Properties. The term "Lien" shall
include reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purposes of
this Agreement, the Borrower or any Subsidiary shall be deemed to be
the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained
by or vested in some other Person in a transaction intended to create
a financing.
"Loan Documents" shall mean this Agreement, the Notes, the
Letters of Credit, the Letter of Credit Agreements, the Fee Letter,
the Security Instruments and any and all other agreements or
instruments now or hereafter executed and delivered by the Borrower or
any other Person (other than participation or similar agreements
between any Lender and any other lender or creditor with respect to
any Indebtedness pursuant to this Agreement) in connection with, or as
security for the payment or performance of the Notes, this Agreement
or reimbursement obligations under the Letters of Credit, as such
agreements may be amended, supplemented or restated from time to time.
"Loans" shall mean the loans as provided for by Section
2.01(a).
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<PAGE> 18
"Majority Lenders" shall mean, at any time while no Loans are
outstanding, Lenders having at least sixty-six and two-thirds percent
(66-2/3%) of the Aggregate Commitments and, at any time while Loans
are outstanding, Lenders holding at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding aggregate principal amount of the
Loans (without regard to any sale by a Lender of a participation in
any Loan under Section 12.06(c)).
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations or affairs of the Borrower and its Subsidiaries taken as a
whole different from those reflected in the Financial Statements or
from the facts represented or warranted in this Agreement or any
Security Instrument, or (ii) the ability of the Borrower and its
Subsidiaries taken as a whole to carry out their business as at the
Closing Date or as proposed as of the Closing Date to be conducted or
meet their obligations under the Loan Documents on a timely basis.
"Maximum Credit Amount" shall mean, as to each Lender, the
amount set forth opposite such Lender's name on Annex I under the
caption "Maximum Credit Amounts" (as the same may be reduced pursuant
to Section 2.03(b) hereof pro rata to each Lender based on its
Percentage Share) as modified from time to time to reflect any
assignments permitted by Section 12.06(b).
"Merger Sub" shall mean HSR Acquisition, Inc., a Delaware
corporation and directly Wholly-Owned Subsidiary of the Borrower.
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
"Notes" shall mean the Notes provided for by Section 2.06,
together with any and all renewals, extensions for any period,
increases, rearrangements, substitutions or modifications thereof.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon
Interests; all presently existing or future unitization, pooling
agreements and declarations of pooled units and the units created
thereby (including without limitation all units created under orders,
regulations and rules of any Governmental Authority) which may affect
all or any portion of the Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and
saved or attributable to the Hydrocarbon Interests, including all oil
in tanks, the lands covered thereby and all rents, issues, profits,
proceeds, products, revenues and other incomes from or attributable to
the
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<PAGE> 19
Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and all Properties, rights,
titles, interests and estates described or referred to above,
including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful
in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs,
automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells,
injection wells or other wells, buildings, structures, fuel
separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way,
easements and servitudes together with all additions, substitutions,
replacements, accessions and attachments to any and all of the
foregoing.
"Orion" shall mean Orion Acquisition, Inc., a Delaware
corporation and directly Wholly-Owned Subsidiary of the Borrower.
"Other Taxes" shall have the meaning assigned such term in
Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as
indicated on Annex I hereto, as modified from time to time to reflect
any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (i) is currently or hereafter
sponsored, maintained or contributed to by the Borrower, any
Subsidiary or an ERISA Affiliate or (ii) was at any time during the
preceding six calendar years sponsored, maintained or contributed to,
by the Borrower, any Subsidiary or an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other amount payable by the Borrower under this
Agreement or any Note, a
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<PAGE> 20
rate per annum during the period commencing on the date of an Event of
Default until such amount is paid in full or all Events of Default are
cured or waived equal to 2% per annum above the Base Rate as in effect
from time to time plus the Applicable Margin (if any), but in no event
to exceed the Highest Lawful Rate provided that, for a Eurodollar
Loan, the "Post-Default Rate" for such principal shall be, for the
period commencing on the date of the Event of Default and ending on
the earlier to occur of the last day of the Interest Period therefor
or the date all Events of Default are cured or waived, 2% per annum
above the interest rate for such Loan as provided in Section 3.02(b),
but in no event to exceed the Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
announced publicly by the Agent at the Principal Office as its prime
commercial lending rate. Such rate is set by the Agent as a general
reference rate of interest, taking into account such factors as the
Agent may deem appropriate, it being understood that many of the
Agent's commercial or other loans are priced in relation to such rate,
that it is not necessarily the lowest or best rate actually charged to
any customer and that the Agent may make various commercial or other
loans at rates of interest having no relationship to such rate.
"Principal Office" shall mean the principal office of the
Agent, presently located at 270 Park Avenue, New York, New York 10017,
or such other location as designated by the Agent from time to time.
"Prior Credit Agreement" shall mean that certain Credit
Agreement dated as of July 15, 1994 among the Borrower, the Agent and
the banks parties thereto, as amended.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each March, June,
September and December, in each year, the first of which shall be June
30, 1996; provided, however, that if any such day is not a Business
Day, such Quarterly Date shall be the next succeeding Business Day.
"Redetermination Date" shall have the meaning assigned such
term in Section 2.08(a).
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as the
same may be amended or supplemented from time to time.
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<PAGE> 21
"Regulatory Change" shall mean, with respect to any Lender,
any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such date of
any interpretations, directives or requests applying to a class of
lenders (including such Lender or its Applicable Lending Office) of or
under any Governmental Requirement (whether or not having the force of
law) by any Governmental Authority charged with the interpretation or
administration thereof.
"Required Payment" shall have the meaning assigned such term
in Section 4.04.
"Reserve Report" shall mean a report, in form and substance
satisfactory to the Agent, setting forth, as of each January 1 (or
such other date in the event of an unscheduled redetermination); (i)
the oil and gas reserves attributable to the Borrower's Oil and Gas
Properties together with a projection of the rate of production and
future net income, taxes, operating expenses and capital expenditures
with respect thereto as of such date, based upon the pricing
assumptions consistent with SEC reporting requirements at the time and
(ii) such other information as the Agent may reasonably request.
"Responsible Officer" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such Person
and, with respect to financial matters, the term "Responsible Officer"
shall include the Chief Financial Officer of such Person. Unless
otherwise specified, all references to a Responsible Officer herein
shall mean a Responsible Officer of the Borrower.
"Revolving Credit Termination Date" shall mean, unless the
Commitments are sooner terminated pursuant to Sections 2.03(b) or
10.02 hereof, June 7, 2001.
"Scheduled Redetermination Date" shall have the meaning
assigned such term in Section 2.08(d).
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"SEC 10 Value" shall have the meaning assigned in Section
9.21.
"Security Instruments" shall mean the agreements or
instruments described or referred to in Exhibit F, the Guarantee
Agreements, and any and all other agreements or instruments now or
hereafter executed and delivered by the Borrower or any other Person
(other than participation or similar agreements between any Lender and
any other lender or creditor with respect to any Indebtedness pursuant
to this Agreement) in connection with, or as security for the payment
or performance of the Notes, this Agreement or reimbursement
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obligations under the Letters of Credit, as such agreements may be
amended, supplemented or restated from time to time.
"Special Entity" shall mean any joint venture, limited
liability company or partnership, general or limited partnership or
any other type of partnership or company other than a corporation in
which the Company or one of more of its other Subsidiaries is a
member, owner, partner or joint venturer and owns, directly or
indirectly, at least a majority of the equity of such entity or
controls such entity, but excluding any tax partnerships that are not
classified as partnerships under state law. For purposes of this
definition, any Person which owns directly or indirectly an equity
investment in another Person which allows the first Person to manage
or elect managers who manage the normal activities of such second
Person will be deemed to "control" such second Person (e.g. a sole
general partner controls a limited partnership).
"Subordinated Debt" shall mean the Debt of the Company
evidenced by the Subordinated Notes or the Indenture.
"Subordinated Notes" shall mean the Senior Subordinated Notes
issued pursuant to the Indenture.
"Subsidiary" shall mean (i) any corporation of which at least
a majority of the outstanding shares of stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled
by the Borrower or one or more of its Subsidiaries or by the Borrower
and one or more of its Subsidiaries, and (ii) any Special Entity.
Unless otherwise indicated herein, each reference to the term
"Subsidiary" shall mean a Subsidiary of the Borrower. Tide West and
its Subsidiaries shall be deemed to be Subsidiaries of the Borrower as
of the Closing Date and thereafter, for purposes of the
representations and warranties (excluding Section 7.02(a)), covenants
and Events of Default contained in this Agreement and the other Loan
Documents.
"Subsidiary Subordinated Debt" shall mean the Debt of a
Subsidiary arising from guaranteeing the Subordinated Debt.
"Super Majority Lenders" shall mean, at any time while no
Loans are outstanding, Lenders having at least seventy-five percent
(75%) of the Aggregate Commitments and, at any time while Loans are
outstanding, Lenders holding at least seventy-five percent (75%) of
the outstanding aggregate principal amount of the Loans (without
regard to any sale by a Lender of a participation in any Loan under
Section 12.06(c)).
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"Tangible Net Worth" shall mean, as at any date, the sum of
the following for the Borrower and its Consolidated Subsidiaries
determined (without duplication) in accordance with GAAP:
(i) the amount of preferred stock and common stock at par
plus the amount of surplus of the Borrower, plus
(ii) the retained earnings (or, in the case of retained
earnings deficit, minus the amount of such deficit), minus
(iii) the sum of the following: cost of treasury shares
and the book value of all assets of the Borrower and its Consolidated
Subsidiaries which should be classified as intangibles (without
duplication of deductions in respect of items already deducted in
arriving at surplus and retained earnings) but in any event including
as such intangibles the following: goodwill, research and development
costs, trademarks, trade names, copyrights, patents and franchises,
unamortized debt discount and expense, all reserves and any writeup in
the book value of assets resulting from a revaluation thereof or
resulting from any changes in GAAP subsequent to December 31, 1995.
"Taxes" shall have the meaning assigned such term in Section
4.06(a).
"Threshold Amount" shall have the meaning assigned in Section
2.08(b).
"Threshold Utilization Percentage" shall mean, as of any day,
the fraction expressed as a percentage, the numerator of which is the
balance of all Loans and LC Exposure outstanding on such day, and the
denominator of which is the Threshold Amount in effect on such day.
"Tide West" shall mean Tide West Oil Company, a Delaware
corporation.
"Tide West Acquisition" shall mean the merger of Tide West
with Merger Sub with the survivor being a directly Wholly-Owned
Subsidiary of the Borrower.
"Type" shall mean, with respect to any Loan, a Base Rate Loan
or a Eurodollar Loan.
"WRL" shall mean Wattenberg Resources Land, L.L.C.
"Wholly-Owned Subsidiary" shall mean, as to the Borrower, any
Subsidiary of which all of the outstanding shares of stock having by
the terms thereof ordinary voting power to elect the board of
directors of such corporation, other than directors' qualifying
shares, are owned or controlled by the Borrower
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<PAGE> 24
or one or more of the Wholly-Owned Subsidiaries or by the Borrower and
one or more of the Wholly-Owned Subsidiaries.
Section 1.03 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished to the Agent or the Lenders
hereunder shall be prepared, in accordance with GAAP, applied on a basis
consistent with the audited financial statements of the Borrower referred to in
Section 7.02 (except for changes concurred with by the Borrower's independent
public accountants).
ARTICLE II
COMMITMENTS
Section 2.01 Loans and Letters of Credit.
(a) Loans. Each Lender severally agrees, on the terms of
this Agreement, to make Loans to the Borrower during the period from
and including (i) the Closing Date or (ii) such later date that such
Lender becomes a party to this Agreement as provided in Section
12.06(b), to and up to, but excluding, the Revolving Credit
Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount of such Lender's
Commitment as then in effect; provided, however, that the aggregate
principal amount of all such Loans by all Lenders hereunder and LC
Exposure at any one time outstanding shall not exceed the Aggregate
Commitments. Subject to the terms of this Agreement, during the
period from the Closing Date to and up to, but excluding, the
Revolving Credit Termination Date, the Borrower may borrow, repay and
reborrow the amount described in this Section 2.01(a).
(b ) Limitation on Types of Loans. Subject to the other terms
and provisions of this Agreement, at the option of the Borrower, the
Loans may be Base Rate Loans or Eurodollar Loans; provided that,
without the prior written consent of the Majority Lenders, no more
than five (5) Eurodollar Loans may be outstanding at any time.
(c) Letters of Credit. During the period from and
including the Closing Date to but excluding the Revolving Credit
Termination Date, the Agent, as issuing bank for the Lenders, agrees
to extend credit for the account of the Borrower at any time and from
time to time by issuing renewing, extending or reissuing Letters of
Credit; provided however, the LC Exposure at any one time outstanding
shall not exceed the lesser of (i) the LC Commitment or (ii) the
Aggregate Commitments, as then in effect, minus the aggregate
principal amount of all Loans then outstanding. The Lenders shall
automatically participate in such Letters of Credit according to their
respective Percentage Shares.
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Section 2.02 Borrowings, Continuations, Conversions and
Letters of Credit.
(a) Borrowings. The Borrower shall give the Agent (which
shall promptly notify the Lenders) advance notice as hereinafter
provided of each borrowing hereunder, which shall specify the
aggregate amount of such borrowing, the Type and the date (which shall
be a Business Day) of the Loans to be borrowed and (in the case of
Eurodollar Loans) the duration of the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings shall
be in amounts of at least $5,000,000 or the remaining balance of the
Aggregate Commitments, if less, or any whole multiple of $1,000,000 in
excess thereof, and all Eurodollar Loans shall be in amounts of at
least $5,000,000 or any whole multiple of $1,000,000 in excess
thereof.
(c) Notices. All borrowings, continuations and
conversions shall require advance written notice to the Agent (which
shall promptly notify the Lenders) in the form of Exhibit B hereto (or
telephonic notice promptly confirmed by such a written notice), which
in each case shall be irrevocable, from the Borrower to be received by
the Agent not later than 1:00 p.m. New York, New York time at least
one (1) Business Day prior to the date of each Base Rate Loan
borrowing and three (3) Business Days prior to the date of each
Eurodollar Loan borrowing, continuation or conversion. Without in any
way limiting the Borrower's obligation to confirm in writing any
telephonic notice, the Agent may act without liability upon the basis
of telephonic notice believed by the Agent in good faith to be from
the Borrower prior to receipt of written confirmation. In each such
case, the Borrower hereby waives the right to dispute the Agent's
record of the terms of such telephonic notice except in the case of
gross negligence or willful misconduct by the Agent.
(d) Continuation Options. Subject to the provisions made
in this Section 2.02(d), the Borrower may elect to continue all or any
part of any Eurodollar Loan beyond the expiration of the then current
Interest Period relating thereto by giving advance notice as provided
in Section 2.02(c) to the Agent (which shall promptly notify the
Lenders) of such election, specifying the amount of such Loan to be
continued and the Interest Period therefor. In the absence of such a
timely and proper election, the Borrower shall be deemed to have
elected to convert such Eurodollar Loan to a Base Rate Loan pursuant
to Section 2.02(e). All or any part of any Eurodollar Loan may be
continued as provided herein, provided that (i) any continuation of
any such Loan shall be (as to each Loan as continued for an applicable
Interest Period) in amounts of at least $5,000,000 or any whole
multiple of $1,000,000 in excess thereof and (ii) no Default shall
have occurred and be continuing. If a Default shall have occurred and
be continuing, each Eurodollar Loan shall be converted to a Base Rate
Loan on the last day of the Interest Period applicable thereto.
(e) Conversion Options. The Borrower may elect to
convert all or any part of any Eurodollar Loan on the last day of the
then current Interest Period relating thereto
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<PAGE> 26
to a Base Rate Loan by giving advance notice to the Agent (which shall
promptly notify the Lenders) of such election. Subject to the
provisions made in this Section 2.02(e), the Borrower may elect to
convert all or any part of any Base Rate Loan at any time and from
time to time to a Eurodollar Loan by giving advance notice as provided
in Section 2.02(c) to the Agent (which shall promptly notify the
Lenders) of such election. All or any part of any outstanding Loan
may be converted as provided herein, provided that (i) any conversion
of any Base Rate Loan into a Eurodollar Loan shall be (as to each such
Loan into which there is a conversion for an applicable Interest
Period) in amounts of at least $5,000,000 or any whole multiple of
$1,000,000 in excess thereof and (ii) no Default shall have occurred
and be continuing. If a Default shall have occurred and be
continuing, no Base Rate Loan may be converted into a Eurodollar Loan.
(f) Advances. Not later than 12:00 noon New York, New York
time on the date specified for each borrowing hereunder, each Lender
shall make available the amount of the Loan to be made by it on such
date to the Agent, to an account which the Agent shall specify, in
immediately available funds, for the account of the Borrower. The
amounts so received by the Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by
depositing the same, in immediately available funds, in an account of
the Borrower, designated by the Borrower and maintained at the
Principal Office.
(g ) Letters of Credit. The Borrower shall give the Agent
(which shall promptly notify the Lenders of such request and their
Percentage Share of such Letter of Credit) advance notice to be
received by the Agent not later than 12:00 noon New York, New York
time not less than three (3) Business Days prior thereto of each
request for the issuance and at least thirty (30) Business Days prior
to the date of the renewal or extension of a Letter of Credit
hereunder which request shall specify the amount of such Letter of
Credit, the date (which shall be a Business Day) such Letter of Credit
is to be issued, renewed or extended, the duration thereof, the name
and address of the beneficiary thereof, the form of the Letter of
Credit and such other information as the Agent may reasonably request
all of which shall be reasonably satisfactory to the Agent. Subject
to the terms and conditions of this Agreement, on the date specified
for the issuance, renewal or extension of a Letter of Credit, the
Agent shall issue such Letter of Credit to the beneficiary thereof.
In conjunction with the issuance of each Letter of Credit, the
Borrower shall execute a Letter of Credit Agreement. In the event of
any conflict between any provision of a Letter of Credit Agreement and
this Agreement, the Borrower, the Agent and the Lenders hereby agree
that the provisions of this Agreement shall govern.
The Agent will send to the Borrower and each Lender,
immediately upon issuance of any Letter of Credit, or an amendment
thereto, a true and complete copy of such Letter of Credit, or such
amendment thereto.
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Section 2.03 Changes of Commitments.
(a) The Aggregate Commitments shall at all times be equal
to the lesser of (i) the Aggregate Maximum Credit Amounts after
adjustments resulting from reductions pursuant to Section 2.03(b)
hereof or (ii) the Borrowing Base as determined from time to time.
(b) The Borrower shall have the right to terminate or to
reduce the amount of the Aggregate Maximum Credit Amounts at any time
or from time to time upon not less than three (3) Business Days' prior
notice to the Agent (which shall promptly notify the Lenders) of each
such termination or reduction, which notice shall specify the Closing
Date thereof and the amount of any such reduction (which shall not be
less than $5,000,000 or any whole multiple of $1,000,000 in excess
thereof) and shall be irrevocable and effective only upon receipt by
the Agent.
(c) The Aggregate Maximum Credit Amounts once terminated
or reduced may not be reinstated.
Section 2.04 Fees.
(a) The Borrower shall pay to the Agent for the account
of each Lender a commitment fee on the daily average unused amount of
the Aggregate Commitments for the period from and including the
Closing Date up to but excluding the earlier of the date the Aggregate
Commitments are terminated or the Revolving Credit Termination Date at
a rate per annum equal to the Applicable Margin (as in effect from
time to time). Accrued commitment fees shall be payable quarterly in
arrears on each Quarterly Date and on the earlier of the date the
Aggregate Commitments are terminated or the Revolving Credit
Termination Date.
(b) The Borrower agrees to pay the Agent, for the account
of each Lender, commissions for issuing the Letters of Credit on the
daily average outstanding of the maximum liability of the Agent
existing from time to time under such Letter of Credit (calculated
separately for each Letter of Credit) at the rate equal to the
Applicable Margin for Eurodollar Loans from time to time in effect and
that each Letter of Credit shall be deemed to be outstanding up to the
full face amount of the Letter of Credit until the Agent has received
the cancelled Letter of Credit or a written cancellation of the Letter
of Credit from the beneficiary of such Letter of Credit in form and
substance acceptable to the Agent, or for any reductions in the amount
of the Letter of Credit (other than from a drawing), written
notification from the Borrower. Such commissions are payable [in
advance at issuance of the Letter of Credit][quarterly in arrears on
each Quarterly Date].
(c) In addition, the Borrower agrees to pay the Agent,
for its own account, an issuing fee for issuing the Letters of Credit
equal to the greater of 1/8 of 1% or $2500.
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(d) The Borrower shall pay to the Agent for its account
such other fees as are set forth in the Fee Letter on the dates
specified therein to the extent not paid prior to the Closing Date.
(e) The Borrower shall pay to the Agent for the account
of each Lender the fee set forth in the memorandum to each co-agent
from the Agent dated June 6, 1996.
Section 2.05 Several Obligations. The failure of any Lender
to make any Loan to be made by it or to provide funds for disbursements or
reimbursements under Letters of Credit on the date specified therefor shall not
relieve any other Lender of its obligation to make its Loan or provide funds on
such date, but no Lender shall be responsible for the failure of any other
Lender to make a Loan to be made by such other Lender or to provide funds to be
provided by such other Lender.
Section 2.06 Notes. The Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit A hereto, dated (i) the Closing Date or (ii) the Closing Date of an
Assignment pursuant to Section 12.06(b), payable to the order of such Lender in
a principal amount equal to its Maximum Credit Amount as in effect and
otherwise duly completed and such substitute Notes as required by Section
12.06(b). The date, amount, Type, interest rate and Interest Period of each
Loan made by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Note, and, prior
to any transfer, endorsed by such Lender on the schedule attached to such Note
or any continuation thereof. Failure to make any such notation shall not
affect any Lender's or the Borrower's rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its Note.
Section 2.07 Prepayments.
(a) The Borrower may prepay the Base Rate Loans upon not
less than one (1) Business Day's prior notice to the Agent (which
shall promptly notify the Lenders), which notice shall specify the
prepayment date (which shall be a Business Day) and the amount of the
prepayment (which shall be at least $5,000,000 or the remaining
aggregate principal balance outstanding on the Notes) and shall be
irrevocable and effective only upon receipt by the Agent, provided
that interest on the principal prepaid, accrued to the prepayment
date, shall be paid on the prepayment date. The Borrower may prepay
Eurodollar Loans on the same condition as for Base Rate Loans and in
addition such prepayments of Eurodollar Loans shall be subject to the
terms of Section 5.05 and shall be in an amount equal to all of the
Eurodollar Loans for the Interest Period prepaid.
(b) If, after giving effect to any termination or
reduction of the Aggregate Maximum Credit Amounts pursuant to Section
2.03(b), the outstanding aggregate principal amount of the Loans plus
the LC Exposure exceeds the Aggregate Maximum Credit Amounts, the
Borrower shall (i) prepay the Loans on the date of such termination or
reduction in an aggregate principal amount equal to the excess,
together with interest
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on the principal amount paid accrued to the date of such prepayment
and (ii) if any excess remains after prepaying all of the Loans, pay
to the Agent on behalf of the Lenders an amount equal to the excess to
be held as cash collateral as provided in Section 2.10(b) hereof.
(c) Upon any redetermination of the amount of the
Borrowing Base in accordance with Section 2.08, if the redetermined
Borrowing Base is less than the aggregate outstanding principal amount
of the Loans plus the LC Exposure ("Borrowing Base Deficiency"), then
the Borrower shall within one hundred eighty (180) days of receipt of
written notice thereof (i) prepay the Loans in an aggregate principal
amount equal to such Borrowing Base Deficiency; provided that within
forty-five (45) days of receipt of such notice the Borrower shall have
prepaid at least one-fourth ( 1/4) of such Borrowing Base Deficiency
and within ninety (90) days of receipt of such notice the Borrower
shall have prepaid at least one-half ( 1/2) of such Borrowing Base
Deficiency and (ii) if a Borrowing Base Deficiency remains after
prepaying all of the Loans because of LC Exposure, the Borrower shall
pay to the Agent on behalf of the Lenders an amount equal to such
Borrowing Base deficiency to be held as cash collateral as provided in
Section 2.10(b) hereof. Each prepayment shall be accompanied with
interest on the principal amount paid accrued to the date of such
prepayment.
(d) Prepayments permitted or required under this Section
2.07 shall be without premium or penalty, except as required under
Section 5.05 for prepayment of Eurodollar Loans. Any prepayment may
be reborrowed subject to the then effective Aggregate Commitments.
Section 2.08 Borrowing Base and Threshold Amount.
(a) The Borrowing Base and the Threshold Amount shall be
determined in accordance with Section 2.08(b) by the Agent with the
concurrence of the Super Majority Lenders and is subject to
redetermination in accordance with Section 2.08(d). Upon any
redetermination of the Borrowing Base and the Threshold Amount, such
redetermination shall remain in effect until the next successive
Redetermination Date. "Redetermination Date" shall mean the date that
the redetermined Borrowing Base and the Threshold Amount become
effective subject to the notice requirements specified in Section
2.08(e) both for scheduled redeterminations and unscheduled
redeterminations. So long as any of the Commitments are in effect or
any LC Exposure or Loans are outstanding hereunder, this facility
shall be governed by the then effective Borrowing Base and the
Threshold Amount. During the period from and after the Closing Date
until the first Redetermination Date the amount of the Borrowing Base
shall be $180,000,000 and the amount of the Threshold Amount shall be
$180,000,000.
(b) Upon receipt of the reports required by Section 8.07
and such other reports, data and supplemental information as may from
time to time be reasonably requested by the Agent (the "Engineering
Reports"), each Lender will redetermine the
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Borrowing Base and the Threshold Amount. Such redetermination will be
in accordance with its normal and customary procedures for evaluating
oil and gas reserves and other related assets as such exist at that
particular time. Each Lender, in its sole discretion, may make
adjustments to the rates, volumes and prices and other assumptions set
forth therein in accordance with its normal and customary procedures
for evaluating oil and gas reserves and other related assets as such
exist at that particular time. The Threshold Amount shall represent
the customary conforming amount of a traditional hydrocarbon borrowing
base loan ("Threshold Amount") and the Borrowing Base shall not be
less than the Threshold Amount. On June 30, 1997, the Borrowing Base
shall automatically be reduced to equal the Threshold Amount
outstanding on such date. After such date, the Borrowing Base shall
always equal the Threshold Amount, and no further mention of the
Threshold Amount will be necessary. The Agent shall propose to the
Lenders the new Borrowing Base and the Threshold Amount within 30 days
following receipt by the Agent and the Lenders of the Engineering
Reports in a timely and complete manner. After having received notice
of such proposal by the Agent, the Super Majority Lenders shall have
10 days to agree or disagree with such proposal. If at the end of the
10 days, the Super Majority Lenders have not communicated their
approval or disapproval, such silence shall be deemed to be an
approval and the Agent's proposal shall be the new Borrowing Base and
the new Threshold Amount. If however, the Super Majority Lenders
notify Agent within 10 days of their disapproval, the Agent and the
Super Majority Lenders shall, within a reasonable period of time,
agree on the new Borrowing Base and Threshold Amount.
(c) The Agent may exclude any Oil and Gas Property or
portion of production therefrom or any income from any other Property
from the Borrowing Base and the Threshold Amount, at any time, because
title information is not reasonably satisfactory.
(d) So long as any of the Commitments are in effect and
until payment in full of all Loans hereunder, on or around November
12, 1996, and on or around the fifteenth day of each April, commencing
April 15, 1997 (each being a "Scheduled Redetermination Date"), the
Super Majority Lenders shall redetermine the amount of the Borrowing
Base and the Threshold Amount in accordance with Section 2.08(b). In
addition, the Super Majority Lenders or the Borrower may initiate a
redetermination of the Borrowing Base and the Threshold Amount at any
other time as they so elect; provided, however, that the Borrower and
the Super Majority Lenders may each initiate only one such unscheduled
redetermination during any consecutive twelve (12) month period. In
the event of a redetermination initiated by the Super Majority
Lenders, the Agent will specify in writing to the Borrower the date on
which the Borrower is to furnish a Reserve Report in accordance with
Section 8.07(b) and the date on which such redetermination is to
occur.
(e) The Agent shall promptly notify in writing the
Borrower and the Lenders of the new Borrowing Base and the Threshold
Amount. Any redetermination of the Borrowing Base shall not be in
effect until written notice is received by the Borrower.
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Section 2.09 Assumption of Risks. The Borrower assumes all
risks of the acts or omissions of any beneficiary of any Letter of Credit or
any transferee thereof with respect to its use of such Letter of Credit.
Neither the Agent (except in the case of willful misconduct or bad faith on the
part of the Agent or any of its employees), its correspondents nor any Lender
shall be responsible for the validity, sufficiency or genuineness of
certificates or other documents or any endorsements thereon, even if such
certificates or other documents should in fact prove to be invalid,
insufficient, fraudulent or forged; for errors, omissions, interruptions or
delays in transmissions or delivery of any messages by mail, telex, or
otherwise, whether or not they be in code; for errors in translation or for
errors in interpretation of technical terms; the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
the failure of any beneficiary or any transferee of any Letter of Credit to
comply fully with conditions required in order to draw upon any Letter of
Credit; or for any other consequences arising from causes beyond the Agent's
control or the control of the Agent's correspondents. In addition, neither the
Agent nor any Lender shall be responsible for any error, neglect, or default of
any of the Agent's correspondents; and none of the above shall affect, impair
or prevent the vesting of any of the Agent's or any Lender's rights or powers
hereunder or under the Letter of Credit Agreements, all of which rights shall
be cumulative. The Agent and its correspondents may accept certificates or
other documents that appear on their face to be in order, without
responsibility for further investigation of any matter contained therein
regardless of any notice or information to the contrary. In furtherance and
not in limitation of the foregoing provisions, the Borrower agrees that any
action, inaction or omission taken or not taken by the Agent or by any
correspondent for the Agent in good faith in connection with any Letter of
Credit, or any related drafts, certificates, documents or instruments, shall be
binding on the Borrower and shall not put the Agent or its correspondents under
any resulting liability to the Borrower.
Section 2.10 Obligation to Reimburse and to Prepay.
(a) If a disbursement by the Agent is made under any
Letter of Credit, the Borrower shall pay to the Agent within two (2)
Business Days after notice of any such disbursement is received by the
Borrower, the amount of each such disbursement made by the Agent under
the Letter of Credit (if such payment is not sooner effected as may be
required under this Section 2.10 or under other provisions of the
Letter of Credit), together with interest on the amount disbursed from
and including the date of disbursement until payment in full of such
disbursed amount at a varying rate per annum equal to (i) the then
applicable interest rate for Base Rate Loans through the second
Business Day after notice of such disbursement is received by the
Borrower and (ii) thereafter, the Post-Default Rate for Base Rate
Loans (but in no event to exceed the Highest Lawful Rate) for the
period from and including the third Business Day following the date of
such disbursement to and including the date of repayment in full of
such disbursed amount. The obligations of the Borrower under this
Agreement with respect to each Letter of Credit shall be absolute,
unconditional and irrevocable and shall be paid or performed strictly
in accordance with the terms of this Agreement under all
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circumstances whatsoever, including, without limitation, but only to
the fullest extent permitted by applicable law, the following
circumstances: (i) any lack of validity or enforceability of this
Agreement, any Letter of Credit or any of the Loan Documents; (ii) any
amendment or waiver of (including any default), or any consent to
departure from this Agreement (except to the extent permitted by any
amendment or waiver), any Letter of Credit or any of the Loan
Documents; (iii) the existence of any claim, set-off, defense or other
rights which the Borrower may have at any time against the beneficiary
of any Letter of Credit or any transferee of any Letter of Credit (or
any Persons for whom any such beneficiary or any such transferee may
be acting), the Agent, any Lender or any other Person, whether in
connection with this Agreement, any Letter of Credit, the Loan
Documents, the transactions contemplated hereby or any unrelated
transaction; (iv) any statement, certificate, draft, notice or any
other document presented under any Letter of Credit proves to have
been forged, fraudulent, insufficient or invalid in any respect or any
statement therein proves to have been untrue or inaccurate in any
respect whatsoever; (v) payment by the Agent under any Letter of
Credit against presentation of a draft or certificate which appears on
its face to comply, but does not comply, with the terms of such Letter
of Credit; and (vi) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
Notwithstanding anything in this Agreement to the contrary, the
Borrower will not be liable for payment or performance that results
from the gross negligence or willful misconduct of the Agent, except
(i) where the Borrower or any Subsidiary actually recovers the
proceeds for itself or the Agent of any payment made by the Agent in
connection with such gross negligence or willful misconduct or (ii) in
cases where the Agent makes payment to the named beneficiary of a
Letter of Credit.
(b) In the event of the occurrence of any Event of
Default, a payment or prepayment pursuant to Sections 2.07(b) and (c)
hereof or the maturity of the Notes, whether by acceleration or
otherwise, an amount equal to the LC Exposure (or the excess in the
case of Sections 2.07(b) and (c)) shall be deemed to be forthwith due
and owing by the Borrower to the Agent and the Lenders as of the date
of any such occurrence; and the Borrower's obligation to pay such
amount shall be absolute and unconditional, without regard to whether
any beneficiary of any such Letter of Credit has attempted to draw
down all or a portion of such amount under the terms of a Letter of
Credit, and, to the fullest extent permitted by applicable law, shall
not be subject to any defense or be affected by a right of set-off,
counterclaim or recoupment which the Borrower may now or hereafter
have against any such beneficiary, the Agent, the Lenders or any other
Person for any reason whatsoever. Such payments shall be held by the
Agent on behalf of the Lenders as cash collateral securing the LC
Exposure in an account or accounts at the Principal Office; and the
Borrower hereby grants to and by its deposit with the Agent grants to
the Agent a security interest in such cash collateral. In the event
of any such payment by the Borrower of amounts contingently owing
under outstanding Letters of Credit and in the event that thereafter
drafts or other demands for payment complying with the terms of such
Letters of Credit are not made prior to the respective expiration
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dates thereof, the Agent agrees, if no Event of Default has occurred
and is continuing or if no other amounts are outstanding under this
Agreement, the Notes or the Loan Documents, to remit to the Borrower
amounts for which the contingent obligations evidenced by the Letters
of Credit have ceased.
(c) Each Lender severally and unconditionally agrees that
it shall promptly reimburse the Agent an amount equal to such Lender's
Percentage Share of any disbursement made by the Agent under any
Letter of Credit that is not reimbursed according to this Section
2.10.
Section 2.11 Lending Offices. The Loans of each Type made by
each Lender shall be made and maintained at such Lender's Applicable Lending
Office for Loans of such Type.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. The Borrower will pay to
the Agent, for the account of each Lender, the principal payments required by
this Section 3.01. On the Revolving Credit Termination Date the Borrower shall
repay the outstanding aggregate principal and accrued and unpaid interest under
the Notes.
Section 3.02 Interest. The Borrower will pay to the Agent,
for account of each Lender, interest on the unpaid principal amount of each
Loan made by such Lender for the period commencing on the date such Loan is
made to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as
in effect from time to time) plus the Applicable Margin (as in effect
from time to time), but in no event to exceed the Highest Lawful Rate;
and
(ii) if such a Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Fixed Rate for such Loan plus
the Applicable Margin (as in effect from time to time), but in no
event to exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Agent, for the
account of each Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by such Lender, and (to the fullest extent permitted
by law) on any other amount payable by the Borrower hereunder, under any Loan
Document or under any Note held by such Lender to or for account of such
Lender, for the period commencing on the date of an Event of Default until the
same is paid in full or all Events of Default are cured or waived.
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Accrued interest on Base Rate Loans shall be payable on each Quarterly
Date commencing on July 31, 1996, and accrued interest on each Eurodollar Loan
shall be payable on the last day of the Interest Period therefor and, if such
Interest Period is longer than three months at three-month intervals following
the first day of such Interest Period, except that interest payable at the
Post-Default Rate shall be payable from time to time on demand and interest on
any Eurodollar Loan that is converted into a Base Rate Loan (pursuant to
Section 5.04) shall be payable on the date of conversion (but only to the
extent so converted).
Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall notify the Lenders to which such
interest is payable and the Borrower thereof. Each determination by the Agent
of an interest rate or fee hereunder shall, except in cases of manifest error,
be final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided
herein, all payments of principal, interest and other amounts to be made by the
Borrower under this Agreement, the Notes and the Letter of Credit Agreements
shall be made in Dollars, in immediately available funds, to the Agent at such
account as the Agent shall specify by notice to the Borrower from time to time,
not later than 2:00 p.m. New York, New York time on the date on which such
payments shall become due (each such payment made after such time on such due
date to be deemed to have been made on the next succeeding Business Day). Such
payments shall be made without (to the fullest extent permitted by applicable
law) defense, set-off or counterclaim. Each payment received by the Agent
under this Agreement or any Note for account of a Lender shall be paid promptly
to such Lender in immediately available funds. Except as provided in clause
(ii) of the definition of "Interest Period", if the due date of any payment
under this Agreement or any Note would otherwise fall on a day which is not a
Business Day such date shall be extended to the next succeeding Business Day
and interest shall be payable for any principal so extended for the period of
such extension. At the time of each payment to the Agent of any principal of
or interest on any borrowing, the Borrower shall notify the Agent of the Loans
to which such payment shall apply. In the absence of such notice the Agent may
specify the Loans to which such payment shall apply, but to the extent possible
such payment or prepayment will be applied first to the Loans comprised of Base
Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent otherwise
provided herein each Lender agrees that: (i) each borrowing from the Lenders
under Section 2.01 shall be made from the Lenders pro rata in accordance with
their Percentage Share, each payment of commitment fee or other fees under
Section 2.04 shall be made for account of the Lenders pro rata in accordance
with their Percentage Share, and each termination or reduction of the amount of
the Aggregate Maximum Credit Amounts under Section 2.03(b) shall be applied to
the Commitment of each Lender, pro rata according to the amounts of its
respective Commitment;
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(ii) each payment of principal of Loans by the Borrower shall be made for
account of the Lenders pro rata in accordance with the respective unpaid
principal amount of the Loans held by the Lenders; (iii) each payment of
interest on Loans by the Borrower shall be made for account of the Lenders pro
rata in accordance with the amounts of interest due and payable to the
respective Lenders; and (iv) each reimbursement by the Borrower of
disbursements under Letters of Credit shall be made for account of the Agent
or, if funded by the Lenders, pro rata for the account of the Lenders, in
accordance with the amounts of reimbursement obligations due and payable to
each respective Lender.
Section 4.03 Computations. Interest on Eurodollar Loans and fees
shall be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which such interest is payable, unless such calculation would exceed the Highest
Lawful Rate, in which case interest shall be calculated on the per annum basis
of a year of 365 or 366 days, as the case may be. Interest on Base Rate Loans
shall be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
Section 4.04 Non-receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Lender or the Borrower prior to the date on which
such notifying party is scheduled to make payment to the Agent (in the case of a
Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be
made by it hereunder or (in the case of the Borrower) a payment to the Agent for
account of one or more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be effective upon receipt,
that it does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date and, if such Lender or the Borrower (as
the case may be) has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until but excluding the date the Agent recovers such amount at a rate per annum
which, for any Lender as recipient, will be equal to the Federal Funds Rate, and
for the Borrower as recipient, will be equal to the Base Rate plus the
Applicable Margin.
Section 4.05 Set-off, Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim a
Lender may otherwise have, each Lender shall have the right and be
entitled (after consultation with the Agent), at its option, to offset
balances held by it or by any of its Affiliates for account of the
Borrower or any Subsidiary at any of its offices, in Dollars or in any
other currency, against any principal of or interest on any of such
Lender's Loans, or any other amount payable to such Lender hereunder,
which is not paid when due (regardless of whether such balances are
then due
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to the Borrower), in which case it shall promptly notify the Borrower
and the Agent thereof, provided that such Lender's failure to give
such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal
of or interest on any Loan made by it to the Borrower under this
Agreement (or reimbursement as to any Letter of Credit) through the
exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise, and, as a result of such payment, such
Lender shall have received a greater percentage of the principal or
interest (or reimbursement) then due hereunder by the Borrower to such
Lender than the percentage received by any other Lenders, it shall
promptly (i) notify the Agent and each other Lender thereof and (ii)
purchase from such other Lenders participations in (or, if and to the
extent specified by such Lender, direct interests in) the Loans (or
participations in Letters of Credit) made by such other Lenders (or in
interest due thereon, as the case may be) in such amounts, and make
such other adjustments from time to time as shall be equitable, to the
end that all the Lenders shall share the benefit of such excess
payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such excess payment) pro rata in accordance
with the unpaid principal and/or interest on the Loans held by each of
the Lenders (or reimbursements of Letters of Credit). To such end all
the Lenders shall make appropriate adjustments among themselves (by
the resale of participations sold or otherwise) if such payment is
rescinded or must otherwise be restored. The Borrower agrees that any
Lender so purchasing a participation (or direct interest) in the Loans
made by other Lenders (or in interest due thereon, as the case may be)
may exercise all rights of set-off, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such
Lender were a direct holder of Loans (or Letters of Credit) in the
amount of such participation. Nothing contained herein shall require
any Lender to exercise any such right or shall affect the right of any
Lender to exercise, and retain the benefits of exercising, any such
right with respect to any other indebtedness or obligation of the
Borrower. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a set-off
to which this Section 4.05 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this
Section 4.05 to share the benefits of any recovery on such secured
claim.
Section 4.06 Taxes.
(a) Payments Free and Clear. Any and all payments by the
Borrower hereunder shall be made, in accordance with Section 4.01,
free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of
each Lender and the Agent, taxes imposed on its income, and franchise
or similar taxes imposed on it, by (i) any jurisdiction (or political
subdivision thereof) of which the Agent or such Lender, as the case
may be, is a citizen or resident or in which such Lender has an
Applicable Lending Office, (ii) the jurisdiction (or any political
subdivision thereof) in
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which the Agent or such Lender is organized, or (iii) any jurisdiction
(or political subdivision thereof) in which such Lender or the Agent
is presently doing business which taxes are imposed solely as a result
of doing business in such jurisdiction (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders or the Agent (i) the sum payable
shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional
sums payable under this Section 4.06) such Lender or the Agent (as the
case may be) shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxing authority or other Governmental
Authority in accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent
permitted by applicable law, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made
hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, any Assignment or any
Security Instrument (hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT
FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT
LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL
AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH
LENDER OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS
THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT
SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS
THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND
SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF
ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO
SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE
DATE ANY LENDER OR THE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND
THEREFOR. IF ANY LENDER OR THE AGENT RECEIVES A REFUND OR CREDIT IN
RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER OR THE AGENT
HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE
BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS
OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A
REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS
REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY
AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT
INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED
THAT THE BORROWER, UPON THE REQUEST OF SUCH LENDER OR THE AGENT,
AGREES
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TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER
CHARGES) TO SUCH LENDER OR THE AGENT IN THE EVENT SUCH LENDER OR THE
AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either (1)
a corporation organized under the laws of the United States of
America or any state thereof or (2) it is entitled to complete
exemption from United States withholding tax imposed on or
with respect to any payments, including fees, to be made to it
pursuant to this Agreement (A) under an applicable provision
of a tax convention to which the United States of America is a
party or (B) because it is acting through a branch, agency or
office in the United States of America and any payment to be
received by it hereunder is effectively connected with a trade
or business in the United States of America. Each Lender that
is not a corporation organized under the laws of the United
States of America or any state thereof agrees to provide to
the Borrower and the Agent on the Closing Date, or on the date
of its delivery of the Assignment pursuant to which it becomes
a Lender, and at such other times as required by United States
law or as the Borrower or the Agent shall reasonably request,
two accurate and complete original signed copies of either (A)
Internal Revenue Service Form 4224 (or successor form)
certifying that all payments to be made to it hereunder will
be effectively connected to a United States trade or business
(the "Form 4224 Certification") or (B) Internal Revenue
Service Form 1001 (or successor form) certifying that it is
entitled to the benefit of a provision of a tax convention to
which the United States of America is a party which completely
exempts from United States withholding tax all payments to be
made to it hereunder (the "Form 1001 Certification"). In
addition, each Lender agrees that if it previously filed a
Form 4224 Certification, it will deliver to the Borrower and
the Agent a new Form 4224 Certification prior to the first
payment date occurring in each of its subsequent taxable
years; and if it previously filed a Form 1001 Certification,
it will deliver to the Borrower and the Agent a new
certification prior to the first payment date falling in the
third year following the previous filing of such
certification. Each Lender also agrees to deliver to the
Borrower and the Agent such other or supplemental forms as may
at any time be required as a result of changes in applicable
law or regulation in order to confirm or maintain in effect
its entitlement to exemption from United States withholding
tax on any payments hereunder, provided that the circumstances
of such Lender at the relevant time and applicable laws permit
it to do so. If a Lender determines, as a result of any
change in either (i) a Governmental Requirement or (ii) its
circumstances, that it is unable to submit any form or
certificate that it is obligated to submit pursuant to this
Section 4.06, or that it is required to withdraw or cancel any
such form or certificate previously submitted, it shall
promptly notify the Borrower and the Agent of such fact. If a
Lender is organized under the laws of a jurisdiction outside
the United States of America, unless the
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Borrower and the Agent have received a Form 1001 Certification
or Form 4224 Certification satisfactory to them indicating
that all payments to be made to such Lender hereunder are not
subject to United States withholding tax, the Borrower shall
withhold taxes from such payments at the applicable statutory
rate. Each Lender agrees to indemnify and hold harmless the
Borrower or Agent, as applicable, from any United States
taxes, penalties, interest and other expenses, costs and
losses incurred or payable by (i) the Agent as a result of
such Lender's failure to submit any form or certificate that
it is required to provide pursuant to this Section 4.06 or
(ii) the Borrower or the Agent as a result of their reliance
on any such form or certificate which such Lender has provided
to them pursuant to this Section 4.06.
(ii) For any period with respect to which a Lender
has failed to provide the Borrower with the form required
pursuant to this Section 4.06, if any, (other than if such
failure is due to a change in a Governmental Requirement
occurring subsequent to the date on which a form originally
was required to be provided), such Lender shall not be
entitled to indemnification under Section 4.06 with respect to
taxes imposed by the United States which taxes would not have
been imposed but for such failure to provide such forms;
provided, however, that should a Lender, which is otherwise
exempt from or subject to a reduced rate of withholding tax
becomes subject to taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as
such Lender shall reasonably request to assist such Lender to
recover such taxes.
(iii) Any Lender claiming any additional amounts
payable pursuant to this Section 4.06 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to
file any certificate or document requested by the Borrower or
the Agent or to change the jurisdiction of its Applicable
Lending Office or to contest any tax imposed if the making of
such a filing or change or contesting such tax would avoid the
need for or reduce the amount of any such additional amounts
that may thereafter accrue and would not, in the sole
determination of such Lender, be otherwise disadvantageous to
such Lender.
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 Additional Costs.
(a) Eurodollar Regulations, etc. The Borrower shall pay
directly to each Lender from time to time such amounts as such Lender
may determine to be necessary to compensate such Lender for any costs
which it determines are attributable to its making or maintaining of
any Eurodollar Loans or issuing or participating in Letters of
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Credit hereunder or its obligation to make any Eurodollar Loans or
issue or participate in any Letters of Credit hereunder, or any
reduction in any amount receivable by such Lender hereunder in respect
of any of such Eurodollar Loans, Letters of Credit or such obligation
(such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any Regulatory
Change which: (i) changes the basis of taxation of any amounts payable
to such Lender under this Agreement or any Note in respect of any of
such Eurodollar Loans or Letters of Credit (other than taxes imposed
on the overall net income of such Lender or of its Applicable Lending
Office for any of such Eurodollar Loans by the jurisdiction in which
such Lender has its principal office or Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of such Lender, or the Commitment or Loans of such Lender
or the Eurodollar interbank market; or (iii) imposes any other
condition affecting this Agreement or any Note (or any of such
extensions of credit or liabilities) or such Lender's Commitment or
Loans. Each Lender will notify the Agent and the Borrower of any
event occurring after the Closing Date which will entitle such Lender
to compensation pursuant to this Section 5.01(a) as promptly as
practicable after it obtains knowledge thereof and determines to
request such compensation, and will designate a different Applicable
Lending Office for the Loans of such Lender affected by such event if
such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, provided that such Lender shall have
no obligation to so designate an Applicable Lending Office located in
the United States. If any Lender requests compensation from the
Borrower under this Section 5.01(a), the Borrower may, by notice to
such Lender, suspend the obligation of such Lender to make additional
Loans of the Type with respect to which such compensation is requested
until the Regulatory Change giving rise to such request ceases to be
in effect (in which case the provisions of Section 5.04 shall be
applicable).
(b) Regulatory Change. Without limiting the effect of
the provisions of Section 5.01(a), in the event that, by reason of any
Regulatory Change or any other circumstances arising after the Closing
Date affecting such Lender, the Eurodollar interbank market or such
Lender's position in such market, any Lender either (i) incurs
Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest
rate on Eurodollar Loans is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Lender
which includes Eurodollar Loans or (ii) becomes subject to
restrictions on the amount of such a category of liabilities or assets
which it may hold, then, if such Lender so elects by notice to the
Borrower, the obligation of such Lender to make additional Eurodollar
Loans shall be suspended until such Regulatory Change or other
circumstances ceases to be in effect (in which case the provisions of
Section 5.04 shall be applicable).
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(c) Capital Adequacy. Without limiting the effect of the
foregoing provisions of this Section 5.01 (but without duplication),
the Borrower shall pay directly to any Lender from time to time on
request such amounts as such Lender may reasonably determine to be
necessary to compensate such Lender or its parent or holding company
for any costs which it determines are attributable to the maintenance
by such Lender or its parent or holding company (or any Applicable
Lending Office), pursuant to any Governmental Requirement following
any Regulatory Change, of capital in respect of its Commitment, its
Note, its Loans or any interest held by it in any Letter of Credit,
such compensation to include, without limitation, an amount equal to
any reduction of the rate of return on assets or equity of such Lender
or its parent or holding company (or any Applicable Lending Office) to
a level below that which such Lender or its parent or holding company
(or any Applicable Lending Office) could have achieved but for such
Governmental Requirement. Such Lender will notify the Borrower that
it is entitled to compensation pursuant to this Section 5.01(c) as
promptly as practicable after it determines to request such
compensation.
(d) Compensation Procedure. Any Lender notifying the
Borrower of the incurrence of additional costs under this Section 5.01
shall in such notice to the Borrower and the Agent set forth in
reasonable detail the basis and amount of its request for
compensation. Determinations and allocations by each Lender for
purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to Section 5.01(a) or (b), or of the effect of capital
maintained pursuant to Section 5.01(c), on its costs or rate of return
of maintaining Loans or its obligation to make Loans or issue Letters
of Credit, or on amounts receivable by it in respect of Loans or
Letters of Credit, and of the amounts required to compensate such
Lender under this Section 5.01, shall be conclusive and binding for
all purposes, provided that such determinations and allocations are
made on a reasonable basis. Any request for additional compensation
under this Section 5.01 shall be paid by the Borrower within thirty
(30) days of the receipt by the Borrower of the notice described in
this Section 5.01(d).
Section 5.02 Limitation on Eurodollar Loans. Anything herein
to the contrary notwithstanding, if, on or prior to the determination of any
Fixed Rate for any Interest Period:
(i) the Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates
for the relevant deposits referred to in the definition of "Fixed
Rate" in Section 1.02 are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining rates of
interest for Eurodollar Loans as provided herein; or
(ii) the Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Fixed Rate" in Section 1.02 upon the
basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not
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sufficient to adequately cover the cost to the Lenders of making or
maintaining Eurodollar Loans;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain
Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower
thereof and such Lender's obligation to make Eurodollar Loans shall be
suspended until such time as such Lender may again make and maintain Eurodollar
Loans (in which case the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02
and 5.03. If the obligation of any Lender to make Eurodollar Loans shall be
suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all
Affected Loans which would otherwise be made by such Lender shall be made
instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or
Section 5.03 has occurred and such Lender so requests by notice to the
Borrower, all Affected Loans of such Lender then outstanding shall be
automatically converted into Base Rate Loans on the date specified by such
Lender in such notice) and, to the extent that Affected Loans are so made as
(or converted into) Base Rate Loans, all payments of principal which would
otherwise be applied to such Lender's Affected Loans shall be applied instead
to its Base Rate Loans.
Section 5.05 Compensation. The Borrower shall pay to each
Lender within thirty (30) days of receipt of written request of such Lender
(which request shall set forth, in reasonable detail, the basis for requesting
such amounts and which shall be conclusive and binding for all purposes
provided that such determinations are made on a reasonable basis), such amount
or amounts as shall compensate it for any loss, cost, expense or liability
which such Lender determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar
Loan properly made by such Lender or the Borrower for any reason
(including, without limitation, the acceleration of the Loans pursuant
to Section 10.01) on a date other than the last day of the Interest
Period for such Loan; or
(ii) any failure by the Borrower for any reason (including
but not limited to, the failure of any of the conditions precedent
specified in Article VI to be satisfied) to borrow, continue or
convert a Eurodollar Loan from such Lender on the date for such
borrowing, continuation or conversion specified in the relevant notice
given pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on
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the principal amount so paid, prepaid or converted or not borrowed for the
period from the date of such payment, prepayment or conversion or failure to
borrow to the last day of the Interest Period for such Loan (or, in the case of
a failure to borrow, the Interest Period for such Loan which would have
commenced on the date specified for such borrowing) at the applicable rate of
interest for such Loan provided for herein over (ii) the interest component of
the amount such Lender would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Lender).
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial Funding is
subject to the receipt by the Agent and the Lenders of all fees payable
pursuant to Section 2.04 on or before the Closing Date and the receipt by the
Agent of the following documents and satisfaction of the other conditions
provided in this Section 6.01, each of which shall be satisfactory to the Agent
in form and substance:
(a) A certificate of the Secretary or an Assistant
Secretary of the Borrower setting forth (i) resolutions of its board
of directors with respect to the authorization of the Borrower to
execute and deliver the Loan Documents to which it is a party and to
enter into the transactions contemplated in those documents, (ii) the
officers of the Borrower (y) who are authorized to sign the Loan
Documents to which Borrower is a party and (z) who will, until
replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection
with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of the authorized officers, and (iv) the articles
or certificate of incorporation and bylaws of the Borrower, certified
as being true and complete. The Agent and the Lenders may
conclusively rely on such certificate until the Agent receives notice
in writing from the Borrower to the contrary.
(b) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of the
Borrower.
(c) A compliance certificate which shall be substantially
in the form of Exhibit C, duly and properly executed by a Responsible
Officer and dated as of the date of the Initial Funding.
(d) The Notes, duly completed and executed.
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(e) Evidence that the Borrower has (i) obtained all
necessary or advisable orders, consents, approvals and authorizations
from, and (ii) made all filings and notifications with, all
Governmental Authorities and other Persons required in connection with
the Basin Acquisition.
(f) The agent shall have received (i) a certificate of a
Responsible Officer certifying that the Borrower and/or Orion is
currently purchasing and receiving assignments of the properties of
Basin included in the Initial Reserve Report, (ii) a true and complete
executed copy of the Basin Purchase and Sale Agreement and the other
Acquisition Documents in connection with the Basin Acquisition, said
agreements being in form and substance reasonably satisfactory to the
Agent, and being certified by such Responsible Officer as being in
full force and effect, (iii) a true and complete executed counterpart
of the opinions of counsel to each of the Borrower and Basin delivered
in connection with the Basin Acquisition, in each case either
addressed to the Agent and the Lenders or accompanied with a letter
from the issuer thereof granting the Agent and the Lenders the right
to rely on the opinions set forth therein, and (iv) such other related
documents and information as the Agent shall have reasonably
requested.
(g) (i) An opinion of Vinson & Elkins L.L.P., special
counsel to the Agent, substantially in the form of Exhibit D-1 hereto.
(ii) An opinion of Davis, Graham & Stubbs, counsel
to the Borrower, substantially in the form of Exhibit D-2
hereto.
(h) Assignments in favor of the Borrower or Orion, with
respect to title to the Properties acquired in the Basin Acquisition
and included in the Initial Reserve Report.
(i) As a result of the Basin Acquisition the Borrower or
Orion shall own all of the Properties of Basin evaluated by the
Initial Reserve Report.
(j) A certificate of insurance coverage of the Borrower
evidencing that the Borrower is carrying insurance in accordance with
Section 7.19.
(k) Debt under the Prior Credit Agreement shall have been
paid in full or paid with the Initial Funding, including interest and
other amounts owing thereunder, and the Prior Credit Agreement shall
have been terminated.
(l) The Agent shall have received assignment of all Liens
securing the Prior Credit Agreement and any releases of Liens
encumbering the Properties acquired in the Basin Acquisition unless
permitted by Section 9.02.
(m) Each Subsidiary required to execute a Guaranty
Agreement pursuant to Section 8.09 shall have executed and delivered a
Guaranty Agreement.
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(n) Such other documents as the Agent or any Lender or
special counsel to the Agent may reasonably request.
Section 6.02 Initial and Subsequent Loans and Letters of
Credit. The obligation of the Lenders to make Loans to the Borrower upon the
occasion of each borrowing hereunder and to issue, renew, extend or reissue
Letters of Credit for the account of the Borrower (including the Initial
Funding) is subject to the further conditions precedent that, as of the date of
such Loans and after giving effect thereto: (i) no Default shall have occurred
and be continuing; (ii) no Material Adverse Effect shall have occurred; and
(iii) the representations and warranties made by the Borrower in Article VII
and in the other Loan Documents shall be true on and as of the date of the
making of such Loans or issuance, renewal, extension or reissuance of a Letter
of Credit with the same force and effect as if made on and as of such date and
following such new borrowing, except to the extent such representations and
warranties are expressly limited to an earlier date or the Majority Lenders may
expressly consent in writing to the contrary. Each request for a borrowing or
issuance, renewal, extension or reissuance of a Letter of Credit by the
Borrower hereunder shall constitute a certification by the Borrower to the
effect set forth in the preceding sentence (both as of the date of such notice
and, unless the Borrower otherwise notifies the Agent prior to the date of and
immediately following such borrowing or issuance, renewal, extension or
reissuance of a Letter of Credit as of the date thereof).
Section 6.03 Conditions Relating to Letters of Credit. In
addition to the satisfaction of all other conditions precedent set forth in
this Article VI, the issuance, renewal, extension or reissuance of the Letters
of Credit referred to in Section 2.01(b) hereof is subject to the following
conditions precedent:
(a) At least three (3) Business Days prior to the date of
the issuance and at least thirty (30) Business Days prior to the date
of the renewal, extension or reissuance of each Letter of Credit, the
Agent shall have received a written request for a Letter of Credit.
(b) Each of the Letters of Credit shall (i) be issued by
the Agent, (ii) contain such terms and provisions as are reasonably
required by the Agent, (iii) be for the account of the Borrower and
(iv) expire not later than the earlier of one year from the date of
issue or two (2) days before the Revolving Credit Termination Date.
(c) The Borrower shall have duly and validly executed and
delivered to the Agent a Letter of Credit Agreement pertaining to the
Letter of Credit.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and the Lenders that
(each representation and warranty herein is given as of the Closing Date and
shall be deemed repeated and reaffirmed on the dates of each borrowing and
issuance, renewal, extension or reissuance of a Letter of Credit as provided in
Section 6.02):
Section 7.01 Existence. Each of the Borrower and each
Subsidiary: (i) is duly organized or formed, legally existing and, to the
extent required by Governmental Requirements, in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite corporate or
other applicable power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure
so to qualify would have a Material Adverse Effect.
Section 7.02 Financial Condition. (a) The audited
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
at December 31, 1995 and the related consolidated statement of income,
stockholders' equity and cash flow of the Borrower and its Consolidated
Subsidiaries for the fiscal year ended on said date, with the opinion thereon
of Arthur Andersen & Co. heretofore furnished to each of the Lenders and the
unaudited consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as at March 31, 1996 and their related consolidated statements of
income, stockholders' equity and cash flow of the Borrower and its Consolidated
Subsidiaries for the three-month period ended on such date heretofore furnished
to the Agent, are complete and correct and fairly present the consolidated
financial condition of the Borrower and its Consolidated Subsidiaries as at
said dates and the results of its operations for the fiscal year and the
three-month period on said dates, all in accordance with GAAP, as applied on a
consistent basis (subject, in the case of the interim financial statements, to
normal year-end adjustments).
(b) Neither the Borrower nor any Subsidiary has on the Closing
Date any material Debt, contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the Financial Statements or in Schedule 7.02. Since December 31, 1995, there
has been no change or event having a Material Adverse Effect. Since the date
of the Financial Statements, neither the business nor the Properties of the
Borrower or any Subsidiary have been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property
or cancellation of contracts, permits or concessions by any Governmental
Authority, riot, activities of armed forces or acts of God or of any public
enemy.
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Section 7.03 Litigation. Except as disclosed to the Lenders
in Schedule 7.03 hereto, at the Closing Date there is no litigation, legal,
administrative or arbitral proceeding, investigation or other action of any
nature pending or, to the knowledge of the Borrower threatened against or
affecting the Borrower or any Subsidiary which involves the Basin Acquisition
or the possibility of any judgment or liability against the Borrower or any
Subsidiary not fully covered by insurance (except for normal deductibles), and
which would have a Material Adverse Effect.
Section 7.04 No Breach. Neither, the Basin Acquisition, the
execution and delivery of the Loan Documents and the Acquisition Documents, nor
compliance with the terms and provisions hereof or thereof will conflict with
or result in a breach of, or require any consent which has not been obtained as
of the Closing Date under, the respective charter or by-laws of the Borrower,
any Subsidiary, or Basin, or any Governmental Requirement or any agreement or
instrument to which the Borrower, any Subsidiary, or Basin is a party or by
which it is bound or to which it or its Properties are subject, or constitute a
default under any such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the revenues or assets of the Borrower, any
Subsidiary, or Basin pursuant to the terms of any such agreement or instrument
other than the Liens created by the Loan Documents.
Section 7.05 Authority. Each of the Borrower, each
Subsidiary and Basin have all necessary corporate power and authority to
execute, deliver and perform its obligations under the Loan Documents and the
Acquisition Documents to which it is a party; and the execution, delivery and
performance by each of the Borrower, each Subsidiary, and Basin of the Loan
Documents and the Acquisition Documents to which it is a party, have been duly
authorized by all necessary corporate action on its part; and the Loan
Documents constitute the legal, valid and binding obligations of each of the
Borrower, each Subsidiary and Basin, to which it is a party, enforceable in
accordance with their terms.
Section 7.06 Approvals. No authorizations, approvals or
consents of, and no filings or registrations with, any Governmental Authority
are necessary for the execution, delivery or performance by the Borrower, any
Subsidiary or Basin of the Loan Documents and the Acquisition Documents to
which it is a party or for the validity or enforceability thereof.
Section 7.07 Use of Loans. The proceeds of the Loans shall
be used for general corporate and working capital purposes which shall include
the acquisition, exploration and development of Oil and Gas Properties and to
fund the Basin Acquisition and to refinance prior Debt of the Borrower and the
Subsidiaries. The Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
(within the meaning of Regulation G, U or X of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan hereunder will
be used to buy or carry any margin stock.
Section 7.08 ERISA.
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(a) The Borrower, each Subsidiary and each ERISA
Affiliate have complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
(b) Each Plan is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which
could result in imposition on the Borrower, any Subsidiary or any
ERISA Affiliate (whether directly or indirectly) of (i) either a civil
penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii)
breach of fiduciary duty liability damages under section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or
any trust created under any such Plan has been terminated since
September 2, 1974. No liability to the PBGC (other than for the
payment of current premiums which are not past due) by the Borrower,
any Subsidiary or any ERISA Affiliate has been or is expected by the
Borrower, any Subsidiary or any ERISA Affiliate to be incurred with
respect to any Plan. No ERISA Event with respect to any Plan has
occurred.
(e) Full payment when due has been made of all amounts
which the Borrower, any Subsidiary or any ERISA Affiliate is required
under the terms of each Plan or applicable law to have paid as
contributions to such Plan, and no accumulated funding deficiency (as
defined in section 302 of ERISA and section 412 of the Code), whether
or not waived, exists with respect to any Plan.
(f) The actuarial present value of the benefit
liabilities under each Plan which is subject to Title IV of ERISA does
not, as of the end of the Borrower's most recently ended fiscal year,
exceed the current value of the assets (computed on a plan termination
basis in accordance with Title IV of ERISA) of such Plan allocable to
such benefit liabilities. The term "actuarial present value of the
benefit liabilities" shall have the meaning specified in section 4041
of ERISA.
(g) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains, or contributes to an employee welfare
benefit plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by the
Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion
at any time without any material liability.
(h) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains or contributes to, or has at any time in
the preceding six calendar years, sponsored, maintained or contributed
to, any Multiemployer Plan.
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(i) None of the Borrower, any Subsidiary or any ERISA
Affiliate is required to provide security under section 401(a)(29) of
the Code due to a Plan amendment that results in an increase in
current liability for the Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09, each
of the Borrower and its Subsidiaries has filed all United States Federal income
tax returns and all other tax returns which are required to be filed by them
and have paid all material taxes due pursuant to such returns or pursuant to
any assessment received by the Borrower or any Subsidiary. The charges,
accruals and reserves on the books of the Borrower and its Subsidiaries in
respect of taxes and other governmental charges are, in the opinion of the
Borrower, adequate. No tax lien has been filed and, to the knowledge of the
Borrower, no claim is being asserted with respect to any such tax, fee or other
charge.
Section 7.10 Titles, etc.
(a) Except as set out in Schedule 7.10, each of the
Borrower and its Subsidiaries has good and defensible title to its
material (individually or in the aggregate) Properties, free and clear
of all Liens except Liens permitted by Section 9.02. Except as set
forth in Schedule 7.10, after giving full effect to the Excepted
Liens, the Borrower and Orion own the net interests in production
attributable to the Hydrocarbon Interests reflected in the most
recently delivered Reserve Report and the ownership of such Properties
shall not in any material respect obligate the Borrower or Orion to
bear the costs and expenses relating to the maintenance, development
and operations of each such Property in an amount in excess of the
working interest of each Property set forth in the most recently
delivered Reserve Report. All information contained in the most
recently delivered Reserve Report is true and correct in all material
respects as of the date thereof.
(b) All leases and agreements necessary for the conduct
of the business of the Borrower and its Subsidiaries are valid and
subsisting, in full force and effect and there exists no default or
event or circumstance which with the giving of notice or the passage
of time or both would give rise to a default under any such lease or
leases, which would affect in any material respect the conduct of the
business of the Borrower and its Subsidiaries.
(c) The rights, Properties and other assets presently
owned, leased or licensed by the Borrower and its Subsidiaries
including, without limitation, all easements and rights of way,
include all rights, Properties and other assets necessary to permit
the Borrower and its Subsidiaries to conduct their business in all
material respects in the same manner as its business has been
conducted prior to the Closing Date.
(d) All of the assets and Properties of the Borrower and
its Subsidiaries which are reasonably necessary for the operation of
its business are in good working condition and are maintained in
accordance with prudent business standards.
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Section 7.11 No Material Misstatements. No written
information, statement, exhibit, certificate, document or report furnished to
the Agent and the Lenders (or any of them) by the Borrower or any Subsidiary in
connection with the negotiation of this Agreement contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statement contained therein not materially misleading in the light
of the circumstances in which made and with respect to the Borrower and its
Subsidiaries taken as a whole. There is no fact peculiar to the Borrower or any
Subsidiary which has a Material Adverse Effect or in the future is reasonably
likely to have (so far as the Borrower can now foresee) a Material Adverse
Effect and which has not been set forth in this Agreement or the other
documents, certificates and statements furnished to the Agent by or on behalf of
the Borrower or any Subsidiary prior to, or on, the Closing Date in connection
with the transactions contemplated hereby.
Section 7.12 Investment Company Act. Neither the Borrower
nor any Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 Public Utility Holding Company Act. Neither the
Borrower nor any Subsidiary is a "holding company," or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries. Except as set forth on Schedule
7.14, the Borrower has no Subsidiaries.
Section 7.15 Location of Business and Offices. The
Borrower's principal place of business and chief executive offices are located
at the address stated on the signature page of this Agreement. The principal
place of business and chief executive office of each Subsidiary are located at
the addresses stated on Schedule 7.14.
Section 7.16 Defaults. Neither the Borrower nor any
Subsidiary is in default nor has any event or circumstance occurred which, but
for the expiration of any applicable grace period or the giving of notice, or
both, would constitute a default under any material agreement or instrument to
which the Borrower or any Subsidiary is a party or by which the Borrower or any
Subsidiary is bound which default would have a Material Adverse Effect. No
Default hereunder has occurred and is continuing.
Section 7.17 Environmental Matters. Except (i) as provided
in Schedule 7.17 or (ii) as would not have a Material Adverse Effect (or with
respect to (c), (d) and (e) below, where the failure to take such actions would
not have a Material Adverse Effect):
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(a) Neither any Property of the Borrower or any
Subsidiary nor the operations conducted thereon violate any order or
requirement of any court or Governmental Authority or any
Environmental Laws;
(b) Without limitation of clause (a) above, no Property
of the Borrower or any Subsidiary nor the operations currently
conducted thereon or, to the best knowledge of the Borrower, by any
prior owner or operator of such Property or operation, are in
violation of or subject to any existing, pending or threatened action,
suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority or to any remedial obligations under
Environmental Laws;
(c) All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed in connection
with the operation or use of any and all Property of the Borrower and
each Subsidiary, including without limitation past or present
treatment, storage, disposal or release of a hazardous substance or
solid waste into the environment, have been duly obtained or filed,
and the Borrower and each Subsidiary are in compliance with the terms
and conditions of all such notices, permits, licenses and similar
authorizations;
(d) All hazardous substances, solid waste, and oil and
gas exploration and production wastes, if any, generated at any and
all Property of the Borrower or any Subsidiary have in the past been
transported, treated and disposed of in accordance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to
public health or welfare or the environment, and, to the best
knowledge of the Borrower, all such transport carriers and treatment
and disposal facilities have been and are operating in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are
not the subject of any existing, pending or threatened action,
investigation or inquiry by any Governmental Authority in connection
with any Environmental Laws;
(e) The Borrower has taken all steps reasonably necessary
to determine and has determined that no hazardous substances, solid
waste, or oil and gas exploration and production wastes, have been
disposed of or otherwise released and there has been no threatened
release of any hazardous substances on or to any Property of the
Borrower or any Subsidiary except in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to
public health or welfare or the environment;
(f) To the extent applicable, all Property of the
Borrower and each Subsidiary currently satisfies all design,
operation, and equipment requirements imposed by the OPA or scheduled
as of the Closing Date to be imposed by OPA during the term of this
Agreement, and the Borrower does not have any reason to believe that
such Property, to the extent subject to OPA, will not be able to
maintain compliance with the OPA requirements during the term of this
Agreement; and
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(g) Neither the Borrower nor any Subsidiary has any known
contingent liability in connection with any release or threatened
release of any oil, hazardous substance or solid waste into the
environment.
Section 7.18 Compliance with the Law. Neither the Borrower
nor any Subsidiary has violated any Governmental Requirement or failed to
obtain any license, permit, franchise or other governmental authorization
necessary for the ownership of any of its Properties or the conduct of its
business, which violation or failure would have (in the event such violation or
failure were asserted by any Person through appropriate action) a Material
Adverse Effect.
Section 7.19 Insurance. Schedule 7.19 attached hereto
contains an accurate and complete description of all material policies of fire,
liability, workmen's compensation and other forms of insurance owned or held by
the Borrower and each Subsidiary. All such policies are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the date of the closing have been paid, and no notice of cancellation
or termination has been received with respect to any such policy. Such
policies are sufficient for compliance with all requirements of law and of all
agreements to which the Borrower or any Subsidiary is a party; are valid,
outstanding and enforceable policies; provide adequate insurance coverage in at
least such amounts and against at least such risks (but including in any event
public liability) as are usually insured against in the same general area by
companies engaged in the same or a similar business for the assets and
operations of the Borrower and each Subsidiary; will remain in full force and
effect through the respective dates set forth in Schedule 7.19 without the
payment of additional premiums; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. Schedule 7.19 identifies all material risks, if any, which the
Borrower and its Subsidiaries and their respective Board of Directors or
officers have designated as being self insured. Neither the Borrower nor any
Subsidiary has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited below usual and customary policy
limits, by an insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the last three years.
Section 7.20 Hedging Agreements. Schedule 7.20 sets forth,
as of the Closing Date, a true and complete list of all Hedging Agreements
(including commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery of oil, gas
or other commodities) of the Borrower and each Subsidiary, the material terms
thereof (including the type, term, Closing Date, termination date and notional
amounts or volumes), the net mark to market value thereof, all credit support
agreements relating thereto (including any margin required or supplied), and
the counterparty to each such agreement.
Section 7.21 Subordinated Debt. The Indebtedness now
existing or hereafter arising under this Agreement or the Notes is and at all
times shall be Senior Indebtedness and Specified Senior Indebtedness pursuant
to and as defined in the Indenture.
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ARTICLE VIII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of all Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder:
Section 8.01 Financial Statements. The Borrower shall
deliver, or shall cause to be delivered, to the Agent with sufficient copies of
each for the Lenders:
(a) As soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower, the audited
consolidated and unaudited consolidating statements of income,
stockholders' equity, changes in financial position and cash flow of
the Borrower and its Consolidated Subsidiaries for such fiscal year,
and the related consolidated and consolidating balance sheets of the
Borrower and its Consolidated Subsidiaries as at the end of such
fiscal year, and setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and accompanied
by the related opinion of independent public accountants of recognized
national standing acceptable to the Agent which opinion shall state
that said financial statements fairly present the consolidated and
consolidating financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries as at the end of, and for,
such fiscal year and that such financial statements have been prepared
in accordance with GAAP except for such changes in such principles
with which the independent public accountants shall have concurred and
such opinion shall not contain a "going concern" or like qualification
or exception, and a certificate of such accountants stating that, in
making the examination necessary for their opinion and without
specific investigation, they obtained no knowledge, except as
specifically stated, of any Default.
(b) As soon as available and in any event within 45 days
after the end of each of the first three fiscal quarterly periods of
each fiscal year of the Borrower, consolidated and consolidating
statements of income, stockholders' equity, changes in financial
position and cash flow of the Borrower and its Consolidated
Subsidiaries for such period and for the period from the beginning of
the respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such
period, and setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding
fiscal year, accompanied by the certificate of a Responsible Officer,
which certificate shall state that said financial statements fairly
present the consolidated and consolidating financial condition and
results of operations of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments).
(c) Promptly after the Borrower knows that any Default or
any Material Adverse Effect has occurred, a notice of such Default or
Material Adverse Effect,
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describing the same in reasonable detail and the action the Borrower
proposes to take with respect thereto.
(d) Promptly upon receipt thereof, a copy of each other
report or letter submitted to the Borrower or any Subsidiary by
independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower and its
Subsidiaries, and a copy of any response by the Borrower or any
Subsidiary of the Borrower, or the Board of Directors of the Borrower
or any Subsidiary of the Borrower, to such letter or report.
(e) Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by the Borrower to
stockholders generally and each regular or periodic report and any
registration statement, prospectus or written communication (other
than transmittal letters) in respect thereof filed by the Borrower
with or received by the Borrower in connection therewith from any
securities exchange or the SEC or any successor agency.
(f) Promptly after the furnishing thereof, copies of any
statement, report or notice furnished to or for any Person pursuant to
the terms of any indenture, loan or credit or other similar agreement,
other than this Agreement and not otherwise required to be furnished
to the Lenders pursuant to any other provision of this Section 8.01.
(g) From time to time such other information regarding
the business, affairs or financial condition of the Borrower or any
Subsidiary (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under
ERISA) as any Lender or the Agent may reasonably request.
(h) At the time it delivers the financial statements
pursuant to paragraph (a) or (b) above, a report, in form and
substance satisfactory to the Agent, setting forth as of the end of
the preceding calendar quarter a true and complete list of all Hedging
Agreements (including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas or other commodities) of the
Borrower and each Subsidiary, the material terms thereof (including
the type, term, Closing Date, termination date and notional amounts or
volumes), the net mark to market value therefor, any new credit
support agreements relating thereto not listed on Schedule 7.20, any
margin required or supplied under any credit support document, and the
counterparty to each such agreement.
The Borrower will furnish to the Agent, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate
substantially in the form of Exhibit C hereto executed by a Responsible Officer
(i) certifying as to the matters set forth therein and stating that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail), and (ii) setting forth
in reasonable detail the
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computations necessary to determine whether the Borrower is in compliance with
Sections 9.12, 9.13 and 9.14 as of the end of the respective fiscal quarter or
fiscal year.
Section 8.02 Litigation. The Borrower shall promptly give to
the Agent notice of all legal or arbitral proceedings, and of all proceedings
before any Governmental Authority affecting the Borrower or any Subsidiary,
except proceedings which, if adversely determined, would not have a Material
Adverse Effect.
Section 8.03 Maintenance, Etc.
(a) The Borrower shall and shall cause each Subsidiary
to: preserve and maintain its existence (except for mergers permitted
by Section 9.09) and all of its material rights, privileges and
franchises; except for such as are released, surrendered or disposed
of in the ordinary course of business and only if such release,
surrender or disposal does not cause a Material Adverse Effect; keep
books of record and account in which full, true and correct entries
will be made of all dealings or transactions in relation to its
business and activities; comply with all Governmental Requirements if
failure to comply with such requirements will have a Material Adverse
Effect; pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained; upon reasonable
notice, permit representatives of the Agent or any Lender, during
normal business hours, to examine, copy and make extracts from its
books and records, to inspect its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably
requested by such Lender or the Agent (as the case may be); and keep,
or cause to be kept, insured by financially sound and reputable
insurers all Property of a character usually insured by Persons
engaged in the same or similar business similarly situated against
loss or damage of the kinds and in the amounts customarily insured
against by such Persons and carry such other insurance as is usually
carried by such Persons.
(b) Contemporaneously with the delivery of the financial
statements required by Section 8.01(a) to be delivered for each year,
the Borrower will furnish or cause to be furnished to the Agent and
the Lenders a certificate of insurance coverage from the insurer in
form and substance satisfactory to the Agent and, if requested, will
furnish the Agent and the Lenders copies of the applicable policies.
(c) The Borrower will and will cause each Subsidiary to,
at its own expense, do or cause to be done all things reasonably
necessary to preserve and keep in good repair, working order and
efficiency all of its Oil and Gas Properties and other material
Properties including, without limitation, all equipment, machinery and
facilities, and from time to time will make all the reasonably
necessary repairs, renewals and replacements so that at all times the
state and condition of its Oil and Gas Properties and
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other material Properties will be fully preserved and maintained,
except to the extent a portion of such Properties is no longer capable
of producing Hydrocarbons in economically reasonable amounts. The
Borrower will and will cause each Subsidiary to promptly: (i) pay and
discharge, or make reasonable and customary efforts to cause to be
paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting
or pertaining to its Oil and Gas Properties, (ii) perform or make
reasonable and customary efforts to cause to be performed, in
accordance with industry standards, the obligations required by each
and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and
other material Properties, (iii) will and will cause each Subsidiary
to do all other things necessary to keep unimpaired, except for Liens
described in Section 9.02, its rights with respect thereto and prevent
any forfeiture thereof or a default thereunder, except to the extent a
portion of such Properties is no longer capable of producing
Hydrocarbons in economically reasonable amounts and except for
dispositions permitted by Section 9.15 hereof. The Borrower will and
will cause each Subsidiary to operate its Oil and Gas Properties and
other material Properties or cause or make reasonable and customary
efforts to cause such Oil and Gas Properties and other material
Properties to be operated in a careful and efficient manner in
accordance with the practices of the industry and in compliance with
all applicable contracts and agreements and in compliance in all
material respects with all Governmental Requirements.
Section 8.04 Environmental Matters.
(a) The Borrower will and will cause each Subsidiary to
establish and implement such procedures as may be reasonably necessary
to continuously determine and assure that any failure of the following
does not have a Material Adverse Effect: (i) all Property of the
Borrower and its Subsidiaries and the operations conducted thereon and
other activities of the Borrower and its Subsidiaries are in
compliance with and do not violate the requirements of any
Environmental Laws, (ii) no oil, hazardous substances or solid wastes
are disposed of or otherwise released on or to any Property owned by
any such party except in compliance with Environmental Laws, (iii) no
hazardous substance will be released on or to any such Property in a
quantity equal to or exceeding that quantity which requires reporting
pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas
exploration and production wastes or hazardous substance is released
on or to any such Property so as to pose an imminent and substantial
endangerment to public health or welfare or the environment.
(b) The Borrower will promptly notify the Agent and the
Lenders in writing of any threatened action, investigation or inquiry
by any Governmental Authority of which the Borrower has knowledge in
connection with any Environmental Laws, excluding any matters which,
if adversely determined, would not have a Material Adverse Effect.
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(c) The Borrower will and will cause each Subsidiary to
provide environmental audits and tests in accordance with American
Society for Testing and Materials standards as reasonably requested by
the Agent and the Lenders (or as otherwise required to be obtained by
the Agent or the Lenders by any Governmental Authority) in connection
with any future acquisitions of Oil and Gas Properties or other
material Properties.
Section 8.05 Further Assurances. The Borrower will and will
cause each Subsidiary to cure promptly any defects in the creation and issuance
of the Notes and the execution and delivery of the other Loan Documents. The
Borrower at its expense will and will cause each Subsidiary to promptly execute
and deliver to the Agent upon request all such other documents, agreements and
instruments to comply with or accomplish the covenants and agreements of the
Borrower or any Subsidiary, as the case may be, in the Loan Documents, or to
further evidence and more fully describe the collateral intended as security
for the Notes, or to correct any omissions in the Loan Documents or to state
more fully the security obligations set out herein or in any of the other Loan
Documents, or to perfect, protect or preserve any Liens created pursuant to any
of the Loan Documents, or to make any recordings, to file any notices or obtain
any consents, all as may be necessary or appropriate in connection therewith.
Section 8.06 Performance of Obligations. The Borrower will
pay the Notes according to the reading, tenor and effect thereof; and the
Borrower will and will cause each Subsidiary to do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, at the time or times and in the manner specified.
Section 8.07 Engineering Reports.
(a) Not more than 21 days after September 30, 1996, the
Borrower will furnish to the Agent and the Lenders an update of the
Initial Reserve Report in form and substance satisfactory to the
Lenders which, among other things, will specify the proved undeveloped
locations that have been reclassified as proved developed producing as
of September 30, 1996. Not less than 45 days prior to each other
Scheduled Redetermination Date, commencing with the Scheduled
Redetermination Date to occur on April 15, 1997, the Borrower shall
furnish to the Agent and the Lenders a Reserve Report. The Reserve
Report shall be prepared by or under the supervision of the chief
engineer of the Borrower and audited by Williamson Petroleum
Consultants, Inc. or such other certified independent petroleum
engineers or other independent petroleum consultant(s) acceptable to
the Agent, such audit to be in form and substance satisfactory to the
Lenders.
(b) In the event of an unscheduled redetermination, the
Borrower shall furnish to the Agent and the Lenders a Reserve Report
prepared by or under the supervision of the chief engineer of the
Borrower who shall certify such Reserve Report to be true and accurate
and to have been prepared in accordance with the procedures used in
the immediately preceding Reserve Report. For any unscheduled
redetermination requested
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by the Majority Lenders, the Borrower shall provide such Reserve
Report with an "as of" date as required by the Majority Lenders as
soon as possible, but in any event no later than 45 days following the
receipt of the request by the Agent.
(c) With the delivery of each Reserve Report, the
Borrower shall provide to the Agent and the Lenders, a certificate
from a Responsible Officer certifying that, to the best of his
knowledge and in all material respects: (i) the information contained
in the Reserve Report and any other information delivered in
connection therewith is true and correct, (ii) the Borrower or Merger
Sub owns good and defensible title to the Oil and Gas Properties
evaluated in such Reserve Report and such Properties are free of all
Liens except for Liens permitted by Section 9.02, and (iii) except as
set forth on an exhibit to the certificate, on a net basis there are
no gas imbalances, take or pay or other prepayments with respect to
its Oil and Gas Properties evaluated in such Reserve Report which
would require the Borrower or Merger Sub to deliver Hydrocarbons
produced from such Oil and Gas Properties at some future time without
then or thereafter receiving full payment therefor and which would
exceed $1,000,000 in the aggregate for the Borrower and Merger Sub.
Section 8.08 ERISA Information and Compliance. The Borrower
will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate
to promptly furnish to the Agent with sufficient copies to the Lenders (i)
promptly after the filing thereof with the United States Secretary of Labor,
the Internal Revenue Service or the PBGC, copies of each annual and other
report with respect to each Plan or any trust created thereunder, (ii)
immediately upon becoming aware of the occurrence of any ERISA Event or of any
"prohibited transaction," as described in section 406 of ERISA or in section
4975 of the Code, in connection with any Plan or any trust created thereunder,
a written notice signed by a Responsible Officer specifying the nature thereof,
what action the Borrower, the Subsidiary or the ERISA Affiliate is taking or
proposes to take with respect thereto, and, when known, any action taken or
proposed by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, and (iii) immediately upon receipt thereof, copies of any
notice of the PBGC's intention to terminate or to have a trustee appointed to
administer any Plan. With respect to each Plan (other than a Multiemployer
Plan), the Borrower will, and will cause each Subsidiary and ERISA Affiliate
to, (i) satisfy in full and in a timely manner, without incurring any late
payment or underpayment charge or penalty and without giving rise to any lien,
all of the contribution and funding requirements of section 412 of the Code
(determined without regard to subsections (d), (e), (f) and (k) thereof) and of
section 302 of ERISA (determined without regard to sections 303, 304 and 306 of
ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner,
without incurring any late payment or underpayment charge or penalty, all
premiums required pursuant to sections 4006 and 4007 of ERISA.
Section 8.09 Subsidiary Guaranty. The Borrower shall at all
times cause each of its Subsidiaries to guarantee the Indebtedness pursuant to
a guaranty agreement in form and substance acceptable to the Agent provided
that any Subsidiary with total assets of less than
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$10,000,000 shall not need to execute a guaranty agreement unless required to
do so by the following sentence. Also, on or before the date that any
Subsidiary executes a guaranty agreement of the Subordinated Debt, the Borrower
shall cause each Subsidiary to execute a guaranty agreement of the Indebtedness
in form and substance acceptable to the Agent to the extent that such
Subsidiary is not already a party to a guaranty agreement. The obligations of
such Subsidiary under any guaranty agreement to the Lenders of the Indebtedness
shall be Subsidiary Guarantor Senior Indebtedness and Specified Subsidiary
Guarantor Senior Indebtedness pursuant to and as defined in the Indenture.
ARTICLE IX
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder,
without the prior written consent of the Majority Lenders:
Section 9.01 Debt. Neither the Borrower nor any Subsidiary
will incur, create, assume or suffer to exist any Debt, except:
(a) the Notes or other Indebtedness or any guaranty of or
suretyship arrangement for the Notes or other Indebtedness;
(b) Debt of the Borrower existing on the Closing Date
which is reflected in the Financial Statements pursuant to Section
7.02(c) or is disclosed in Schedule 9.01, and any renewals or
extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of
Property or services) from time to time incurred in the ordinary
course of business which, if greater than 90 days past the invoice or
billing date, are being contested in good faith by appropriate
proceedings if reserves adequate under GAAP shall have been
established therefor;
(d) Debt payable to any Subsidiary by the Borrower or
another Subsidiary provided such Debt is subordinated to the
Indebtedness on terms and conditions reasonably acceptable to the
Majority Lenders;
(e) Nonrecourse purchase money Debt or capital leases for
the purchase or lease of equipment not to exceed $1,500,000 with
respect to production and pipeline equipment (including pumps,
compressors and any other well and pipeline equipment necessary for
the operation of developed wells and gathering and transmission
pipelines) and not to exceed $1,500,000 with respect to other
equipment, in each case outstanding at any one time on a consolidated
basis for the Borrower and all of its Subsidiaries;
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(f) Debt arising under take-or-pay agreements or gas
balancing agreements which do not give rise to a liability in the
aggregate on a consolidated basis for the Borrower and its
Subsidiaries in excess of $500,000 at any one time outstanding;
(g) the Subordinated Debt not to exceed $75,000,000 of
principal outstanding at any time;
(h) any Subsidiary Subordinated Debt; provided that the
Borrower has complied with Section 8.09 of this Agreement;
(j) Debt of the Borrower and its Subsidiaries under
Hedging Agreements covering interest rates, oil or gas with any
Lender as a counterparty or with other Persons as approved by the
Majority Lenders entered into as a part of its normal business
operations as a risk management strategy and/or hedge against changes
resulting from market conditions related to the Borrower's or any
Subsidiary's operations but not to exceed the following:
(i) for oil, the total volumes to be hedged for
any year shall not exceed 60% of expected oil production of
the Borrower or the Subsidiary for such year, whichever is the
party to the Hedging Agreement;
(ii) for gas, the total volumes to be hedged for
any year shall not exceed 60% of expected gas production of
the Borrower or the Subsidiary for such year, whichever is the
party to the Hedging Agreement; and
(iii) for interest rates for the Borrower, the
aggregate notional amount to be hedged shall never exceed the
principal balance outstanding on the Notes;
(k) Debt associated with bonds or surety obligations
required by Governmental Requirements in connection with the operation
of the Oil and Gas Properties; and
(l) obligations of the Borrower or any Subsidiary under
contracts with pipelines for firm transportation of the natural gas of
the Borrower or any Subsidiary or volumes of natural gas exchanged for
the natural gas production of the Borrower or any Subsidiary; provided
that the volumes exchanged in any month do not exceed 20% of the total
production of the Borrower and its Subsidiaries for such month.
Section 9.02 Liens. Neither the Borrower nor any Subsidiary
will create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
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(a) Excepted Liens;
(b) Liens securing leases or the purchase money Debt
allowed under Section 9.01(e) but only on the Property under lease or
purchased with such Debt;
(c) Liens disclosed on Schedule 9.02 and any renewals and
extensions thereof;
(d) Liens on cash or securities of the Borrower securing
the Debt described in Section 9.01(k); and
(e) Liens securing the Indebtedness.
Section 9.03 Investments, Loans and Advances. Neither the
Borrower nor any Subsidiary will make or permit to remain outstanding any loans
or advances to or investments in any Person, except that the foregoing
restriction shall not apply to:
(a) investments, loans or advances reflected in the
Financial Statements or which are disclosed to the Lenders in Schedule
9.03;
(b) accounts receivable arising in the ordinary course of
business;
(c) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency
thereof, in each case maturing within one year from the date of
creation thereof;
(d) commercial paper maturing within one year from the
date of creation thereof rated in the highest grade by Standard &
Poors Corporation or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by,
any Lender or any office located in the United States of any other
bank or trust company which is organized under the laws of the United
States or any state thereof, has capital, surplus and undivided
profits aggregating at least $100,000,000.00 (as of the date of such
Lender's or bank or trust company's most recent financial reports) and
has a short term deposit rating of no lower than A2 or P2, as such
rating is set forth from time to time, by Standard & Poors Corporation
or Moody's Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively
in investments described in Section 9.03(c), 9.03(d) or 9.03(e);
(g) investments in production payments from and
subordinated loans to WRL not to exceed $30,000,000 in the aggregate
outstanding at any time in connection with
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the sale of Oil and Gas Properties to WRL as permitted by the terms of
this Agreement or as already concluded;
(h) travel advances in the ordinary course of business of
the Borrower or any Subsidiary;
(i) loans to employees of the Borrower and its
Subsidiaries not to exceed in the aggregate $100,000 plus the amount
of any such loans reflected on the Financial Statements and loans to
key employees pursuant to an incentive compensation program to allow
the employees to purchase interests in Oil and Gas Properties not to
exceed $1,000,000 in the aggregate;
(j) advances from any Subsidiary or the Borrower to any
Wholly-Owned Subsidiary that is a Guarantor or to the Borrower
provided that such Debt is subordinated to Indebtedness on terms
reasonably satisfactory to the Agent;
(k) repurchase agreements of any commercial banks in the
United States and Canada, if the commercial paper of such bank or of
the bank holding company of which such bank is a wholly owned
subsidiary is rated in the highest rating categories of Standard &
Poors Corporation, Moody's Investors Service, Inc., or any other
rating agency satisfactory to the Majority Banks, that are fully
secured by securities described in Section 9.03(c);
(l) investments in stock of publicly traded companies not
to exceed $10,000 in the aggregate outstanding at any time;
(m) investments by the Borrower in direct ownership
interests in additional Oil and Gas Properties and gas gathering
systems related thereto; and
(n) other investments, loans or advances not to exceed
$10,000,000 in the aggregate at any time; and
Section 9.04 Dividends, Distributions and Redemptions. The
Borrower will not declare or pay any dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding, return any
capital to its stockholders or make any distribution of its assets to its
stockholders, except the Borrower may make dividends consisting entirely of
shares of stock of the Borrower and may purchase, redeem or issue stock as set
forth below if such action does not materially impair the Borrower's ability to
repay the Indebtedness as provided in this Agreement:
(a) redeem shares from its stockholders not to exceed
$5,000,000 in the aggregate since the Closing Date; and
(b) repurchase shares under the existing repurchase
obligations set forth in the employment agreements with P. Michael
Highum and Nicholas J. Sutton, Jr., but only
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if such repurchases are made with proceeds of insurance carried by the
Borrower on such individuals.
Section 9.05 Sales and Leasebacks. Neither the Borrower nor
any Subsidiary will enter into any arrangement, directly or indirectly, with
any Person whereby the Borrower or any Subsidiary shall sell or transfer any of
its Property, whether now owned or hereafter acquired, and whereby the Borrower
or any Subsidiary shall then or thereafter rent or lease as lessee such
Property or any part thereof or other Property which the Borrower or any
Subsidiary intends to use for substantially the same purpose or purposes as the
Property sold or transferred.
Section 9.06 Nature of Business. Neither the Borrower nor
any Subsidiary will allow any material change to be made in the character of
its business as an independent oil and gas exploration and production company.
Section 9.07 Limitation on Leases. Neither the Borrower nor
any Subsidiary will create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or
personal including capital leases but excluding leases of Hydrocarbon
Interests), under leases or lease agreements which would cause the aggregate
amount of all payments made by the Borrower and its Subsidiaries pursuant to
all such leases or lease agreements to exceed $5,000,000 in any period of
twelve consecutive calendar months during the life of such leases.
Section 9.08 Mergers, Etc. Neither the Borrower nor any
Subsidiary will merge into or with or consolidate with any other Person, or
sell, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its Property or assets to any
other Person, except that any Subsidiary may merge with any other Subsidiary
and except that any Person may merge into the Borrower provided that the
Borrower is the surviving corporation and immediately thereafter and giving
effect thereto, no event shall occur and be continuing which constitutes a
Default or an Event of Default.
Section 9.09 Proceeds of Notes. The Borrower will not permit
the proceeds of the Notes to be used for any purpose other than those permitted
by Section 7.07. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulation G, U or X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect.
Section 9.10 ERISA Compliance. The Borrower will not at any
time:
(a) Engage in, or permit any Subsidiary or ERISA
Affiliate to engage in, any transaction in connection with which the
Borrower, any Subsidiary or any ERISA Affiliate could be subjected to
either a civil penalty assessed pursuant to section 502(c), (i) or (l)
of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code;
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(b) Terminate, or permit any Subsidiary or ERISA
Affiliate to terminate, any Plan in a manner, or take any other action
with respect to any Plan, which could result in any liability to the
Borrower, any Subsidiary or any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA
Affiliate to fail to make, full payment when due of all amounts which,
under the provisions of any Plan, agreement relating thereto or
applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is
required to pay as contributions thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA
Affiliate to permit to exist, any accumulated funding deficiency
within the meaning of Section 302 of ERISA or section 412 of the Code,
whether or not waived, with respect to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate to
permit, the actuarial present value of the benefit liabilities under
any Plan maintained by the Borrower, any Subsidiary or any ERISA
Affiliate which is regulated under Title IV of ERISA to exceed the
current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such
benefit liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of
ERISA;
(f) Contribute to or assume an obligation to contribute
to, or permit any Subsidiary or ERISA Affiliate to contribute to or
assume an obligation to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate
to acquire, an interest in any Person that causes such Person to
become an ERISA Affiliate with respect to the Borrower, any Subsidiary
or any ERISA Affiliate if such Person sponsors, maintains or
contributes to, or at any time in the six-year period preceding such
acquisition has sponsored, maintained, or contributed to, (1) any
Multiemployer Plan, or (2) any other Plan that is subject to Title IV
of ERISA under which the actuarial present value of the benefit
liabilities under such Plan exceeds the current value of the assets
(computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to
incur, a liability to or on account of a Plan under sections 515,
4062, 4063, 4064, 4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute
to, or permit any Subsidiary or ERISA Affiliate to contribute to or
assume an obligation to contribute to, any employee welfare benefit
plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such
entities in their sole discretion at any time without any material
liability; or
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(j) Amend or permit any Subsidiary or ERISA Affiliate to
amend, a Plan resulting in an increase in current liability such that
the Borrower, any Subsidiary or any ERISA Affiliate is required to
provide security to such Plan under section 401(a)(29) of the Code; if
plus (ii) 50% of its consolidated net income, if positive, (determined
in accordance with GAAP) for each fiscal year of the Company, ending
after the fiscal year ended December 31, 1995.
if, as a result of such event or condition, together with all other such events
or conditions, the Borrower, any Subsidiary or any ERISA Affiliate shall incur
or in the opinion of the Majority Banks shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the
foregoing) which is, in the determination of the Majority Banks, material in
relation to the financial position of the Borrower.
Section 9.11 Sale or Discount of Receivables. Neither the
Borrower nor any Subsidiary will discount or sell (with or without recourse)
any of its notes receivable or accounts receivable, except in connection with
the sale of the Oil and Gas Properties that generated the receivable.
Section 9.12 Working Capital. The Borrower will not permit
consolidated working capital to be less than zero at any time. As used in this
Section, "consolidated working capital" means the excess of its consolidated
current assets plus Available Commitment over its consolidated current
liabilities (excluding current maturities of Debt for borrowed money of the
Borrower and its Subsidiaries). As used in this Section, "Available
Commitment" shall mean the amount, to the extent necessary, up to the unused
amount of the Aggregate Commitments as of the date of calculation, which when
added to the consolidated current assets, will cause the Borrower to be in
compliance with this Section 9.12.
Section 9.13 Tangible Net Worth. The Borrower will not
permit its Tangible Net Worth to be less than $100,000,000 at any time plus
(ii) 50% of its consolidated net income, if positive, (determined in accordance
with GAAP) for each fiscal year of the Company, ending after the fiscal year
ended December 31, 1995.
Section 9.14 Interest Coverage Ratio. The Borrower will not
permit its Interest Coverage Ratio as of the end of any fiscal quarter of the
Borrower (calculated quarterly at the end of each fiscal quarter) to be less
than 2.75 to 1.00. For the purposes of this Section 9.14, "Interest Coverage
Ratio" shall mean the ratio of (i) EBITDA for the four fiscal quarters ending
on such date to (ii) cash interest payments made for such four fiscal quarters
of the Borrower and its Consolidated Subsidiaries.
Section 9.15 Sale of Oil and Gas Properties. The Borrower
will not, and will not permit any Subsidiary to, sell, assign, farm-out, convey
or otherwise transfer any Oil and Gas Property or any interest in any Oil and
Gas Property except for (i) the sale of Hydrocarbons in the ordinary course of
business; (ii) farmouts of undeveloped acreage and assignments in connection
with such farmouts; (iii) the sale or transfer of equipment that is no longer
necessary
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for the business of the Borrower or such Subsidiary or is replaced by equipment
of at least comparable value and use, (iv) during any consecutive 12 month
period, sales in the ordinary course of business of Oil and Gas Properties
which shall not exceed $5,000,000 in the aggregate in any fiscal year
including, but not limited to, the sale of the Hydrocarbon Interests
representing approximately the final 20% of the gas reserves in a Section 29
tax credit transaction which shall not exceed $3,000,000 in the aggregate as
the values are set forth in the most recent Reserve Report and (v) the sale of
some or all of the Oil and Gas Properties acquired from Basin to Wattenberg
Resources Land, L.L.C. ("WRL"), provided that the Borrowing Base is
automatically reduced by the net cash proceeds received by the Borrower or
Orion from WRL.
Section 9.16 Environmental Matters. Neither the Borrower nor
any Subsidiary will cause or permit any of its Property to be in violation of,
or do anything or permit anything to be done which will subject any such
Property to any remedial obligations under any Environmental Laws, assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such Property where such
violations or remedial obligations would have a Material Adverse Effect.
Section 9.17 Transactions with Affiliates. Neither the
Borrower nor any Subsidiary will enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of Property or the
rendering of any service, with any Affiliate unless such transactions are
otherwise permitted under this Agreement, are in the ordinary course of its
business and are upon fair and reasonable terms no less favorable to it than it
would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
Section 9.18 Subsidiaries. The Borrower shall not, and shall
not permit any Subsidiary to, create any additional Subsidiaries. The Borrower
shall not and shall not permit any Subsidiary to sell or to issue any stock or
ownership interest of a Subsidiary except in compliance with Section 9.03.
Section 9.19 Negative Pledge Agreements. Neither the
Borrower nor any Subsidiary will create, incur, assume or suffer to exist any
contract, agreement or understanding (other than this Agreement and the other
Loan Documents) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien on any of its Property or
restricts any Subsidiary from paying dividends to the Borrower, or which
requires the consent of or notice to other Persons in connection therewith.
Section 9.20 Subordinated Debt. The Borrower will not modify
or amend the terms of the Indenture as in existence on December 1, 1993 and any
related documents without the consent of the Majority Banks, if the effect of
such modification or amendment would be to shorten the time for payment on any
Subordinated Notes, increase the principal amount of the Subordinated Notes
above $75,000,000, increase the rate of interest on any Subordinated Note or
change the method of calculating interest so as to effectively increase the
rate of interest on any Subordinated Note, change any of the provisions of
Sections 2.3, 5.1, Article VIII, Article X, Article XI, Article XII, Article
XIII or Article XIV, and Section 1.1 as to any of the definitions
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used in or relating to any of the above Sections and Articles, or any other
provisions which would detrimentally effect the rights of the Banks. The
Indebtedness shall first be irrevocably and indefeasibly paid in full in cash,
or the immediate payment thereof duly provided for in cash, and this Agreement
terminated before the Company, any Subsidiary or any Person acting on behalf of
the Company or any Subsidiary shall directly or indirectly pay, prepay, redeem,
retire, repurchase or otherwise acquire for value, or make a deposit pursuant
to Article IV of the Indenture in respect of, or make any other prepayment,
payment or distribution (whether in cash, property, securities or accommodation
thereof or otherwise) on account of the principal of (or premium, if any) or
interest on, any Subordinated Debt or Subsidiary Subordinated Debt; except that
the Company may make payments of interest that have accrued and is payable on
the Subordinated Notes pursuant to the terms of the Indenture and pay the
principal of the Subordinated Notes at the stated maturity of December 1, 2003,
provided that no Event of Default exists and is continuing and such payment
shall not cause an Event of Default.
Section 9.21 SEC 10 Value. The Borrower shall not allow the
ratio of the SEC 10 Value to the outstanding Loans and LC Exposure to be less
than 1.55 to 1.00 as of each Scheduled Redetermination Date commencing April
15, 1997. As used in this Section 9.21, "SEC 10 Value" for any Scheduled
Redetermination Date shall equal the value of the hydrocarbon reserves of the
Borrower and the Subsidiaries discounted at 10% as of the end of the Borrower's
preceding fiscal year as required by the SEC to be reported in the Borrower's
10K report.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the
following events shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or
prepayment when due of any principal of or interest on any Loan, or
any reimbursement obligation for a disbursement made under any Letter
of Credit, or any fees or other amount payable by it under any Loan
Document and such default, other than a default of a payment or
prepayment of principal, shall continue unremedied for a period of 3
Business Days; or
(b) the Borrower or any Subsidiary shall default in the
payment when due of any principal of or interest on any of its other
Debt aggregating $1,000,000 or more, or any event specified in any
note, agreement, indenture or other document evidencing or relating to
any such Debt shall occur if the effect of such event is to cause, or
(with the giving of any notice or the lapse of time or both) to permit
the holder or holders of such Debt (or a trustee or agent on behalf of
such holder or holders) to cause, such Debt to become due prior to its
stated maturity; or
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(c) any representation, warranty or certification made or
deemed made herein or in any other Loan Document by the Borrower or
any Subsidiary, or any certificate furnished to any Lender or the
Agent pursuant to the provisions hereof or any Security Instrument,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
(d) the Borrower shall default in the performance of any
of its obligations under Article IX or any other Article of this
Agreement other than under Article VIII; or the Borrower shall default
in the performance of any of its obligations under Article VIII or any
other Loan Document (other than the payment of amounts due which shall
be governed by Section 10.01(a)) and such default shall continue
unremedied for a period of thirty (30) days after the earlier to occur
of (i) notice thereof to the Borrower by the Agent or any Lender
(through the Agent), or (ii) the Borrower otherwise becoming aware of
such default; or
(e) the Borrower shall admit in writing its inability to,
or be generally unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Federal
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, liquidation or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code,
or (vi) take any corporate action for the purpose of effecting any of
the foregoing; or
(g) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution
or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a trustee, receiver, custodian, liquidator or the
like of the Borrower of all or any substantial part of its assets, or
(iii) similar relief in respect of the Borrower under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 days; or (iv) an order for relief against the
Borrower shall be entered in an involuntary case under the Federal
Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in
excess of $1,000,000 in the aggregate shall be rendered by a court
against the Borrower or any Subsidiary and the same shall not be
discharged (or provision shall not be made for such
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discharge), or a stay of execution thereof shall not be procured,
within thirty (30) days from the date of entry thereof and the
Borrower or such Subsidiary shall not, within said period of 30 days,
or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or
(i) (i) Any Person other than Nicholas J. Sutton, Jr.
and P. Michael Highum and their successors (but not assigns) shall,
after the date hereof, acquire any direct or indirect beneficial
ownership of voting securities (including securities convertible by
their terms into voting securities) of the Borrower so that such
Person shall have more than 25% of the total voting power of all such
securities issued by the Borrower on a fully diluted basis, or (ii)
any two or more Persons other than Nicholas J. Sutton, Jr., P. Michael
Highum and/or Natural Gas Partners, L.P. and their successors (but not
assigns) (hereinafter referred to as a "Group") who "act as a
partnership, limited partnership, syndicate or other group for the
purposes of acquiring, holding or disposing of securities" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
shall, after the date hereof, acquire any direct or indirect
beneficial ownership of voting securities (including securities
convertible by their terms into voting securities) of the Borrower so
that such Group shall have 25% or more of the total voting power of
all such securities issued by the Borrower or (iii) except with
respect to a majority on the Board of Directors nominated by Nicholas
J. Sutton, Jr., P. Michael Highum and/or Natural Gas Partners, L.P.
after the date hereof, the election by any Person or Group, together
with any Affiliates thereof, of a sufficient number of its or their
nominees to the Board of Directors of the Borrower to the extent that
such nominees, when added to any existing directors remaining on such
Board of Directors after such election who are Affiliates of such
Person or Group, shall constitute a majority of such Board of
Directors; or
(j) any Subsidiary takes, suffers or permits to exist any
of the events or conditions referred to in paragraphs (e), (f), (g) or
(h) hereof; or
(k) any Letter of Credit becomes the subject matter of
any order, judgment, injunction or any other such determination, or if
the Borrower or any other Person shall petition or apply for or obtain
any order restricting payment by the Agent under any Letter of Credit
or extending the Lenders' liability under any Letter of Credit beyond
the expiration date stated therein or otherwise agreed to by the
Agent.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one
referred to in clauses (e), (f) or (g) of Section 10.01 or in clause
(j) to the extent it relates to clauses (e), (f) or (g), the Agent may
and, upon request of the Majority Lenders, shall, by notice to the
Borrower, cancel the Commitments and/or declare the principal amount
then outstanding of, and the accrued interest on, the Loans and all
other amounts payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash
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collateral to secure the LC Exposure as provided in Section 2.10(b)
hereof) to be forthwith due and payable, whereupon such amounts shall
be immediately due and payable without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or other
formalities of any kind, all of which are hereby expressly waived by
the Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in clause
(j) to the extent it relates to clauses (e), (f) or (g), the
Commitments shall be automatically cancelled and the principal amount
then outstanding of, and the accrued interest on, the Loans and all
other amounts payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash collateral to secure
the LC Exposure as provided in Section 2.10(b) hereof) shall become
automatically immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or
other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
(c) All proceeds received after maturity of the Notes,
whether by acceleration or otherwise shall be applied first to
reimbursement of expenses and indemnities provided for in the Loan
Documents; second to accrued interest on the Notes; third to fees;
fourth pro rata to principal outstanding on the Notes and other
Indebtedness; fifth to serve as cash collateral to be held by the
Agent to secure the LC Exposure; and any excess shall be paid to the
Borrower or as otherwise required by any Governmental Requirement.
ARTICLE XI
THE AGENT
Section 11.01 Appointment, Powers and Immunities. Each
Lender hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Agent (which term as used in this sentence and in
Section 11.05 and the first sentence of Section 11.06 shall include reference
to its Affiliates and its and its Affiliates' officers, directors, employees,
attorneys, accountants, experts and agents): (i) shall have no duties or
responsibilities except those expressly set forth in the Loan Documents, and
shall not by reason of the Loan Documents be a trustee or fiduciary for any
Lender; (ii) makes no representation or warranty to any Lender and shall not be
responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement, or for the value, validity, effectiveness, genuineness, execution,
effectiveness, legality, enforceability or sufficiency of this Agreement, any
Note or any other document
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referred to or provided for herein or for any failure by the Borrower or any
other Person (other than the Agent) to perform any of its obligations hereunder
or thereunder or for the existence, value, perfection or priority of any
collateral security or the financial or other condition of the Borrower, its
Subsidiaries or any other obligor or guarantor; (iii) except pursuant to
Section 11.07 shall not be required to initiate or conduct any litigation or
collection proceedings hereunder; and (iv) shall not be responsible for any
action taken or omitted to be taken by it hereunder or under any other document
or instrument referred to or provided for herein or in connection herewith
including its own ordinary negligence, except for its own gross negligence or
willful misconduct. The Agent may employ agents, accountants, attorneys and
experts and shall not be responsible for the negligence or misconduct of any
such agents, accountants, attorneys or experts selected by it in good faith or
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such agents, accountants, attorneys or experts. The Agent may
deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a written notice of the assignment or transfer thereof
permitted hereunder shall have been filed with the Agent. The Agent is
authorized to release any collateral that is permitted to be sold or released
pursuant to the terms of the Loan Documents.
Section 11.02 Reliance by Agent. The Agent shall be entitled
to rely upon any certification, notice or other communication (including any
thereof by telephone, telex, telecopier, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.
Section 11.03 Defaults. The Agent shall not be deemed to
have knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans or of fees or failure to reimburse for Letter
of Credit drawings) unless the Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "Notice of
Default." In the event that the Agent receives such a notice of the occurrence
of a Default, the Agent shall give prompt notice thereof to the Lenders. In
the event of a payment Default, the Agent shall give each Lender prompt notice
of each such payment Default.
Section 11.04 Rights as a Lender. With respect to its
Commitments and the Loans made by it and its participation in the issuance of
Letters of Credit, Chase (and any successor acting as Agent) in its capacity as
a Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the Agent, and
the term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. Chase (and any successor acting
as Agent) and its Affiliates may (without having to account therefor to any
Lender) accept deposits from, lend money to and generally engage in any kind of
banking, trust or other business with the Borrower (and any of its Affiliates)
as if it were not acting as the Agent, and Chase and its Affiliates may accept
fees and other consideration from the Borrower for services in connection with
this Agreement or otherwise without having to account for the same to the
Lenders.
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Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO
INDEMNIFY THE AGENT RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE
INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED
OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE
OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH
MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF: (I) THE LOAN DOCUMENTS OR ANY OTHER DOCUMENTS
CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY,
BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY
DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT
OR OF ANY OTHER LOAN DOCUMENT; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN
THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE AGENT,
PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT
THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT.
Section 11.06 Non-Reliance on Agent and other Lenders. Each
Lender acknowledges and agrees that it has, independently and without reliance
on the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own credit analysis of the Borrower and
its decision to enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement. The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement, the Notes, the
other Loan Documents or any other document referred to or provided for herein
or to inspect the properties or books of the Borrower. Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Agent or any of
its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins
L.L.P. is acting in this transaction as special counsel to the Agent only,
except to the extent otherwise expressly stated in any legal opinion or any
Loan Document. Each Lender will consult with its own legal counsel to the
extent that it deems necessary in connection with the Loan Documents and the
matters contemplated therein.
Section 11.07 Action by Agent. Except for action or other
matters expressly required of the Agent hereunder, the Agent shall in all cases
be fully justified in failing or refusing to act hereunder unless it shall (i)
receive written instructions from the Majority Lenders specifying the action to
be taken, and (ii) be indemnified to its satisfaction by the Lenders against
any and all liability and expenses which may be incurred by it by reason of
taking or continuing to take any such action. The instructions of the Majority
Lenders and any action taken or failure
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to act pursuant thereto by the Agent shall be binding on all of the Lenders.
If a Default has occurred and is continuing, the Agent shall take such action
with respect to such Default as shall be directed by the Majority Lenders in
the written instructions (with indemnities) described in this Section 11.07,
provided that, unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders. In no event, however, shall the Agent be
required to take any action which exposes the Agent to personal liability or
which is contrary to the Loan Documents or applicable law.
Section 11.08 Resignation or Removal of Agent. Subject to
the appointment and acceptance of a successor Agent as provided below, the
Agent may resign at any time by giving notice thereof to the Lenders and the
Borrower, and the Agent may be removed at any time with or without cause by the
Majority Lenders. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Majority Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Agent's giving of notice
of resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon
the acceptance of such appointment hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article XI and Section 12.03 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver. No failure on the part of the Agent or
any Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under any of the Loan Documents
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under any of the Loan Documents preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
Section 12.02 Notices. All notices and other communications
provided for herein and in the other Loan Documents (including, without
limitation, any modifications of, or waivers or consents under, this Agreement
or the other Loan Documents) shall be given or made by telex, telecopy, courier
or U.S. Mail or in writing and telexed, telecopied, mailed or delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or in the Loan Documents or, as to any party, at such
other address as shall be
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designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement or in the other Loan Documents, all such
communications shall be deemed to have been duly given when transmitted, if
transmitted before 1:00 p.m. local time on a Business Day (otherwise on the
next succeeding Business Day) by telex or telecopier and evidence or
confirmation of receipt is obtained, or personally delivered or, in the case of
a mailed notice, three (3) Business Days after the date deposited in the mails,
postage prepaid, in each case given or addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, etc. The
Borrower agrees:
(a) whether or not the transactions hereby contemplated
are consummated, pay all reasonable expenses of the Agent in the
administration (both before and after the execution hereof and
including advice of counsel as to the rights and duties of the Agent
and the Lenders with respect thereto) of, and in connection with the
negotiation, syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights under,
enforcement of, and refinancing, renegotiation or restructuring of,
the Loan Documents and any amendment, waiver or consent relating
thereto (including, without limitation, travel, photocopy, mailing,
courier, telephone and other similar expenses of the Agent, the cost
of environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel and other
outside consultants for the Agent and, in the case of enforcement, the
reasonable fees and disbursements of counsel for the Agent and any of
the Lenders); and promptly reimburse the Agent for all amounts
expended, advanced or incurred by the Agent or the Lenders to satisfy
any obligation of the Borrower under this Agreement or any Security
Instrument, including without limitation, all costs and expenses of
foreclosure;
(b) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF
THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS
("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND
PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY
MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF
THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A
RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR
PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE LOANS OR
LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER
AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE BORROWER OR ANY
SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT OR WITH ANY
GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR
ANY BREACH OF ANY WARRANTY OF THE BORROWER SET FORTH IN ANY OF THE
LOAN DOCUMENTS, (VI) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER
OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, (VII) THE
PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE
NON-COMPLIANCE, NON-
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DELIVERY OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED
DRAFT(S) AND CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS
WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE
LOAN DOCUMENTS OR (VII) ANY OTHER ASPECT OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS
OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR
CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE
ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL
INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE
LENDERS OR ANY LENDER AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST
THE AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST
RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND
LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY
OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A
RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY
SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR
ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY
SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME,
COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE,
STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF
THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR
(V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION
WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR
ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY
LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR
ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY
FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION
OR OTHERWISE.
(d) No Indemnified Party may settle any claim to be
indemnified without the consent of the indemnitor, such consent not to
be unreasonably withheld; provided, that the indemnitor may not
reasonably withhold consent to any settlement that an Indemnified
Party proposes, if the indemnitor does not have the financial ability
to pay all its obligations outstanding and asserted against the
indemnitor at that time, including
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the maximum potential claims against the Indemnified Party to be
indemnified pursuant to this Section 12.03.
(e) In the case of any indemnification hereunder, the
Agent or Lender, as appropriate shall give notice to the Borrower of
any such claim or demand being made against the Indemnified Party and
the Borrower shall have the non-exclusive right to join in the defense
against any such claim or demand provided that if the Borrower
provides a defense, the Indemnified Party shall bear its own cost of
defense unless there is a conflict between the Borrower and such
Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE
INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE
OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE
RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED
PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY
ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN
INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF
THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER
THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED
PARTY.
(g) The Borrower's obligations under this Section 12.03
shall survive any termination of this Agreement and the payment of the
Notes and shall continue thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this
Section 12.03 within thirty (30) days of the receipt by the Borrower
of notice of the amount due.
Section 12.04 Amendments, Etc. Any provision of this
Agreement or any Security Instrument may be amended, modified or waived with
the Borrower's and the Majority Lenders' prior written consent; provided that
(i) no amendment, modification or waiver which extends the maturity of the
Loans, releases any guarantor, if any, increases the Aggregate Maximum Credit
Amounts, forgives the principal amount of any Indebtedness outstanding under
this Agreement, reduces the interest rate applicable to the Loans or the fees
payable to the Lenders generally, affects Section 2.03(a), this Section 12.04
or Section 12.06(a) or modifies the definition of "Super Majority Lenders" or
"Majority Lenders" shall be effective without consent of all Lenders; (ii) no
amendment, modification or waiver which increases the Maximum Credit Amount of
any Lender shall be effective without the consent of such Lender; (iii) no
amendment, modification or waiver which modifies the rights, duties or
obligations of the Agent shall be effective without the consent of the Agent;
and (iv) no amendment affecting the Borrowing Base or Threshold Amount shall be
effective without consent of the Super Majority Lenders.
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Section 12.05 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 12.06 Assignments and Participations.
(a) The Borrower may not assign its rights or obligations
hereunder or under the Notes or any Letters of Credit without the
prior consent of all of the Lenders and the Agent.
(b) Any Lender may, upon the written consent of the Agent
and the Borrower (which consent will not be unreasonably withheld),
assign to one or more assignees all or a portion of its rights and
obligations under this Agreement pursuant to an Assignment Agreement
substantially in the form of Exhibit E (an "Assignment") provided,
however, that (i) any such assignment shall be in the amount of at
least $10,000,000 or such lesser amount to which the Borrower has
consented and (ii) the assignee or assignor shall pay to the Agent a
processing and recordation fee of $2,500 for each assignment. Any
such assignment will become effective upon the execution and delivery
to the Agent of the Assignment and the consent of the Agent. Promptly
after receipt of an executed Assignment, the Agent shall send to the
Borrower a copy of such executed Assignment. Upon receipt of such
executed Assignment, the Borrower, will, at its own expense, execute
and deliver new Notes to the assignor and/or assignee, as appropriate,
in accordance with their respective interests as they appear. Upon
the effectiveness of any assignment pursuant to this Section 12.06(b),
the assignee will become a "Lender," if not already a "Lender," for
all purposes of this Agreement and the other Loan Documents. The
assignor shall be relieved of its obligations hereunder to the extent
of such assignment (and if the assigning Lender no longer holds any
rights or obligations under this Agreement, such assigning Lender
shall cease to be a "Lender" hereunder except that its rights under
Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Agent
will prepare on the last Business Day of each month during which an
assignment has become effective pursuant to this Section 12.06(b), a
new Annex I giving effect to all such assignments effected during such
month, and will promptly provide the same to the Borrower and each of
the Lenders.
(c) Each Lender may transfer, grant or assign
participations in all or any part of such Lender's interests hereunder
pursuant to this Section 12.06(c) to any Person, provided that: (i)
such Lender shall remain a "Lender" for all purposes of this Agreement
and the transferee of such participation shall not constitute a
"Lender" hereunder; and (ii) no participant under any such
participation shall have rights to approve any amendment to or waiver
of any of the Loan Documents except to the extent such amendment or
waiver would (x) forgive any principal owing on any Indebtedness or
extend the Revolving Credit Termination Date, (y) reduce the interest
rate (other than as a result of waiving the applicability of any
post-default increases in interest rates) or fees applicable to any of
the Commitments or Loans or Letters of Credit in which such
participant is
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participating, or postpone the payment of any thereof, or (z) release
any guarantor of the Indebtedness or release all or substantially all
of the collateral (except as provided in the Loan Documents)
supporting any of the Commitments or Loans or Letters of Credit in
which such participant is participating. In the case of any such
participation, the participant shall not have any rights under this
Agreement or any of the other Loan Documents (the participant's rights
against the granting Lender in respect of such participation to be
those set forth in the agreement with such Lender creating such
participation), and all amounts payable by the Borrower hereunder
shall be determined as if such Lender had not sold such participation,
provided that such participant shall be entitled to receive additional
amounts under Article V on the same basis as if it were a Lender and
be indemnified under Section 12.03 as if it were a Lender. In
addition, each agreement creating any participation must include an
agreement by the participant to be bound by the provisions of Section
12.15.
(d) The Lenders may furnish any information concerning
the Borrower in the possession of the Lenders from time to time to
assignees and participants (including prospective assignees and
participants); provided that, such Persons agree to be bound by the
provisions of Section 12.15 hereof.
(e) Notwithstanding anything in this Section 12.06 to the
contrary, any Lender may assign and pledge its Note to any Federal
Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any operating circular issued by such Federal
Reserve System and/or such Federal Reserve Bank. No such assignment
and/or pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
(f) Notwithstanding any other provisions of this Section
12.06, no transfer or assignment of the interests or obligations of
any Lender or any grant of participations therein shall be permitted
if such transfer, assignment or grant would require the Borrower to
file a registration statement with the SEC or to qualify the Loans
under the "Blue Sky" laws of any state.
Section 12.07 Invalidity. In the event that any one or more
of the provisions contained in any of the Loan Documents or the Letters of
Credit, the Letter of Credit Agreements shall, for any reason, be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any Security Instrument.
Section 12.08 Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute this
Agreement by signing any such counterpart.
Section 12.09 References. The words "herein," "hereof,"
"hereunder" and other words of similar import when used in this Agreement refer
to this Agreement as a whole, and
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not to any particular article, section or subsection. Any reference herein to
a Section shall be deemed to refer to the applicable Section of this Agreement
unless otherwise stated herein. Any reference herein to an exhibit or schedule
shall be deemed to refer to the applicable exhibit or schedule attached hereto
unless otherwise stated herein.
Section 12.10 Survival. The obligations of the parties under
Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the
repayment of the Loans and the termination of the Commitments. To the extent
that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Indebtedness so satisfied shall be revived and continue as if such
payment or proceeds had not been received and the Agent's and the Lenders'
Liens, security interests, rights, powers and remedies under this Agreement and
each Security Instrument shall continue in full force and effect. In such
event, each Security Instrument shall be automatically reinstated and the
Borrower shall take such action as may be reasonably requested by the Agent and
the Lenders to effect such reinstatement.
Section 12.11 Captions. Captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY
THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL
OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE NOTES (INCLUDING, BUT NOT
LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
BORROWER, THE AGENT AND EACH LENDER HEREBY ACCEPTS FOR ITSELF AND (TO
THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF
THE BORROWER, THE AGENT AND EACH LENDER HEREBY IRREVOCABLY WAIVES ANY
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OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS
NON-EXCLUSIVE AND DOES NOT PRECLUDE THE PARTIES FROM OBTAINING
JURISDICTION OVER OTHER PARTIES IN ANY COURT OTHERWISE HAVING
JURISDICTIO.
(C) THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION
LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS THE DESIGNEE,
APPOINTEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF
THE BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS. IT
IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT WILL BE
PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE BORROWER AT ITS ADDRESS
SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF THE BORROWER
TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS SAID ADDRESS, SUCH
SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
(D) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BORROWER,
THE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION,
INCLUDING WITHOUT LIMITATION, THE COMMENCEMENT OF ENFORCEMENT
PROCEEDINGS UNDER THE LOAN DOCUMENTS IN ALL APPLICABLE JURISDICTIONS.
(E) EACH OF THE BORROWER AND EACH LENDER HEREBY (I)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED
BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES,
OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III)
CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF
COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS
AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 12.13.
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Section 12.14 Interest. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to
any Lender under laws applicable to it (including the laws of the United States
of America and the State of New York or any other jurisdiction whose laws may
be mandatorily applicable to such Lender notwithstanding the other provisions
of this Agreement), then, in that event, notwithstanding anything to the
contrary in any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under law applicable
to any Lender that is contracted for, taken, reserved, charged or received by
such Lender under any of the Loan Documents or agreements or otherwise in
connection with the Notes shall under no circumstances exceed the maximum
amount allowed by such applicable law, and any excess shall be cancelled
automatically and if theretofore paid shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Borrower); and (ii) in the event that the
maturity of the Notes is accelerated by reason of an election of the holder
thereof resulting from any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Borrower). All sums paid or agreed to be paid
to any Lender for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law applicable to such Lender, be amortized,
prorated, allocated and spread throughout the full term of the Loans evidenced
by the Notes until payment in full so that the rate or amount of interest on
account of any Loans hereunder does not exceed the maximum amount allowed by
such applicable law. If at any time and from time to time (i) the amount of
interest payable to any Lender on any date shall be computed at the Highest
Lawful Rate applicable to such Lender pursuant to this Section 12.14 and (ii)
in respect of any subsequent interest computation period the amount of interest
otherwise payable to such Lender would be less than the amount of interest
payable to such Lender computed at the Highest Lawful Rate applicable to such
Lender, then the amount of interest payable to such Lender in respect of such
subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of
interest payable to such Lender shall equal the total amount of interest which
would have been payable to such Lender if the total amount of interest had been
computed without giving effect to this Section 12.14.
Section 12.15 Confidentiality. In the event that the
Borrower provides to the Agent or the Lenders written confidential information
belonging to the Borrower, if the Borrower shall denominate such information in
writing as "confidential", the Agent and the Lenders shall thereafter maintain
such information in confidence in accordance with the
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standards of care and diligence that each utilizes in maintaining its own
confidential information. This obligation of confidence shall not apply to
such portions of the information which (i) are in the public domain, (ii)
hereafter become part of the public domain without the Agent or the Lenders
breaching their obligation of confidence to the Borrower, (iii) are previously
known by the Agent or the Lenders from some source other than the Borrower,
(iv) are hereafter developed by the Agent or the Lenders without using the
Borrower's information, (v) are hereafter obtained by or available to the Agent
or the Lenders from a third party who owes no obligation of confidence to the
Borrower with respect to such information or through any other means other than
through disclosure by the Borrower, (vi) are disclosed with the Borrower's
consent, (vii) must be disclosed either pursuant to any Governmental
Requirement or to Persons regulating the activities of the Agent or the
Lenders, or (viii) as may be required by law or regulation or order of any
Governmental Authority in any judicial, arbitration or governmental proceeding.
Further, the Agent or a Lender may disclose any such information to any other
Lender, any independent petroleum engineers or consultants, any independent
certified public accountants, any legal counsel employed by such Person in
connection with this Agreement or any Security Instrument, including without
limitation, the enforcement or exercise of all rights and remedies thereunder,
or any assignee or participant (including prospective assignees and
participants) in the Loans; provided, however, that the Agent or the Lenders
shall receive a confidentiality agreement from the Person to whom such
information is disclosed such that said Person shall have the same obligation
to maintain the confidentiality of such information as is imposed upon the
Agent or the Lenders hereunder. Notwithstanding anything to the contrary
provided herein, this obligation of confidence shall cease three (3) years from
the date the information was furnished, unless the Borrower requests in writing
at least thirty (30) days prior to the expiration of such three year period, to
maintain the confidentiality of such information for an additional three year
period. The Borrower waives any and all other rights it may have to
confidentiality as against the Agent and the Lenders arising by contract,
agreement, statute or law except as expressly stated in this Section 12.15.
[SIGNATURES BEGIN NEXT PAGE]
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The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER: HS RESOURCES, INC.
By:
----------------------------------------
Name:
Title:
Address for Notices:
One Maritime Plaza
Fifteenth Floor
San Francisco, CA 94111
Telecopier No.: (415) 433-5811
Telephone No.: (415) 433-5795
Attention: James E. Duffy
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<PAGE> 84
LENDER AND AGENT: THE CHASE MANHATTAN BANK, N.A.
By:
---------------------------------------
Name: Richard F. Betz
Title: Vice President
Lending Office for Base Rate Loans and
Eurodollar Loans:
The Chase Manhattan Bank, N.A.
270 Park Avenue
New York, NY 10017
Address for Notices:
The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center, 13th Floor
Brooklyn, NY 11245
Telecopier No.: (718) 242-6910
Telephone No.: (718) 242-7969
Attention: NYAO
With a Copy to:
The Chase Manhattan Bank, N.A.
One Chase Manhattan Bank
New York, NY 10081
Telecopier No.: (212) 552-2680
Telephone No.: (212) 552-1687
Attention: Mr. Richard F. Betz
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<PAGE> 85
LENDERS: UNION BANK OF CALIFORNIA, N.A.
By:
----------------------------------------
Name: Richard P. DeGrey, Jr.
Title: Vice President
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, CA 90071
Address for Notices:
Union Bank of California, N.A.
445 South Figueroa Street, 15th Floor
Los Angeles, CA 90071
Telecopier No.: (213) 236-4096
Telephone No.: (213) 236-5731
Attention: Richard DeGrey
With copy to: Patricia Ayala
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<PAGE> 86
WELLS FARGO BANK, N.A.
By:
----------------------------------------
Name: Charles D. Kirkham
Title: Vice President
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
Wells Fargo Bank, N.A.
420 Montgomery Street, 9th Floor
San Francisco, CA 94104
Address for Notices:
Wells Fargo Bank, N.A.
500 North Akard
3535 Lincoln Plaza
Dallas, TX 75201
Telecopier No.: (415) 989-4319
Telephone No.: (415) 396-3782
Attention: Barbara Kattman
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<PAGE> 87
CIBC, INC.
By:
----------------------------------------
Name: Gary C. Gaskill
Title: Authorized Signatory
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
2727 Paces Ferry Road, Suite 1200
Two Paces West
Atlanta, Georgia 30339
Address for Notices:
2727 Paces Ferry Road, Suite 1200
Two Paces West
Atlanta, Georgia 30339
Telecopier No.: 770/319-4950
Telephone No.: 770/319-4814
Attention: Ms. Pluria A. Howell
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<PAGE> 88
CIBC, INC.
By:
----------------------------------------
Name: Gary C. Gaskill
Title: Authorized Signatory
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
2727 Paces Ferry Road, Suite 1200
Two Paces West
Atlanta, Georgia 30339
Address for Notices:
2727 Paces Ferry Road, Suite 1200
Two Paces West
Atlanta, Georgia 30339
Telecopier No.: 770/319-4950
Telephone No.: 770/319-4814
Attention: Ms. Pluria A. Howell
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<PAGE> 89
LENDERS: ROYAL BANK OF CANADA
By:
----------------------------------------
Name: J. D. Frost
Title: Senior Manager
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
Royal Bank of Canada
1 Financial Square, 23rd Floor
New York, NY 10005-3531
Address for Notices:
Royal Bank of Canada
600 Wilshire Blvd., Suite 800
Los Angeles, CA 90017
Telecopier No.: (213) 955-5310
Telephone No.: (713) 955-5350
Attention: Gil J. Benard, Senior Manager
S-7
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AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF JUNE 14, 1996
AMONG
HS RESOURCES, INC.
AS BORROWER,
THE CHASE MANHATTAN BANK, N.A.,
AS AGENT,
AND
THE LENDERS SIGNATORY HERETO
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.03 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE II
COMMITMENTS
Section 2.01 Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.02 Borrowings, Continuations, Conversions and Letters of Credit . . . . . . . . . . . . . . . . . 18
Section 2.03 Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.04 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.05 Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.06 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.07 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.08 Borrowing Base and Threshold Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.09 Assumption of Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.10 Obligation to Reimburse and to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.11 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.02 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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Section 4.02 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.03 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.04 Non-receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.05 Set-off, Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.06 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.02 Limitation on Eurodollar Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03 . . . . . . . . . . . . . . . . . . . 36
Section 5.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.02 Initial and Subsequent Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.03 Conditions Relating to Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.05 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.07 Use of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.08 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.10 Titles, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.11 No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.12 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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Section 7.13 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.15 Location of Business and Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.16 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.18 Compliance with the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.20 Hedging Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.21 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.03 Maintenance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.04 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.05 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.06 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.07 Engineering Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.08 ERISA Information and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.09 Subsidiary Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.02 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.03 Investments, Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.04 Dividends, Distributions and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.05 Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.06 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.07 Limitation on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.08 Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.09 Proceeds of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.10 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.11 Sale or Discount of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.12 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.13 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.14 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
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Section 9.15 Sale of Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.17 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.19 Negative Pledge Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.20 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.21 SEC 10 Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XI
THE AGENT
Section 11.01 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.02 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.04 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.05 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.06 Non-Reliance on Agent and other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.07 Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.08 Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 12.03 Payment of Expenses, Indemnities, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 12.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.06 Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.07 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.08 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.09 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
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Section 12.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.12 NO ORAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.14 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 12.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
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Annex I - List of Maximum Credit Amounts
Exhibit A - Form of Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D-1 - Form of Legal Opinion of Vinson & Elkins L.L.P.
Exhibit D-2 - Form of Legal Opinion of Davis, Graham & Stubbs
Exhibit E - Form of Assignment Agreement
Exhibit F - Lists of Security Instruments
Exhibit G - Form of Guaranty Agreement
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.20 - Hedging Agreements
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
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THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of June
14, 1996 is among: HS RESOURCES, INC., a corporation formed under the laws of
the State of Delaware (the "Borrower"); each of the lenders that is a signatory
hereto or which becomes a signatory hereto as provided in Section 12.06
(individually, together with its successors and assigns, a "Lender" and,
collectively, the "Lenders"); and THE CHASE MANHATTAN BANK, N.A., a national
banking association (in its individual capacity, "Chase"), as agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Agent").
R E C I T A L S
A. The Borrower entered into a Credit Agreement dated as of June
7, 1996 with the Agent and certain of the Lenders ("Prior Credit Agreement")
with a maximum credit amount of $180,000,000.
B. The Borrower has requested that the Lenders increase the
maximum credit amount to $350,000,000 by amending and restating the Prior
Credit Agreement; and
C. The Lenders have agreed to make such amendment and restatement
subject to the terms and conditions of this Agreement.
D. In consideration of the mutual covenants and agreements herein
contained and of the loans, extensions of credit and commitments hereinafter
referred to, the parties hereto agree to amend and restate the Prior Credit
Agreement as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement,
the terms "Agent," "Borrower," "Chase," "Lender", "Lenders", and Prior Credit
Agreement" shall have the meanings indicated above.
Section 1.02 Certain Defined Terms. As used herein, the
following terms shall have the following meanings (all terms defined in this
Article I or in other provisions of this Agreement in the singular to have the
same meanings when used in the plural and vice versa):
"Acquisitions" shall mean the Basin Acquisition and the Tide
West Acquisition.
"Acquisition Documents" shall mean the documents or
instruments related or pertaining to the Acquisitions other than the
Loan Documents.
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"Additional Costs" shall have the meaning assigned such term
in Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term in
Section 5.04.
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control with
such first Person, (ii) any director or officer of such first Person
or of any Person referred to in clause (i) above and (iii) if any
Person in clause (i) above is an individual, any member of the
immediate family (including parents, spouse and children) of such
individual and any trust whose principal beneficiary is such
individual or one or more members of such immediate family and any
Person who is controlled by any such member or trust. For purposes of
this definition, any Person which owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election
of directors or other governing body of a corporation or 10% or more
of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed
to "control" (including, with its correlative meanings, "controlled
by" and "under common control with") such corporation or other Person.
"Agreement" shall mean this Credit Agreement, as the same may
from time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03 hereof.
"Aggregate Maximum Credit Amounts" at any time shall equal the
sum of the Maximum Credit Amounts of the Lenders ($350,000,000), as
the same may be reduced pursuant to Section 2.03(b).
"Applicable Lending Office" shall mean, for each Lender and
for each Type of Loan, the lending office of such Lender (or an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other offices of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify
to the Agent and the Borrower as the office by which its Loans of such
Type are to be made and maintained.
"Applicable Margin" shall mean for Base Rate Loans or
Eurodollar Loans or the commitment fee pursuant to Section 2.04(a) the
following rate per annum as applicable based on the Threshold
Utilization Percentage in effect from time to time:
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Threshold Utilization Eurodollar Base Rate Commitment
Percentage Loans Loan Fee
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than or equal to 100% 1.500% 0.500% 0.500%
-----------------------------------------------------------------------------
Greater than or equal to 80%, 1.250% 0.250% 0.375%
but less than 100%
-----------------------------------------------------------------------------
Greater than or equal to 60%, 1.1250% 0.1250% 0.375%
but less than 80%
-----------------------------------------------------------------------------
Greater than or equal to 40%, 1.000% 0.000% 0.375%
but less than 60%
-----------------------------------------------------------------------------
Less than 40% 0.750% 0.000% 0.300%
-----------------------------------------------------------------------------
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"Assignment" shall have the meaning assigned such term in
Section 12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan,
for any day, the higher of (i) the Federal Funds Rate for any such day
plus 1/2 of 1% or (ii) the Prime Rate for such day. Each change in
any interest rate provided for herein based upon the Base Rate
resulting from a change in the Base Rate shall take effect at the time
of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.
"Basin" shall mean Basin Exploration, Inc., a Delaware
corporation.
"Basin Acquisition" shall mean the purchase by Orion of
certain Oil and Gas Properties from Basin for a purchase price of
approximately $87,000,000.
"Borrowing Base" shall mean at any time an amount equal to the
amount determined in accordance with Section 2.08.
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in New York, New
York and, where such term is used in the definition of "Quarterly
Date" or if such day relates to a borrowing or continuation of, a
payment or prepayment of principal of or interest on, or a conversion
of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Borrower with respect to any such borrowing or continuation,
payment, prepayment, conversion or Interest Period, any day which is
also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
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"Closing Date" shall mean the date the Initial Funding is made
pursuant to Section 6.01.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to
make Loans up to the lesser of such Lender's Maximum Credit Amount or
the Lender's Percentage Share of the amount equal to the then
effective Borrowing Base and to participate in the Letters of Credit
as provided in Section 2.01(c).
"Consolidated Net Income" shall mean with respect to the
Borrower and its Consolidated Subsidiaries, for any period, the
aggregate of the net income (or loss) of the Borrower and its
Consolidated Subsidiaries after allowances for taxes for such period,
determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any
Person in which the Borrower or any Consolidated Subsidiary has an
interest (which interest does not cause the net income of such other
Person to be consolidated with the net income of the Borrower and its
Consolidated Subsidiaries in accordance with GAAP), except to the
extent of the amount of dividends or distributions actually paid in
such period by such other Person to the Borrower or to a Consolidated
Subsidiary, as the case may be; (ii) the net income (but not loss) of
any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by
that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary,
or is otherwise restricted or prohibited in each case determined in
accordance with GAAP; (iii) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to
the date of such transaction; (iv) any extraordinary gains or losses,
including gains or losses attributable to Property sales not in the
ordinary course of business; and (v) the cumulative effect of a change
in accounting principles and any gains or losses attributable to
writeups or writedowns of assets.
"Consolidated Subsidiaries" shall mean each Subsidiary of the
Borrower (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in
accordance with GAAP.
"Debt" shall mean, for any Person the sum of the following
(without duplication and not necessarily as reflected on the balance
sheet of such Person under GAAP): (i) all obligations of such Person
for borrowed money or evidenced by bonds, debentures, notes or other
similar instruments (including
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<PAGE> 11
principal, interest, fees and charges); (ii) all obligations of such
Person (whether contingent or otherwise) in respect of bankers'
acceptances, letters of credit, surety or other bonds and similar
instruments; (iii) all obligations of such Person to pay the deferred
purchase price of Property or services (other than for borrowed
money); (iv) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases
in respect of which such Person is liable (whether contingent or
otherwise); (v) all obligations under leases which require such Person
or its Affiliate to make payments over the term of such lease,
including payments at termination, which are substantially equal to at
least eighty percent (80%) of the purchase price of the Property
subject to such lease plus interest as an imputed rate of interest;
(vi) all Debt (as described in the other clauses of this definition)
and other obligations of others secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person; (vii) all
Debt (as described in the other clauses of this definition) and other
obligations of others guaranteed by such Person or in which such
Person otherwise assures a creditor against loss of the debtor or
obligations of others; (viii) all obligations or undertakings of such
Person to maintain or cause to be maintained the financial position or
covenants of others or to purchase the Debt or Property of others;
(ix) the undischarged balance of any production payment created by
such Person or for the creation of which such Person directly or
indirectly received payment; (x) the mark to market value of all
obligations of such Person under Hedging Agreements; (xi) obligations
to deliver goods or services including Hydrocarbons in consideration
of advance payments; (xii) any capital stock of such Person in which
such Person has a mandatory obligation to redeem such stock; (xiii)
obligation under contracts with terms longer than one year to pay for
goods or services whether or not such goods or services are actually
received or utilized by such Person and (xiv) any Debt of a Special
Entity for which such Person is liable either by agreement or because
of a Governmental Requirement.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDA" shall mean, for any period, the sum of Consolidated
Net Income for such period plus the following expenses or charges to
the extent deducted from Consolidated Net Income in such period:
interest, taxes, depreciation, depletion and amortization.
"Engineering Reports" shall have the meaning assigned such
term in Section 2.08.
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<PAGE> 12
"Environmental Laws" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any
and all jurisdictions in which the Borrower or any Subsidiary is
conducting or at any time has conducted business, or where any
Property of the Borrower or any Subsidiary is located, including
without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean
Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation
and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water
Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
have the meanings specified in RCRA; provided, however, that (i) in
the event either OPA, CERCLA or RCRA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply
subsequent to the Closing Date of such amendment and (ii) to the
extent the laws of the state in which any Property of the Borrower or
any Subsidiary is located establish a meaning for "oil," "hazardous
substance," "release," "solid waste" or "disposal" which is broader
than that specified in either OPA, CERCLA or RCRA, such broader
meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any
Subsidiary would be deemed to be a "single employer" within the
meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or
(o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) the
withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice
of intent to terminate a Plan or the treatment of a Plan amendment as
a termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan.
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"Eurodollar Loans" shall mean Loans the interest rates on
which are determined on the basis of rates referred to in the
definition of "Fixed Rate".
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments
or other governmental charges or levies not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age
pension or public liability obligations not yet due or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (iii)
operators', vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction or other like Liens
arising by operation of law in the ordinary course of business or
incident to the exploration, development, operation and maintenance of
Oil and Gas Properties or statutory landlord's liens, each of which is
in respect of obligations that have not been outstanding more than 90
days or which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been maintained in
accordance with GAAP; (iv) any Liens reserved in leases or farmout
agreements for rent or royalties and for compliance with the terms of
the farmout agreements or leases in the case of leasehold estates, to
the extent that any such Lien referred to in this clause does not
materially impair the use of the Property covered by such Lien for the
purposes for which such Property is held by the Borrower or any
Subsidiary or materially impair the value of such Property subject
thereto; (v) encumbrances (other than to secure the payment of
borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any rights of way or other
Property of the Borrower or any Subsidiary for the purpose of roads,
pipelines, transmission lines, transportation lines, distribution
lines for the removal of gas, oil, coal or other minerals or timber,
and other like purposes, or for the joint or common use of real
estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any
rights of way or other Property which in the aggregate do not
materially impair the use of such rights of way or other Property for
the purposes of which such rights of way and other Property are held
by the Borrower or any Subsidiary or materially impair the value of
such Property subject thereto; and (vi) deposits of cash or securities
to secure the performance of bids, trade contracts, leases, statutory
obligations and other obligations of a like nature incurred in the
ordinary course of business.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average
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<PAGE> 14
of the rates on overnight federal funds transactions with a member of
the Federal Reserve System arranged by federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the
Business Day next succeeding such day, provided that (i) if the date
for which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the
next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be
the average rate charged to the Agent on such day on such transactions
as determined by the Agent.
"Fee Letter" shall mean that certain letter agreement from the
Agent to the Borrower dated of even date with this Agreement
concerning certain fees in connection with this Agreement and any
agreements or instruments executed in connection therewith, as the
same may be amended or replaced from time to time.
"Financial Statements" shall mean the financial statement or
statements of the Borrower and its Consolidated Subsidiaries described
or referred to in Section 7.02.
"Fixed Rate" shall mean, with respect to any Eurodollar Loan,
the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) quoted by the Agent at approximately 11:00 a.m. London time
(or as soon thereafter as practicable) two (2) Business Days prior to
the first day of the Interest Period for such Loan for the offering by
the Agent to leading banks in the London interbank market of Dollar
deposits having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan to be
made by the Lenders for such Interest Period.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction
over any such Person or such Person's Property, and any court, agency,
department, commission, board, bureau or instrumentality of any of
them including monetary authorities which exercises valid jurisdiction
over any such Person or such Person's Property. Unless otherwise
specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable,
the Borrower, its Subsidiaries or any of their Property or the Agent,
any Lender or any Applicable Lending Office.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise,
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<PAGE> 15
permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including,
without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls, of any
Governmental Authority.
"Guarantor" shall mean any Subsidiary that executes a Guaranty
Agreement.
"Guaranty Agreement" shall mean a guaranty agreement
substantially in the form of Exhibit G to be executed by a Subsidiary
as required pursuant to Section 8.09.
"Hedging Agreements" shall mean any commodity, interest rate
or currency swap, cap, floor, collar, forward agreement or other
exchange or protection agreements or any option with respect to any
such transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender,
the maximum nonusurious interest rate, if any, that at any time or
from time to time may be contracted for, taken, reserved, charged or
received on the Notes or on other Indebtedness under laws applicable
to such Lender which are presently in effect or, to the extent allowed
by law, under such applicable laws which may hereafter be in effect
and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles,
interests and estates now or hereafter acquired in and to oil and gas
leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, overriding royalty and
royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever
nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined or
separated therefrom.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower to the Agent and/or Lenders in connection with
the Loan Documents, the Letter of Credit Agreements and any Hedging
Agreements now or hereafter arising between the Borrower and any
Lender and permitted by the terms of this Agreement and all renewals,
extensions and/or rearrangements of any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 12.03(b).
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<PAGE> 16
"Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or inquiries),
claims, demands and causes of action made or threatened against a
Person and, in connection therewith, all losses, liabilities, damages
(including, without limitation, consequential damages) or reasonable
costs and expenses of any kind or nature whatsoever incurred by such
Person whether caused by the sole or concurrent negligence of such
Person seeking indemnification.
"Indenture" shall mean the Indenture between the Borrower, as
Issuer, and Harris Trust and Savings Bank, as Trustee, providing for
the issuance of $75,000,000 of Senior Subordinated Notes due December
1, 2003 and all renewals, extensions and modifications permitted by
the terms of this Agreement.
"Initial Funding" shall mean the funding of the initial Loans
or issuance of the initial Letters of Credit pursuant to Section 6.01
hereof.
"Initial Reserve Report," collectively, shall mean the reserve
reports with respect to the Oil and Gas Properties of the Borrower,
Basin and Tide West as of January 1, 1996 a copy of each has been
delivered to the Agent.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the period commencing on the date such Eurodollar Loan is made
and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Borrower may select
as provided in Section 2.02 (or such longer period as may be requested
by the Borrower and agreed to by the Majority Lenders), except that
each Interest Period which commences on the last Business Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Business Day of the appropriate subsequent calendar
month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after the Revolving Credit Termination Date;
(ii) each Interest Period which would otherwise end on a day which is
not a Business Day shall end on the next succeeding Business Day (or,
if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) no
Interest Period shall have a duration of less than one month and, if
the Interest Period for any Eurodollar Loans would otherwise be for a
shorter period, such Loans shall not be available hereunder.
"LC Commitment" at any time shall mean $20,000,000.
"LC Exposure" at any time shall mean the difference between
(i) the aggregate face amount of all undrawn and uncancelled Letters
of Credit and the aggregate of all amounts drawn under all Letters of
Credit and not yet reimbursed,
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<PAGE> 17
minus (ii) the aggregate amount of all cash securing outstanding
Letters of Credit pursuant to Section 2.10(b).
"Letter of Credit Agreements" shall mean the written
agreements with the Agent, as issuing lender for any Letter of Credit,
executed or hereafter executed in connection with the issuance by the
Agent of the Letters of Credit, such agreements to be on the Agent's
customary form for letters of credit of comparable amount and purpose
as from time to time in effect or as otherwise agreed to by the
Borrower and the Agent.
"Letters of Credit" shall mean the letters of credit issued
pursuant to Section 2.01(c) and all reimbursement obligations
pertaining to any such letters of credit, and "Letter of Credit" shall
mean any one of the Letters of Credit and the reimbursement
obligations pertaining thereto.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of
the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed or
contingent, and including but not limited to (i) the lien or security
interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes or (ii) production payments and the
like payable out of Oil and Gas Properties. The term "Lien" shall
include reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purposes of
this Agreement, the Borrower or any Subsidiary shall be deemed to be
the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained
by or vested in some other Person in a transaction intended to create
a financing.
"Loan Documents" shall mean this Agreement, the Notes, the
Letters of Credit, the Letter of Credit Agreements, the Fee Letter,
the Security Instruments and any and all other agreements or
instruments now or hereafter executed and delivered by the Borrower or
any other Person (other than participation or similar agreements
between any Lender and any other lender or creditor with respect to
any Indebtedness pursuant to this Agreement) in connection with, or as
security for the payment or performance of the Notes, this Agreement
or reimbursement obligations under the Letters of Credit, as such
agreements may be amended, supplemented or restated from time to time.
"Loans" shall mean the loans as provided for by Section
2.01(a).
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<PAGE> 18
"Majority Lenders" shall mean, at any time while no Loans are
outstanding, Lenders having at least sixty-six and two-thirds percent
(66-2/3%) of the Aggregate Commitments and, at any time while Loans
are outstanding, Lenders holding at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding aggregate principal amount of the
Loans (without regard to any sale by a Lender of a participation in
any Loan under Section 12.06(c)).
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations or affairs of the Borrower and its Subsidiaries taken as a
whole as reflected in the Financial Statements referred to in Section
7.02(c) or from the facts represented or warranted in this Agreement
or any Security Instrument, or (ii) the ability of the Borrower and
its Subsidiaries taken as a whole to carry out their business as at
the Closing Date or as proposed as of the Closing Date to be conducted
or meet their obligations under the Loan Documents on a timely basis.
"Maximum Credit Amount" shall mean, as to each Lender, the
amount set forth opposite such Lender's name on Annex I under the
caption "Maximum Credit Amounts" (as the same may be reduced pursuant
to Section 2.03(b) hereof pro rata to each Lender based on its
Percentage Share) as modified from time to time to reflect any
assignments permitted by Section 12.06(b).
"Merger Sub" shall mean HSR Acquisition, Inc., a Delaware
corporation and directly Wholly-Owned Subsidiary of the Borrower.
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
"Notes" shall mean the Notes provided for by Section 2.06,
together with any and all renewals, extensions for any period,
increases, rearrangements, substitutions or modifications thereof.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon
Interests; all presently existing or future unitization, pooling
agreements and declarations of pooled units and the units created
thereby (including without limitation all units created under orders,
regulations and rules of any Governmental Authority) which may affect
all or any portion of the Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and
saved or attributable to the Hydrocarbon Interests, including all oil
in tanks, the lands covered thereby and all rents, issues, profits,
proceeds, products, revenues and other incomes from or attributable to
the
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<PAGE> 19
Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and all Properties, rights,
titles, interests and estates described or referred to above,
including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful
in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs,
automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells,
injection wells or other wells, buildings, structures, fuel
separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way,
easements and servitudes together with all additions, substitutions,
replacements, accessions and attachments to any and all of the
foregoing.
"Orion" shall mean Orion Acquisition, Inc., a Delaware
corporation and directly Wholly-Owned Subsidiary of the Borrower.
"Other Taxes" shall have the meaning assigned such term in
Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as
indicated on Annex I hereto, as modified from time to time to reflect
any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (i) is currently or hereafter
sponsored, maintained or contributed to by the Borrower, any
Subsidiary or an ERISA Affiliate or (ii) was at any time during the
preceding six calendar years sponsored, maintained or contributed to,
by the Borrower, any Subsidiary or an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other amount payable by the Borrower under this
Agreement or any Note, a
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<PAGE> 20
rate per annum during the period commencing on the date of an Event of
Default until such amount is paid in full or all Events of Default are
cured or waived equal to 2% per annum above the Base Rate as in effect
from time to time plus the Applicable Margin (if any), but in no event
to exceed the Highest Lawful Rate provided that, for a Eurodollar
Loan, the "Post-Default Rate" for such principal shall be, for the
period commencing on the date of the Event of Default and ending on
the earlier to occur of the last day of the Interest Period therefor
or the date all Events of Default are cured or waived, 2% per annum
above the interest rate for such Loan as provided in Section 3.02(ii),
but in no event to exceed the Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to time
announced publicly by the Agent at the Principal Office as its prime
commercial lending rate. Such rate is set by the Agent as a general
reference rate of interest, taking into account such factors as the
Agent may deem appropriate, it being understood that many of the
Agent's commercial or other loans are priced in relation to such rate,
that it is not necessarily the lowest or best rate actually charged to
any customer and that the Agent may make various commercial or other
loans at rates of interest having no relationship to such rate.
"Principal Office" shall mean the principal office of the
Agent, presently located at 270 Park Avenue, New York, New York 10017,
or such other location as designated by the Agent from time to time.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each March, June,
September and December, in each year, the first of which shall be June
30, 1996; provided, however, that if any such day is not a Business
Day, such Quarterly Date shall be the next succeeding Business Day.
"Redetermination Date" shall have the meaning assigned such
term in Section 2.08(a).
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as the
same may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such date of
any interpretations, directives or requests applying to a class of
lenders (including such Lender or its Applicable Lending Office) of or
under any Governmental Requirement (whether or not
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<PAGE> 21
having the force of law) by any Governmental Authority charged with
the interpretation or administration thereof.
"Required Payment" shall have the meaning assigned such term
in Section 4.04.
"Reserve Report" shall mean a report, in form and substance
satisfactory to the Agent, setting forth, as of each January 1 (or
such other date in the event of an unscheduled redetermination); (i)
the oil and gas reserves attributable to the Borrower's Oil and Gas
Properties together with a projection of the rate of production and
future net income, taxes, operating expenses and capital expenditures
with respect thereto as of such date, based upon the pricing
assumptions consistent with SEC reporting requirements at the time and
(ii) such other information as the Agent may reasonably request.
"Responsible Officer" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such Person
and, with respect to financial matters, the term "Responsible Officer"
shall include the Chief Financial Officer of such Person. Unless
otherwise specified, all references to a Responsible Officer herein
shall mean a Responsible Officer of the Borrower.
"Revolving Credit Termination Date" shall mean, unless the
Commitments are sooner terminated pursuant to Sections 2.03(b) or
10.02 hereof, June 14, 2001.
"Scheduled Redetermination Date" shall have the meaning
assigned such term in Section 2.08(d).
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"SEC 10 Value" shall have the meaning assigned in Section 9.21.
"Security Instruments" shall mean the agreements or
instruments described or referred to in Exhibit F, the Guaranty
Agreements, and any and all other agreements or instruments now or
hereafter executed and delivered by the Borrower or any other Person
(other than participation or similar agreements between any Lender and
any other lender or creditor with respect to any Indebtedness pursuant
to this Agreement) in connection with, or as security for the payment
or performance of the Notes, this Agreement or reimbursement
obligations under the Letters of Credit, as such agreements may be
amended, supplemented or restated from time to time.
"Special Entity" shall mean any joint venture, limited
liability company or partnership, general or limited partnership or
any other type of partnership or
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<PAGE> 22
company other than a corporation in which the Company or one of more
of its other Subsidiaries is a member, owner, partner or joint
venturer and owns, directly or indirectly, at least a majority of the
equity of such entity or controls such entity, but excluding any tax
partnerships that are not classified as partnerships under state law.
For purposes of this definition, any Person which owns directly or
indirectly an equity investment in another Person which allows the
first Person to manage or elect managers who manage the normal
activities of such second Person will be deemed to "control" such
second Person (e.g. a sole general partner controls a limited
partnership).
"Subordinated Debt" shall mean the Debt of the Company
evidenced by the Subordinated Notes or the Indenture.
"Subordinated Notes" shall mean the Senior Subordinated Notes
issued pursuant to the Indenture.
"Subsidiary" shall mean (i) any corporation of which at least
a majority of the outstanding shares of stock having by the terms
thereof ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled
by the Borrower or one or more of its Subsidiaries or by the Borrower
and one or more of its Subsidiaries, and (ii) any Special Entity.
Unless otherwise indicated herein, each reference to the term
"Subsidiary" shall mean a Subsidiary of the Borrower. Tide West and
its Subsidiaries shall be deemed to be Subsidiaries of the Borrower as
of the Closing Date and thereafter, for purposes of the
representations and warranties (excluding Section 7.02(a)), covenants
and Events of Default contained in this Agreement and the other Loan
Documents.
"Subsidiary Subordinated Debt" shall mean the Debt of a
Subsidiary arising from guaranteeing the Subordinated Debt.
"Super Majority Lenders" shall mean, at any time while no
Loans are outstanding, Lenders having at least seventy-five percent
(75%) of the Aggregate Commitments and, at any time while Loans are
outstanding, Lenders holding at least seventy-five percent (75%) of
the outstanding aggregate principal amount of the Loans (without
regard to any sale by a Lender of a participation in any Loan under
Section 12.06(c)).
"Tangible Net Worth" shall mean, as at any date, the sum of
the following for the Borrower and its Consolidated Subsidiaries
determined (without duplication) in accordance with GAAP:
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(i) the amount of preferred stock and common stock at par
plus the amount of surplus of the Borrower, plus
(ii) the retained earnings (or, in the case of retained
earnings deficit, minus the amount of such deficit), minus
(iii) the sum of the following: cost of treasury shares
and the book value of all assets of the Borrower and its Consolidated
Subsidiaries which should be classified as intangibles (without
duplication of deductions in respect of items already deducted in
arriving at surplus and retained earnings) but in any event including
as such intangibles the following: goodwill, research and development
costs, trademarks, trade names, copyrights, patents and franchises,
unamortized debt discount and expense, all reserves and any writeup in
the book value of assets resulting from a revaluation thereof or
resulting from any changes in GAAP subsequent to December 31, 1995.
"Taxes" shall have the meaning assigned such term in Section
4.06(a).
"Threshold Amount" shall have the meaning assigned in Section
2.08(b).
"Threshold Utilization Percentage" shall mean, as of any day,
the fraction expressed as a percentage, the numerator of which is the
balance of all Loans and LC Exposure outstanding on such day, and the
denominator of which is the Threshold Amount in effect on such day.
"Tide West" shall mean Tide West Oil Company, a Delaware
corporation.
"Tide West Acquisition" shall mean the merger of Tide West
with Merger Sub with the survivor being a directly Wholly-Owned
Subsidiary of the Borrower.
"Type" shall mean, with respect to any Loan, a Base Rate Loan
or a Eurodollar Loan.
"WRL" shall mean Wattenberg Resources Land, L.L.C.
"Wholly-Owned Subsidiary" shall mean, as to the Borrower, any
Subsidiary of which all of the outstanding shares of stock having by
the terms thereof ordinary voting power to elect the board of
directors of such corporation, other than directors' qualifying
shares, are owned or controlled by the Borrower or one or more of the
Wholly-Owned Subsidiaries or by the Borrower and one or more of the
Wholly-Owned Subsidiaries.
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Section 1.03 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters
hereunder shall be made, and all financial statements and certificates
and reports as to financial matters required to be furnished to the
Agent or the Lenders hereunder shall be prepared, in accordance with
GAAP, applied on a basis consistent with the audited financial
statements of the Borrower referred to in Section 7.02 (except for
changes concurred with by the Borrower's independent public
accountants).
ARTICLE II
COMMITMENTS
Section 2.01 Loans and Letters of Credit.
(a) Loans. Each Lender severally agrees, on the terms of
this Agreement, to make Loans to the Borrower during the period from
and including (i) the Closing Date or (ii) such later date that such
Lender becomes a party to this Agreement as provided in Section
12.06(b), to and up to, but excluding, the Revolving Credit
Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount of such Lender's
Commitment as then in effect; provided, however, that the aggregate
principal amount of all such Loans by all Lenders hereunder and LC
Exposure at any one time outstanding shall not exceed the Aggregate
Commitments, as from time to time adjusted pursuant hereto. Subject
to the terms of this Agreement, during the period from the Closing
Date to and up to, but excluding, the Revolving Credit Termination
Date, the Borrower may borrow, repay and reborrow the amount described
in this Section 2.01(a).
(b ) Limitation on Types of Loans. Subject to the other terms
and provisions of this Agreement, at the option of the Borrower, the
Loans may be Base Rate Loans or Eurodollar Loans; provided that,
without the prior written consent of the Majority Lenders, no more
than five (5) Eurodollar Loans may be outstanding at any time.
(c) Letters of Credit. During the period from and
including the Closing Date to but excluding the Revolving Credit
Termination Date, the Agent, as issuing bank for the Lenders, agrees
to extend credit for the account of the Borrower at any time and from
time to time by issuing renewing, extending or reissuing Letters of
Credit; provided however, the LC Exposure at any one time outstanding
shall not exceed the lesser of (i) the LC Commitment or (ii) the
Aggregate Commitments, as then in effect, minus the aggregate
principal amount of all Loans then outstanding. The Lenders shall
automatically participate in such Letters of Credit according to their
respective Percentage Shares.
Section 2.02 Borrowings, Continuations, Conversions and
Letters of Credit.
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(a) Borrowings. The Borrower shall give the Agent (which
shall promptly notify the Lenders) advance notice as hereinafter
provided of each borrowing hereunder, which shall specify the
aggregate amount of such borrowing, the Type and the date (which shall
be a Business Day) of the Loans to be borrowed and (in the case of
Eurodollar Loans) the duration of the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings shall
be in amounts of at least $5,000,000 or the remaining balance of the
Aggregate Commitments, if less, or any whole multiple of $1,000,000 in
excess thereof, and all Eurodollar Loans shall be in amounts of at
least $5,000,000 or any whole multiple of $1,000,000 in excess
thereof.
(c) Notices. All borrowings, continuations and
conversions shall require advance written notice to the Agent (which
shall promptly notify the Lenders) in the form of Exhibit B hereto (or
telephonic notice promptly confirmed by such a written notice), which
in each case shall be irrevocable, from the Borrower to be received by
the Agent not later than 1:00 p.m. New York, New York time at least
one (1) Business Day prior to the date of each Base Rate Loan
borrowing and three (3) Business Days prior to the date of each
Eurodollar Loan borrowing, continuation or conversion. Without in any
way limiting the Borrower's obligation to confirm in writing any
telephonic notice, the Agent may act without liability upon the basis
of telephonic notice believed by the Agent in good faith to be from
the Borrower prior to receipt of written confirmation. In each such
case, the Borrower hereby waives the right to dispute the Agent's
record of the terms of such telephonic notice except in the case of
gross negligence or willful misconduct by the Agent.
(d) Continuation Options. Subject to the provisions made
in this Section 2.02(d), the Borrower may elect to continue all or any
part of any Eurodollar Loan beyond the expiration of the then current
Interest Period relating thereto by giving advance notice as provided
in Section 2.02(c) to the Agent (which shall promptly notify the
Lenders) of such election, specifying the amount of such Loan to be
continued and the Interest Period therefor. In the absence of such a
timely and proper election, the Borrower shall be deemed to have
elected to convert such Eurodollar Loan to a Base Rate Loan pursuant
to Section 2.02(e). All or any part of any Eurodollar Loan may be
continued as provided herein, provided that (i) any continuation of
any such Loan shall be (as to each Loan as continued for an applicable
Interest Period) in amounts of at least $5,000,000 or any whole
multiple of $1,000,000 in excess thereof and (ii) no Default shall
have occurred and be continuing. If a Default shall have occurred and
be continuing, each Eurodollar Loan shall be converted to a Base Rate
Loan on the last day of the Interest Period applicable thereto.
(e) Conversion Options. The Borrower may elect to
convert all or any part of any Eurodollar Loan on the last day of the
then current Interest Period relating thereto to a Base Rate Loan by
giving advance notice to the Agent (which shall promptly notify the
Lenders) of such election. Subject to the provisions made in this
Section 2.02(e), the
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Borrower may elect to convert all or any part of any Base Rate Loan at
any time and from time to time to a Eurodollar Loan by giving advance
notice as provided in Section 2.02(c) to the Agent (which shall
promptly notify the Lenders) of such election. All or any part of any
outstanding Loan may be converted as provided herein, provided that
(i) any conversion of any Base Rate Loan into a Eurodollar Loan shall
be (as to each such Loan into which there is a conversion for an
applicable Interest Period) in amounts of at least $5,000,000 or any
whole multiple of $1,000,000 in excess thereof and (ii) no Default
shall have occurred and be continuing. If a Default shall have
occurred and be continuing, no Base Rate Loan may be converted into a
Eurodollar Loan.
(f) Advances. Not later than 12:00 noon New York, New York
time on the date specified for each borrowing hereunder, each Lender
shall make available the amount of the Loan to be made by it on such
date to the Agent, to an account which the Agent shall specify, in
immediately available funds, for the account of the Borrower. The
amounts so received by the Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by
depositing the same, in immediately available funds, in an account of
the Borrower, designated by the Borrower and maintained at the
Principal Office.
(g ) Letters of Credit. The Borrower shall give the Agent
(which shall promptly notify the Lenders of such request and their
Percentage Share of such Letter of Credit) advance notice to be
received by the Agent not later than 12:00 noon New York, New York
time not less than three (3) Business Days prior thereto of each
request for the issuance and at least thirty (30) Business Days prior
to the date of the renewal or extension of a Letter of Credit
hereunder which request shall specify the amount of such Letter of
Credit, the date (which shall be a Business Day) such Letter of Credit
is to be issued, renewed or extended, the duration thereof, the name
and address of the beneficiary thereof, the form of the Letter of
Credit and such other information as the Agent may reasonably request
all of which shall be reasonably satisfactory to the Agent. Subject
to the terms and conditions of this Agreement, on the date specified
for the issuance, renewal or extension of a Letter of Credit, the
Agent shall issue such Letter of Credit to the beneficiary thereof.
In conjunction with the issuance of each Letter of Credit, the
Borrower shall execute a Letter of Credit Agreement. In the event of
any conflict between any provision of a Letter of Credit Agreement and
this Agreement, the Borrower, the Agent and the Lenders hereby agree
that the provisions of this Agreement shall govern.
The Agent will send to the Borrower and each Lender,
immediately upon issuance of any Letter of Credit, or an amendment
thereto, a true and complete copy of such Letter of Credit, or such
amendment thereto.
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Section 2.03 Changes of Commitments.
(a) The Aggregate Commitments shall at all times be equal
to the lesser of (i) the Aggregate Maximum Credit Amounts after
adjustments resulting from reductions pursuant to Section 2.03(b)
hereof or (ii) the Borrowing Base as determined from time to time.
(b) The Borrower shall have the right to terminate or to
reduce the amount of the Aggregate Maximum Credit Amounts at any time
or from time to time upon not less than three (3) Business Days' prior
notice to the Agent (which shall promptly notify the Lenders) of each
such termination or reduction, which notice shall specify the Closing
Date thereof and the amount of any such reduction (which shall not be
less than $5,000,000 or any whole multiple of $1,000,000 in excess
thereof) and shall be irrevocable and effective only upon receipt by
the Agent.
(c) The Aggregate Maximum Credit Amounts once terminated
or reduced may not be reinstated.
Section 2.04 Fees.
(a) The Borrower shall pay to the Agent for the account
of each Lender a commitment fee on the daily average unused amount of
the Aggregate Commitments for the period from and including the
Closing Date up to but excluding the earlier of the date the Aggregate
Commitments are terminated or the Revolving Credit Termination Date at
a rate per annum equal to the Applicable Margin (as in effect from
time to time). Accrued commitment fees shall be payable quarterly in
arrears on each Quarterly Date and on the earlier of the date the
Aggregate Commitments are terminated or the Revolving Credit
Termination Date.
(b) The Borrower agrees to pay the Agent, for the account
of each Lender, commissions for issuing the Letters of Credit on the
daily average outstanding of the maximum liability of the Agent
existing from time to time under such Letter of Credit (calculated
separately for each Letter of Credit) at the rate equal to the
Applicable Margin for Eurodollar Loans from time to time in effect.
Each Letter of Credit shall be deemed to be outstanding up to the full
face amount of the Letter of Credit until the Agent has received the
cancelled Letter of Credit or a written cancellation of the Letter of
Credit from the beneficiary of such Letter of Credit in form and
substance acceptable to the Agent, or for any reductions in the amount
of the Letter of Credit (other than from a drawing), written
notification from the beneficiary of such Letter of Credit. Such
commissions are payable quarterly in arrears on each Quarterly Date.
(c) In addition, the Borrower agrees to pay the Agent,
for its own account, an issuing fee for issuing the Letters of Credit
equal to the greater of 1/8 of 1% or $2500.
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(d) The Borrower shall pay to the Agent for its account
such other fees as are set forth in the Fee Letter on the dates
specified therein to the extent not paid prior to the Closing Date.
(e) The Borrower shall pay to the Agent for the account
of each Lender that is not a co-agent the fee set forth in the
invitation letters to each Lender from the Agent dated May 1, 1996.
(f) The Borrower shall pay to the Agent for the account
of each Lender that is a co-agent the fee set forth in the memorandum
to each co-agent from the Agent dated June 6, 1996.
Section 2.05 Several Obligations. The failure of any Lender
to make any Loan to be made by it or to provide funds for disbursements or
reimbursements under Letters of Credit on the date specified therefor shall not
relieve any other Lender of its obligation to make its Loan or provide funds on
such date, but no Lender shall be responsible for the failure of any other
Lender to make a Loan to be made by such other Lender or to provide funds to be
provided by such other Lender.
Section 2.06 Notes. The Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit A hereto, dated (i) the Closing Date or (ii) the effective date of
an Assignment pursuant to Section 12.06(b), payable to the order of such Lender
in a principal amount equal to its Maximum Credit Amount as in effect and
otherwise duly completed and such substitute Notes as required by Section
12.06(b). The date, amount, Type, interest rate and Interest Period of each
Loan made by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Note, and, prior
to any transfer, may be endorsed by such Lender on a schedule attached to such
Note or any continuation thereof. Failure to make any such notation or to
attach a schedule shall not affect any Lender's or the Borrower's rights or
obligations in respect of such Loans or affect the validity of such transfer by
any Lender of its Note.
Section 2.07 Prepayments.
(a) The Borrower may prepay the Base Rate Loans upon not
less than one (1) Business Day's prior notice to the Agent (which
shall promptly notify the Lenders), which notice shall specify the
prepayment date (which shall be a Business Day) and the amount of the
prepayment (which shall be at least $5,000,000 or the remaining
aggregate principal balance outstanding on the Notes) and shall be
irrevocable and effective only upon receipt by the Agent, provided
that interest on the principal prepaid, accrued to the prepayment
date, shall be paid on the prepayment date. The Borrower may prepay
Eurodollar Loans on the same condition as for Base Rate Loans and in
addition such prepayments of Eurodollar Loans shall be subject to the
terms of Section 5.05 and shall be in an amount equal to all of the
Eurodollar Loans for the Interest Period prepaid.
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(b) If, after giving effect to any termination or
reduction of the Aggregate Maximum Credit Amounts pursuant to Section
2.03(b), the outstanding aggregate principal amount of the Loans plus
the LC Exposure exceeds the Aggregate Maximum Credit Amounts, the
Borrower shall (i) prepay the Loans on the date of such termination or
reduction in an aggregate principal amount equal to the excess,
together with interest on the principal amount paid accrued to the
date of such prepayment and (ii) if any excess remains after prepaying
all of the Loans, pay to the Agent on behalf of the Lenders an amount
equal to the excess to be held as cash collateral as provided in
Section 2.10(b) hereof.
(c) Upon any redetermination of the amount of the
Borrowing Base in accordance with Section 2.08, if the redetermined
Borrowing Base is less than the aggregate outstanding principal amount
of the Loans plus the LC Exposure ("Borrowing Base Deficiency"), then
the Borrower shall within one hundred eighty (180) days of receipt of
written notice thereof (i) prepay the Loans in an aggregate principal
amount equal to such Borrowing Base Deficiency; provided that within
forty-five (45) days of receipt of such notice the Borrower shall have
prepaid at least one-fourth ( 1/4) of such Borrowing Base Deficiency
and within ninety (90) days of receipt of such notice the Borrower
shall have prepaid at least one-half ( 1/2) of such Borrowing Base
Deficiency and (ii) if a Borrowing Base Deficiency remains after
prepaying all of the Loans because of LC Exposure, the Borrower shall
pay to the Agent on behalf of the Lenders an amount equal to such
Borrowing Base deficiency to be held as cash collateral as provided in
Section 2.10(b) hereof. Each prepayment shall be accompanied with
interest on the principal amount paid accrued to the date of such
prepayment.
(d) Prepayments permitted or required under this Section
2.07 shall be without premium or penalty, except as required under
Section 5.05 for prepayment of Eurodollar Loans. Any prepayment may
be reborrowed subject to the then effective Aggregate Commitments.
Section 2.08 Borrowing Base and Threshold Amount.
(a) The Borrowing Base and the Threshold Amount shall be
determined in accordance with Section 2.08(b) by the Agent with the
concurrence of the Super Majority Lenders and is subject to
redetermination in accordance with Section 2.08(d). Upon any
redetermination of the Borrowing Base and the Threshold Amount, such
redetermination shall remain in effect until the next successive
Redetermination Date. "Redetermination Date" shall mean the date that
the redetermined Borrowing Base and the Threshold Amount become
effective subject to the notice requirements specified in Section
2.08(f) both for scheduled redeterminations and unscheduled
redeterminations. So long as any of the Commitments are in effect or
any LC Exposure or Loans are outstanding hereunder, this facility
shall be governed by the then effective Borrowing Base and the
Threshold Amount. During the period from and after the Closing Date
until the first
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Redetermination Date the amount of the Borrowing Base shall be
340,000,000 and the amount of the Threshold Amount shall be
$315,000,000.
(b) Upon receipt of the reports required by Section 8.07
and such other reports, data and supplemental information as may from
time to time be reasonably requested by the Agent (the "Engineering
Reports"), each Lender will redetermine the Borrowing Base and the
Threshold Amount. Such redetermination will be in accordance with its
normal and customary procedures for evaluating oil and gas reserves
and other related assets as such exist at that particular time. Each
Lender, in its sole discretion, may make adjustments to the rates,
volumes and prices and other assumptions set forth therein in
accordance with its normal and customary procedures for evaluating oil
and gas reserves and other related assets as such exist at that
particular time. The Threshold Amount shall represent the customary
conforming amount of a traditional hydrocarbon borrowing base loan
("Threshold Amount") and the Borrowing Base shall not be less than the
Threshold Amount. On June 30, 1997, the Borrowing Base shall
automatically be reduced to equal the Threshold Amount outstanding on
such date. After such date, the Borrowing Base shall always equal the
Threshold Amount, and any reference to the Borrowing Base shall be
deemed to be a reference to the Threshold Amount where applicable.
The Agent shall propose to the Lenders the new Borrowing Base and the
Threshold Amount within 30 days following receipt by the Agent and the
Lenders of the Engineering Reports in a timely and complete manner.
After having received notice of such proposal by the Agent, the Super
Majority Lenders shall have 15 days to agree or disagree with such
proposal. If at the end of the 15 days, the Super Majority Lenders
have not communicated their approval or disapproval, such silence
shall be deemed to be an approval and the Agent's proposal shall be
the new Borrowing Base and the new Threshold Amount. If however, the
Super Majority Lenders shall not have approved or have been deemed to
have approved the new Borrowing Base and Threshold Amount within 15
days, the Agent and the Super Majority Lenders shall, within a
reasonable period of time, agree on the new Borrowing Base and
Threshold Amount.
(c) The Agent may exclude any Oil and Gas Property or
portion of production therefrom or any income from any other Property
from the Borrowing Base and the Threshold Amount, at any time, because
title information is not reasonably satisfactory.
(d) So long as any of the Commitments are in effect and
until payment in full of all Loans hereunder, on or around November
12, 1996, and on or around the fifteenth day of each April, commencing
April 15, 1997 (each being a "Scheduled Redetermination Date"), the
Super Majority Lenders shall redetermine the amount of the Borrowing
Base and the Threshold Amount in accordance with Section 2.08(b). In
addition, the Super Majority Lenders or the Borrower may initiate a
redetermination of the Borrowing Base and the Threshold Amount at any
other time as they so elect; provided, however, that the Borrower and
the Super Majority Lenders may each initiate only one such unscheduled
redetermination during any consecutive twelve (12) month period. In
the event of a redetermination initiated by the Super Majority
Lenders, the Agent will specify
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in writing to the Borrower the date on which the Borrower is to
furnish a Reserve Report in accordance with Section 8.07(b) and the
date on which such redetermination is to occur.
(e) The Borrowing Base shall be automatically reduced as
provided in Section 9.15(v) and the Borrower shall on or before the
date of such sale notify the Agent of the net cash proceeds it or
Orion shall receive from WRL.
(f) The Agent shall promptly notify in writing the
Borrower and the Lenders of the new Borrowing Base and the Threshold
Amount. Any redetermination of the Borrowing Base shall not be in
effect until written notice is received by the Borrower.
Section 2.09 Assumption of Risks. The Borrower assumes all
risks of the acts or omissions of any beneficiary of any Letter of Credit or
any transferee thereof with respect to its use of such Letter of Credit.
Neither the Agent (except in the case of willful misconduct or bad faith on the
part of the Agent or any of its employees), its correspondents nor any Lender
shall be responsible for the validity, sufficiency or genuineness of
certificates or other documents or any endorsements thereon, even if such
certificates or other documents should in fact prove to be invalid,
insufficient, fraudulent or forged; for errors, omissions, interruptions or
delays in transmissions or delivery of any messages by mail, telex, or
otherwise, whether or not they be in code; for errors in translation or for
errors in interpretation of technical terms; the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
the failure of any beneficiary or any transferee of any Letter of Credit to
comply fully with conditions required in order to draw upon any Letter of
Credit; or for any other consequences arising from causes beyond the Agent's
control or the control of the Agent's correspondents. In addition, neither the
Agent nor any Lender shall be responsible for any error, neglect, or default of
any of the Agent's correspondents; and none of the above shall affect, impair
or prevent the vesting of any of the Agent's or any Lender's rights or powers
hereunder or under the Letter of Credit Agreements, all of which rights shall
be cumulative. The Agent and its correspondents may accept certificates or
other documents that appear on their face to be in order, without
responsibility for further investigation of any matter contained therein
regardless of any notice or information to the contrary. In furtherance and
not in limitation of the foregoing provisions, the Borrower agrees that any
action, inaction or omission taken or not taken by the Agent or by any
correspondent for the Agent in good faith in connection with any Letter of
Credit, or any related drafts, certificates, documents or instruments, shall be
binding on the Borrower and shall not put the Agent or its correspondents under
any resulting liability to the Borrower.
Section 2.10 Obligation to Reimburse and to Prepay.
(a) If a disbursement by the Agent is made under any
Letter of Credit, the Borrower shall pay to the Agent within two (2)
Business Days after notice of any such disbursement is received by the
Borrower, the amount of each such disbursement made
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by the Agent under the Letter of Credit (if such payment is not sooner
effected as may be required under this Section 2.10 or under other
provisions of the Letter of Credit), together with interest on the
amount disbursed from and including the date of disbursement until
payment in full of such disbursed amount at a varying rate per annum
equal to (i) the then applicable interest rate for Base Rate Loans
through the second Business Day after notice of such disbursement is
received by the Borrower and (ii) thereafter, the Post-Default Rate
for Base Rate Loans (but in no event to exceed the Highest Lawful
Rate) for the period from and including the third Business Day
following the date of such disbursement to and including the date of
repayment in full of such disbursed amount. The obligations of the
Borrower under this Agreement with respect to each Letter of Credit
shall be absolute, unconditional and irrevocable and shall be paid or
performed strictly in accordance with the terms of this Agreement
under all circumstances whatsoever, including, without limitation, but
only to the fullest extent permitted by applicable law, the following
circumstances: (i) any lack of validity or enforceability of this
Agreement, any Letter of Credit or any of the Loan Documents; (ii) any
amendment or waiver of (including any default), or any consent to
departure from this Agreement (except to the extent permitted by any
amendment or waiver), any Letter of Credit or any of the Loan
Documents; (iii) the existence of any claim, set-off, defense or other
rights which the Borrower may have at any time against the beneficiary
of any Letter of Credit or any transferee of any Letter of Credit (or
any Persons for whom any such beneficiary or any such transferee may
be acting), the Agent, any Lender or any other Person, whether in
connection with this Agreement, any Letter of Credit, the Loan
Documents, the transactions contemplated hereby or any unrelated
transaction; (iv) any statement, certificate, draft, notice or any
other document presented under any Letter of Credit proves to have
been forged, fraudulent, insufficient or invalid in any respect or any
statement therein proves to have been untrue or inaccurate in any
respect whatsoever; (v) payment by the Agent under any Letter of
Credit against presentation of a draft or certificate which appears on
its face to comply, but does not comply, with the terms of such Letter
of Credit; and (vi) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
Notwithstanding anything in this Agreement to the contrary, the
Borrower will not be liable for payment or performance that results
from the gross negligence or willful misconduct of the Agent, except
(i) where the Borrower or any Subsidiary actually recovers the
proceeds for itself or the Agent of any payment made by the Agent in
connection with such gross negligence or willful misconduct or (ii) in
cases where the Agent makes payment to the named beneficiary of a
Letter of Credit.
(b) In the event of the occurrence of any Event of
Default, a payment or prepayment pursuant to Sections 2.07(b) and (c)
hereof or the maturity of the Notes, whether by acceleration or
otherwise, an amount equal to the LC Exposure (or the excess in the
case of Sections 2.07(b) and (c)) shall be deemed to be forthwith due
and owing by the Borrower to the Agent and the Lenders as of the date
of any such occurrence; and the Borrower's obligation to pay such
amount shall be absolute and unconditional,
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without regard to whether any beneficiary of any such Letter of Credit
has attempted to draw down all or a portion of such amount under the
terms of a Letter of Credit, and, to the fullest extent permitted by
applicable law, shall not be subject to any defense or be affected by
a right of set-off, counterclaim or recoupment which the Borrower may
now or hereafter have against any such beneficiary, the Agent, the
Lenders or any other Person for any reason whatsoever. Such payments
shall be held by the Agent on behalf of the Lenders as cash collateral
securing the LC Exposure in an account or accounts at the Principal
Office; and the Borrower hereby grants to and by its deposit with the
Agent grants to the Agent a security interest in such cash collateral.
In the event of any such payment by the Borrower of amounts
contingently owing under outstanding Letters of Credit and in the
event that thereafter drafts or other demands for payment complying
with the terms of such Letters of Credit are not made prior to the
respective expiration dates thereof, the Agent agrees, if no Event of
Default has occurred and is continuing or if no other amounts are
outstanding under this Agreement, the Notes or the Loan Documents, to
remit to the Borrower amounts for which the contingent obligations
evidenced by the Letters of Credit have ceased.
(c) Each Lender severally and unconditionally agrees that
it shall promptly reimburse the Agent an amount equal to such Lender's
Percentage Share of any disbursement made by the Agent under any
Letter of Credit that is not reimbursed according to this Section
2.10.
Section 2.11 Lending Offices. The Loans of each Type made by
each Lender shall be made and maintained at such Lender's Applicable Lending
Office for Loans of such Type.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans. The Borrower will pay to
the Agent, for the account of each Lender, the principal payments required by
this Section 3.01. On the Revolving Credit Termination Date the Borrower shall
repay the outstanding aggregate principal and accrued and unpaid interest under
the Notes.
Section 3.02 Interest. The Borrower will pay to the Agent,
for the account of each Lender, interest on the unpaid principal amount of each
Loan made by such Lender for the period commencing on the date such Loan is
made to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as
in effect from time to time) plus the Applicable Margin (as in effect
from time to time), but in no event to exceed the Highest Lawful Rate;
and
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(ii) if such a Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Fixed Rate for such Loan plus
the Applicable Margin (as in effect from time to time), but in no
event to exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Agent, for the
account of each Lender interest at the applicable Post-Default Rate on any
principal of any Loan made by such Lender, and (to the fullest extent permitted
by law) on any other amount payable by the Borrower hereunder, under any Loan
Document or under any Note held by such Lender to or for account of such
Lender, for the period commencing on the date of an Event of Default until the
same is paid in full or all Events of Default are cured or waived.
Accrued interest on Base Rate Loans shall be payable on each Quarterly
Date commencing on June 30, 1996, and accrued interest on each Eurodollar Loan
shall be payable on the last day of the Interest Period therefor and, if such
Interest Period is longer than three months at three-month intervals following
the first day of such Interest Period, except that interest payable at the
Post-Default Rate shall be payable from time to time on demand and interest on
any Eurodollar Loan that is converted into a Base Rate Loan (pursuant to
Section 5.04) shall be payable on the date of conversion (but only to the
extent so converted).
Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall notify the Lenders to which such
interest is payable and the Borrower thereof. Each determination by the Agent
of an interest rate or fee hereunder shall, except in cases of manifest error,
be final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise
provided herein, all payments of principal, interest and other amounts to be
made by the Borrower under this Agreement, the Notes and the Letter of Credit
Agreements shall be made in Dollars, in immediately available funds, to the
Agent at such account as the Agent shall specify by notice to the Borrower from
time to time, not later than 2:00 p.m. New York, New York time on the date on
which such payments shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day). Such payments shall be made without (to the fullest extent permitted by
applicable law) defense, set-off or counterclaim. Each payment received by the
Agent under this Agreement or any Note for account of a Lender shall be paid
promptly to such Lender in immediately available funds. Except as provided in
clause (ii) of the definition of "Interest Period", if the due date of any
payment under this Agreement or any Note would otherwise fall on a day which is
not a Business Day such date shall be extended to the next succeeding Business
Day and interest shall be payable for any principal so extended for the period
of such extension. At the time of each payment to the Agent of any principal
of or interest on any borrowing, the Borrower shall notify
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the Agent of the Loans to which such payment shall apply. In the absence of
such notice the Agent may specify the Loans to which such payment shall apply,
but to the extent possible such payment or prepayment will be applied first to
the Loans comprised of Base Rate Loans.
Section 4.02 Pro Rata Treatment. Each Lender agrees that:
(i) each borrowing from the Lenders under Section 2.01 shall be made from the
Lenders pro rata in accordance with their Percentage Share, each payment of
commitment fee or other fees under Section 2.04 shall be made for account of
the Lenders pro rata in accordance with their Percentage Shares except to the
extent otherwise provided in Section 2.04, and each termination or reduction of
the amount of the Aggregate Maximum Credit Amounts under Section 2.03(b) shall
be applied to the Commitment of each Lender, pro rata according to the amounts
of its respective Commitment; (ii) each payment of principal of Loans by the
Borrower shall be made for account of the Lenders pro rata in accordance with
the respective unpaid principal amount of the Loans held by the Lenders; (iii)
each payment of interest on Loans by the Borrower shall be made for account of
the Lenders pro rata in accordance with the amounts of interest due and payable
to the respective Lenders; and (iv) each reimbursement by the Borrower of
disbursements under Letters of Credit shall be made for account of the Agent
or, if funded by the Lenders, pro rata for the account of the Lenders, in
accordance with the amounts of reimbursement obligations due and payable to
each respective Lender.
Section 4.03 Computations. Interest on Eurodollar Loans and
fees shall be computed on the basis of a year of 360 days and actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which such interest is payable, unless such calculation would exceed
the Highest Lawful Rate, in which case interest shall be calculated on the per
annum basis of a year of 365 or 366 days, as the case may be. Interest on Base
Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
Section 4.04 Non-receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Lender or the Borrower prior to the date on
which such notifying party is scheduled to make payment to the Agent (in the
case of a Lender) of the proceeds of a Loan or a payment under a Letter of
Credit to be made by it hereunder or (in the case of the Borrower) a payment to
the Agent for account of one or more of the Lenders hereunder (such payment
being herein called the "Required Payment"), which notice shall be effective
upon receipt, that it does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient(s) on such date and, if such Lender
or the Borrower (as the case may be) has not in fact made the Required Payment
to the Agent, the recipient(s) of such payment shall, on demand, repay to the
Agent the amount so made available together with interest thereon in respect of
each day during the period commencing on the date such amount was so made
available by the Agent until but excluding the date the Agent recovers such
amount at a rate per annum which, for any Lender as recipient,
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will be equal to the Federal Funds Rate, and for the Borrower as recipient,
will be equal to the Base Rate plus the Applicable Margin.
Section 4.05 Set-off, Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim a
Lender may otherwise have, each Lender shall have the right and be
entitled (after consultation with the Agent), at its option, to offset
balances held by it or by any of its Affiliates for account of the
Borrower or any Subsidiary at any of its offices, in Dollars or in any
other currency, against any principal of or interest on any of such
Lender's Loans, or any other amount payable to such Lender hereunder,
which is not paid when due (regardless of whether such balances are
then due to the Borrower), in which case it shall promptly notify the
Borrower and the Agent thereof, provided that such Lender's failure to
give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal
of or interest on any Loan made by it to the Borrower under this
Agreement (or reimbursement as to any Letter of Credit) through the
exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise, and, as a result of such payment, such
Lender shall have received a greater percentage of the principal or
interest (or reimbursement) then due hereunder by the Borrower to such
Lender than the percentage received by any other Lenders, it shall
promptly (i) notify the Agent and each other Lender thereof and (ii)
purchase from such other Lenders participations in (or, if and to the
extent specified by such Lender, direct interests in) the Loans (or
participations in Letters of Credit) made by such other Lenders (or in
interest due thereon, as the case may be) in such amounts, and make
such other adjustments from time to time as shall be equitable, to the
end that all the Lenders shall share the benefit of such excess
payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such excess payment) pro rata in accordance
with the unpaid principal and/or interest on the Loans held by each of
the Lenders (or reimbursements of Letters of Credit). To such end all
the Lenders shall make appropriate adjustments among themselves (by
the resale of participations sold or otherwise) if such payment is
rescinded or must otherwise be restored. The Borrower agrees that any
Lender so purchasing a participation (or direct interest) in the Loans
made by other Lenders (or in interest due thereon, as the case may be)
may exercise all rights of set-off, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such
Lender were a direct holder of Loans (or Letters of Credit) in the
amount of such participation. Nothing contained herein shall require
any Lender to exercise any such right or shall affect the right of any
Lender to exercise, and retain the benefits of exercising, any such
right with respect to any other indebtedness or obligation of the
Borrower. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a set-off
to which this Section 4.05 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured
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claim in a manner consistent with the rights of the Lenders entitled
under this Section 4.05 to share the benefits of any recovery on such
secured claim.
Section 4.06 Taxes.
(a) Payments Free and Clear. Any and all payments by the
Borrower hereunder shall be made, in accordance with Section 4.01,
free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of
each Lender and the Agent, taxes imposed on its income, and franchise
or similar taxes imposed on it, by (i) any jurisdiction (or political
subdivision thereof) of which the Agent or such Lender, as the case
may be, is a citizen or resident or in which such Lender has an
Applicable Lending Office, (ii) the jurisdiction (or any political
subdivision thereof) in which the Agent or such Lender is organized,
or (iii) any jurisdiction (or political subdivision thereof) in which
such Lender or the Agent is presently doing business in which taxes
are imposed solely as a result of doing business in such jurisdiction
(all such non- excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the Lenders
or the Agent (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section
4.06) such Lender or the Agent (as the case may be) shall receive an
amount equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with
applicable law.
(b) Other Taxes. In addition, to the fullest extent
permitted by applicable law, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made
hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, any Assignment or any
Security Instrument (hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT
FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT
LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL
AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH
LENDER OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS
THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT
SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS
THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND
SUCH LENDER'S PAYMENT OF SUCH TAXES
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OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL BE
MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER OR THE AGENT,
AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR
THE AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER
TAXES FOR WHICH SUCH LENDER OR THE AGENT HAS RECEIVED PAYMENT FROM THE
BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR
CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN
THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR
PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR
SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH
REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY
INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON
THE REQUEST OF SUCH LENDER OR THE AGENT, AGREES TO RETURN SUCH REFUND
OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER
OR THE AGENT IN THE EVENT SUCH LENDER OR THE AGENT IS REQUIRED TO
REPAY SUCH REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either (1)
a corporation organized under the laws of the United States of
America or any state thereof or (2) it is entitled to complete
exemption from United States withholding tax imposed on or
with respect to any payments, including fees, to be made to it
pursuant to this Agreement (A) under an applicable provision
of a tax convention to which the United States of America is a
party or (B) because it is acting through a branch, agency or
office in the United States of America and any payment to be
received by it hereunder is effectively connected with a trade
or business in the United States of America. Each Lender that
is not a corporation organized under the laws of the United
States of America or any state thereof agrees to provide to
the Borrower and the Agent on the Closing Date, or on the date
of its delivery of the Assignment pursuant to which it becomes
a Lender, and at such other times as required by United States
law or as the Borrower or the Agent shall reasonably request,
two accurate and complete original signed copies of either (A)
Internal Revenue Service Form 4224 (or successor form)
certifying that all payments to be made to it hereunder will
be effectively connected to a United States trade or business
(the "Form 4224 Certification") or (B) Internal Revenue
Service Form 1001 (or successor form) certifying that it is
entitled to the benefit of a provision of a tax convention to
which the United States of America is a party which completely
exempts from United States withholding tax all payments to be
made to it hereunder (the "Form 1001 Certification"). In
addition, each Lender agrees that if it previously filed a
Form 4224 Certification, it will deliver to the Borrower and
the Agent a new Form 4224 Certification prior to the first
payment date occurring in each of its subsequent taxable
years; and if it previously filed a Form 1001 Certification,
it will deliver to the Borrower and the Agent a new
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certification prior to the first payment date falling in the
third year following the previous filing of such certification.
Each Lender also agrees to deliver to the Borrower and the
Agent such other or supplemental forms as may at any time be
required as a result of changes in applicable law or regulation
in order to confirm or maintain in effect its entitlement to
exemption from United States withholding tax on any payments
hereunder, provided that the circumstances of such Lender at
the relevant time and applicable laws permit it to do so. If a
Lender determines, as a result of any change in either (i) a
Governmental Requirement or (ii) its circumstances, that it is
unable to submit any form or certificate that it is obligated
to submit pursuant to this Section 4.06, or that it is required
to withdraw or cancel any such form or certificate previously
submitted, it shall promptly notify the Borrower and the Agent
of such fact. If a Lender is organized under the laws of a
jurisdiction outside the United States of America, unless the
Borrower and the Agent have received a Form 1001 Certification
or Form 4224 Certification satisfactory to them indicating that
all payments to be made to such Lender hereunder are not
subject to United States withholding tax, the Borrower shall
withhold taxes from such payments at the applicable statutory
rate. Each Lender agrees to indemnify and hold harmless the
Borrower or Agent, as applicable, from any United States taxes,
penalties, interest and other expenses, costs and losses
incurred or payable by (i) the Agent as a result of such
Lender's failure to submit any form or certificate that it is
required to provide pursuant to this Section 4.06 or (ii) the
Borrower or the Agent as a result of their reliance on any such
form or certificate which such Lender has provided to them
pursuant to this Section 4.06.
(ii) For any period with respect to which a Lender
has failed to provide the Borrower with the form required
pursuant to this Section 4.06, if any, (other than if such
failure is due to a change in a Governmental Requirement
occurring subsequent to the date on which a form originally
was required to be provided), such Lender shall not be
entitled to indemnification under Section 4.06 with respect to
taxes imposed by the United States which taxes would not have
been imposed but for such failure to provide such forms;
provided, however, that should a Lender, which is otherwise
exempt from or subject to a reduced rate of withholding tax
becomes subject to taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as
such Lender shall reasonably request to assist such Lender to
recover such taxes.
(iii) Any Lender claiming any additional amounts
payable pursuant to this Section 4.06 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to
file any certificate or document requested by the Borrower or
the Agent or to change the jurisdiction of its Applicable
Lending Office or to contest any tax imposed if the making of
such a filing or change or contesting such tax would avoid the
need for or reduce the amount of any such additional amounts
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that may thereafter accrue and would not, in the sole
determination of such Lender, be otherwise disadvantageous to
such Lender.
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 Additional Costs.
(a) Eurodollar Regulations, etc. The Borrower shall pay
directly to each Lender from time to time such amounts as such Lender
may determine to be necessary to compensate such Lender for any costs
which it determines are attributable to its making or maintaining of
any Eurodollar Loans or issuing or participating in Letters of Credit
hereunder or its obligation to make any Eurodollar Loans or issue or
participate in any Letters of Credit hereunder, or any reduction in
any amount receivable by such Lender hereunder in respect of any of
such Eurodollar Loans, Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable being herein
called "Additional Costs"), resulting from any Regulatory Change
which: (i) changes the basis of taxation of any amounts payable to
such Lender under this Agreement or any Note in respect of any of such
Eurodollar Loans or Letters of Credit (other than taxes imposed on the
overall net income of such Lender or of its Applicable Lending Office
for any of such Eurodollar Loans by the jurisdiction in which such
Lender has its principal office or Applicable Lending Office); or (ii)
imposes or modifies any reserve, special deposit, minimum capital,
capital ratio or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities
of such Lender, or the Commitment or Loans of such Lender or the
Eurodollar interbank market; or (iii) imposes any other condition
affecting this Agreement or any Note (or any of such extensions of
credit or liabilities) or such Lender's Commitment or Loans. Each
Lender will notify the Agent and the Borrower of any event occurring
after the Closing Date which will entitle such Lender to compensation
pursuant to this Section 5.01(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation,
and will designate a different Applicable Lending Office for the Loans
of such Lender affected by such event if such designation will avoid
the need for, or reduce the amount of, such compensation and will not,
in the sole opinion of such Lender, be disadvantageous to such Lender,
provided that such Lender shall have no obligation to so designate an
Applicable Lending Office located in the United States. If any Lender
requests compensation from the Borrower under this Section 5.01(a),
the Borrower may, by notice to such Lender, suspend the obligation of
such Lender to make additional Loans of the Type with respect to which
such compensation is requested until the Regulatory Change giving rise
to such request ceases to be in effect (in which case the provisions
of Section 5.04 shall be applicable).
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(b) Regulatory Change. Without limiting the effect of
the provisions of Section 5.01(a), in the event that, by reason of any
Regulatory Change or any other circumstances arising after the Closing
Date affecting such Lender, the Eurodollar interbank market or such
Lender's position in such market, any Lender either (i) incurs
Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest
rate on Eurodollar Loans is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Lender
which includes Eurodollar Loans or (ii) becomes subject to
restrictions on the amount of such a category of liabilities or assets
which it may hold, then, if such Lender so elects by notice to the
Borrower, the obligation of such Lender to make additional Eurodollar
Loans shall be suspended until such Regulatory Change or other
circumstances ceases to be in effect (in which case the provisions of
Section 5.04 shall be applicable).
(c) Capital Adequacy. Without limiting the effect of the
foregoing provisions of this Section 5.01 (but without duplication),
the Borrower shall pay directly to any Lender from time to time on
request such amounts as such Lender may reasonably determine to be
necessary to compensate such Lender or its parent or holding company
for any costs which it determines are attributable to the maintenance
by such Lender or its parent or holding company (or any Applicable
Lending Office), pursuant to any Governmental Requirement following
any Regulatory Change, of capital in respect of its Commitment, its
Note, its Loans or any interest held by it in any Letter of Credit,
such compensation to include, without limitation, an amount equal to
any reduction of the rate of return on assets or equity of such Lender
or its parent or holding company (or any Applicable Lending Office) to
a level below that which such Lender or its parent or holding company
(or any Applicable Lending Office) could have achieved but for such
Governmental Requirement. Such Lender will notify the Borrower that
it is entitled to compensation pursuant to this Section 5.01(c) as
promptly as practicable after it determines to request such
compensation.
(d) Compensation Procedure. Any Lender notifying the
Borrower of the incurrence of additional costs under this Section 5.01
shall in such notice to the Borrower and the Agent set forth in
reasonable detail the basis and amount of its request for
compensation. Determinations and allocations by each Lender for
purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to Section 5.01(a) or (b), or of the effect of capital
maintained pursuant to Section 5.01(c), on its costs or rate of return
of maintaining Loans or its obligation to make Loans or issue Letters
of Credit, or on amounts receivable by it in respect of Loans or
Letters of Credit, and of the amounts required to compensate such
Lender under this Section 5.01, shall be conclusive and binding for
all purposes, provided that such determinations and allocations are
made on a reasonable basis. Any request for additional compensation
under this Section 5.01 shall be paid by the Borrower within thirty
(30) days of the receipt by the Borrower of the notice described in
this Section 5.01(d).
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Section 5.02 Limitation on Eurodollar Loans. Anything herein
to the contrary notwithstanding, if, on or prior to the determination of any
Fixed Rate for any Interest Period:
(i) the Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates
for the relevant deposits referred to in the definition of "Fixed
Rate" in Section 1.02 are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining rates of
interest for Eurodollar Loans as provided herein; or
(ii) the Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Fixed Rate" in Section 1.02 upon the
basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not sufficient to adequately
cover the cost to the Lenders of making or maintaining Eurodollar
Loans;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain
Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower
thereof and such Lender's obligation to make Eurodollar Loans shall be
suspended until such time as such Lender may again make and maintain Eurodollar
Loans (in which case the provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02
and 5.03. If the obligation of any Lender to make Eurodollar Loans shall be
suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all
Affected Loans which would otherwise be made by such Lender shall be made
instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or
Section 5.03 has occurred and such Lender so requests by notice to the
Borrower, all Affected Loans of such Lender then outstanding shall be
automatically converted into Base Rate Loans on the date specified by such
Lender in such notice) and, to the extent that Affected Loans are so made as
(or converted into) Base Rate Loans, all payments of principal which would
otherwise be applied to such Lender's Affected Loans shall be applied instead
to its Base Rate Loans.
Section 5.05 Compensation. The Borrower shall pay to each
Lender within thirty (30) days of receipt of written request of such Lender
(which request shall set forth, in reasonable detail, the basis for requesting
such amounts and which shall be conclusive and binding for all purposes
provided that such determinations are made on a reasonable basis), such amount
or amounts as shall compensate it for any loss, cost, expense or liability
which such Lender determines are attributable to:
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(i) any payment, prepayment or conversion of a Eurodollar
Loan properly made by such Lender or the Borrower for any reason
(including, without limitation, the acceleration of the Loans pursuant
to Section 10.02) on a date other than the last day of the Interest
Period for such Loan; or
(ii) any failure by the Borrower for any reason (including
but not limited to, the failure of any of the conditions precedent
specified in Article VI to be satisfied) to borrow, continue or
convert a Eurodollar Loan from such Lender on the date for such
borrowing, continuation or conversion specified in the relevant notice
given pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender).
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial Funding is
subject to the receipt by the Agent and the Lenders of all fees payable
pursuant to Section 2.04 on or before the June 30, 1996 and the receipt by the
Agent of the following documents and satisfaction of the other conditions
provided in this Section 6.01, each of which shall be satisfactory to the Agent
in form and substance:
(a) A certificate of the Secretary or an Assistant
Secretary of the Borrower setting forth (i) resolutions of its board
of directors with respect to the authorization of the Borrower to
execute and deliver the Loan Documents to which it is a party and to
enter into the transactions contemplated in those documents, (ii) the
officers of the Borrower (y) who are authorized to sign the Loan
Documents to which Borrower is a party and (z) who will, until
replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection
with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of the authorized officers, and (iv) the
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articles or certificate of incorporation and bylaws of the Borrower,
certified as being true and complete. The Agent and the Lenders may
conclusively rely on such certificate until the Agent receives notice
in writing from the Borrower to the contrary.
(b) Certificates of the appropriate state agencies with
respect to the existence, qualification and good standing of the
Borrower.
(c) A compliance certificate which shall be substantially
in the form of Exhibit C, duly and properly executed by a Responsible
Officer and dated as of the date of the Initial Funding.
(d) The Notes, duly completed and executed.
(e) Evidence that the Borrower has (i) obtained all
necessary or advisable orders, consents, approvals and authorizations
from, and (ii) made all filings and notifications with, all
Governmental Authorities and other Persons required in connection with
the Acquisitions.
(f) The Agent shall have received (i) a certificate of a
Responsible Officer of the Borrower certifying that Merger Sub is
concurrently merging with Tide West, with Merger Sub being the
surviving corporation, and that the Borrower and/or Orion has
purchased and received assignments of the properties of Basin included
in the Initial Reserve Report, (ii) a true and complete executed copy
of the Tide West Merger Agreement and the Basin Purchase and Sale
Agreement and the other Acquisition Documents, said agreements being
in form and substance reasonably satisfactory to the Agent, and being
certified by such Responsible Officer as being in full force and
effect, (iii) a true and complete executed counterpart of the opinions
of counsel to each of the Borrower, Tide West and Basin delivered in
connection with the Acquisitions, in each case either addressed to the
Agent and the Lenders or accompanied with a letter from the issuer
thereof granting the Agent and the Lenders the right to rely on the
opinions set forth therein, and (iv) such other related documents and
information as the Agent shall have reasonably requested.
(g) (i) An opinion of Vinson & Elkins L.L.P., special
counsel to the Agent, substantially in the form of Exhibit D-1 hereto.
(ii) An opinion of Davis, Graham & Stubbs, counsel
to the Borrower, substantially in the form of Exhibit D-2
hereto.
(h) Evidence, which shall be a certificate of merger
issued by the Secretary of State of the State of Delaware, evidencing
the merger of Tide West into Merger Sub.
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(i) Assignments in favor of the Borrower or Orion, with
respect to title to the Properties acquired in the Basin Acquisition
and included in the Initial Reserve Report.
(j) As a result of the Acquisitions the Borrower, the
Merger Sub or Orion shall own all of the Properties evaluated by the
Initial Reserve Report.
(k) A certificate of insurance coverage of the Borrower
evidencing that the Borrower is carrying insurance in accordance with
Section 7.19.
(l) Debt under the Prior Credit Agreement shall have been
paid in full or paid with the Initial Funding, including interest and
other amounts owing thereunder, and the Prior Credit Agreement shall
have been amended and restated by this Agreement.
(m) The Debt of Tide West for borrowed money shall have
been paid in full or paid with the Initial Funding, including interest
and other amounts owing thereunder, and the documents evidencing such
Debt shall have been terminated.
(n) The Agent shall have received assignments of all
Liens securing the Prior Credit Agreement and any releases of Liens
encumbering the Properties acquired in the Acquisitions unless
permitted by Section 9.02.
(o) Each Subsidiary required to execute a Guaranty
Agreement pursuant to Section 8.09 shall have executed and delivered a
Guaranty Agreement.
(p) The Agent shall have received from the Borrower the
payment of all fees required by Section 2.04 to be paid on or before
the Closing Date.
(q) Such other documents as the Agent or any Lender or
special counsel to the Agent may reasonably request.
Section 6.02 Initial and Subsequent Loans and Letters of
Credit. The obligation of the Lenders to make Loans to the Borrower upon the
occasion of each borrowing hereunder and to issue, renew, extend or reissue
Letters of Credit for the account of the Borrower (including the Initial
Funding) is subject to the further conditions precedent that, as of the date of
such Loans and after giving effect thereto: (i) no Default shall have occurred
and be continuing; (ii) no Material Adverse Effect shall have occurred; and
(iii) the representations and warranties made by the Borrower in Article VII
and in the other Loan Documents shall be true on and as of the date of the
making of such Loans or issuance, renewal, extension or reissuance of a Letter
of Credit with the same force and effect as if made on and as of such date and
following such new borrowing, except to the extent such representations and
warranties are expressly limited to an earlier date or the Majority Lenders may
expressly consent in writing to the contrary. Each request for a borrowing or
issuance, renewal, extension or reissuance of a Letter of Credit by the
Borrower hereunder shall constitute a certification by the Borrower to the
effect set forth in the preceding sentence (both as of the date of such notice
and, unless the
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Borrower otherwise notifies the Agent prior to the date of and immediately
following such borrowing or issuance, renewal, extension or reissuance of a
Letter of Credit as of the date thereof).
Section 6.03 Conditions Relating to Letters of Credit. In
addition to the satisfaction of all other conditions precedent set forth in
this Article VI, the issuance, renewal, extension or reissuance of the Letters
of Credit referred to in Section 2.01(b) hereof is subject to the following
conditions precedent:
(a) At least three (3) Business Days prior to the date of
the issuance and at least thirty (30) Business Days prior to the date
of the renewal, extension or reissuance of each Letter of Credit, the
Agent shall have received a written request for a Letter of Credit.
(b) Each of the Letters of Credit shall (i) be issued by
the Agent, (ii) contain such terms and provisions as are reasonably
required by the Agent, (iii) be for the account of the Borrower and
(iv) expire not later than the earlier of one year from the date of
issue or two (2) days before the Revolving Credit Termination Date.
(c) The Borrower shall have duly and validly executed and
delivered to the Agent a Letter of Credit Agreement pertaining to the
Letter of Credit.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and the Lenders that
(each representation and warranty herein is given as of the Closing Date and
shall be deemed repeated and reaffirmed on the dates of each borrowing and
issuance, renewal, extension or reissuance of a Letter of Credit as provided in
Section 6.02):
Section 7.01 Existence. Each of the Borrower and each
Subsidiary: (i) is duly organized or formed, legally existing and, to the
extent required by Governmental Requirements, in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite corporate or
other applicable power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure
so to qualify would have a Material Adverse Effect.
Section 7.02 Financial Condition. (a) The audited
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
at December 31, 1995 and the related consolidated statement of income,
stockholders' equity and cash flow of the Borrower and its
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Consolidated Subsidiaries for the fiscal year ended on said date, with the
opinion thereon of Arthur Andersen & Co. heretofore furnished to each of the
Lenders and the unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at March 31, 1996 and their related consolidated
statements of income, stockholders' equity and cash flow of the Borrower and
its Consolidated Subsidiaries for the three-month period ended on such date
heretofore furnished to the Agent, are complete and correct and fairly present
the consolidated financial condition of the Borrower and its Consolidated
Subsidiaries as at said dates and the results of its operations for the fiscal
year and the three- month period on said dates, all in accordance with GAAP, as
applied on a consistent basis (subject, in the case of the interim financial
statements, to normal year-end adjustments).
(b) The audited consolidated balance sheet of Tide West and its
Subsidiaries as at December 31, 1995 and the related consolidated statement of
income, stockholders' equity and cash flow of Tide West and its Subsidiaries
for the fiscal year ended on said date, with the opinion thereon of Deloitte &
Touche LLP heretofore furnished to each of the Lenders and the unaudited
consolidated balance sheet of Tide West and its Subsidiaries as at March 31,
1996 and their related consolidated statements of income, stockholders' equity
and cash flow of Tide West and its Subsidiaries for the three-month period
ended on such date heretofore furnished to the Agent, are complete and correct
and fairly present the consolidated financial condition of Tide West and its
Subsidiaries as at said dates and the results of its operations for the fiscal
year and the three-month period on said dates, all in accordance with GAAP, as
applied on a consistent basis (subject, in the case of the interim financial
statements, to normal year-end adjustments).
(c) The pro forma consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries as of March 31, 1996 reflecting the completion of
the Acquisitions and the Initial Funding incurred therewith is complete and
correct in all material respects and fairly presents the financial condition of
the Borrower and its Consolidated Subsidiaries as of March 31, 1996 and as a
result of the Acquisitions all in accordance with GAAP applied on a consistent
basis (subject to normal year-end adjustments).
(d) Neither the Borrower nor any Subsidiary has on the Closing
Date any material Debt, contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the Financial Statements or in Schedule 7.02. Since December 31, 1995, there
has been no change or event having a Material Adverse Effect. Since the date
of the Financial Statements, neither the business nor the Properties of the
Borrower or any Subsidiary have been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property
or cancellation of contracts, permits or concessions by any Governmental
Authority, riot, activities of armed forces or acts of God or of any public
enemy.
Section 7.03 Litigation. Except as disclosed to the Lenders
in Schedule 7.03 hereto, at the Closing Date there is no litigation, legal,
administrative or arbitral proceeding, investigation or other action of any
nature pending or, to the knowledge of the Borrower
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threatened against or affecting the Borrower or any Subsidiary which involves
the Acquisitions or the possibility of any judgment or liability against the
Borrower or any Subsidiary not fully covered by insurance (except for normal
deductibles), and which would have a Material Adverse Effect.
Section 7.04 No Breach. Neither the Acquisitions, the
execution and delivery of the Loan Documents and the Acquisition Documents, nor
compliance with the terms and provisions hereof or thereof will conflict with
or result in a breach of, or require any consent which has not been obtained as
of the Closing Date under, the respective charter or by-laws of the Borrower,
any Subsidiary, Basin, or Tide West or any Governmental Requirement or any
agreement or instrument to which the Borrower, any Subsidiary, Basin, or Tide
West is a party or by which it is bound or to which it or its Properties are
subject, or constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the revenues or
assets of the Borrower, any Subsidiary, Basin, or Tide West pursuant to the
terms of any such agreement or instrument other than the Liens created by the
Loan Documents.
Section 7.05 Authority. Each of the Borrower, each
Subsidiary, Basin and Tide West have all necessary corporate power and
authority to execute, deliver and perform its obligations under the Loan
Documents and the Acquisition Documents to which it is a party; and the
execution, delivery and performance by each of the Borrower, each Subsidiary,
Basin and Tide West of the Loan Documents and the Acquisition Documents to
which it is a party, have been duly authorized by all necessary corporate
action on its part; and the Loan Documents constitute the legal, valid and
binding obligations of each of the Borrower, each Subsidiary, Basin, and Tide
West, which is a party thereto, enforceable in accordance with their terms.
Section 7.06 Approvals. No authorizations, approvals or
consents of, and no filings or registrations with, any Governmental Authority
are necessary for the execution, delivery or performance by the Borrower, any
Subsidiary, Basin or Tide West of the Loan Documents and the Acquisition
Documents to which it is a party or for the validity or enforceability thereof.
Section 7.07 Use of Loans. The proceeds of the Loans shall
be used for general corporate and working capital purposes which shall include
the acquisition, exploration and development of Oil and Gas Properties and to
fund the Acquisitions and to refinance prior Debt of the Borrower and the
Subsidiaries. The Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
(within the meaning of Regulation G, U or X of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan hereunder will
be used to buy or carry any margin stock.
Section 7.08 ERISA.
(a) The Borrower, each Subsidiary and each ERISA
Affiliate have complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
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(b) Each Plan is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which
could result in imposition on the Borrower, any Subsidiary or any
ERISA Affiliate (whether directly or indirectly) of (i) either a civil
penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a
tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii)
breach of fiduciary duty liability damages under section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or
any trust created under any such Plan has been terminated since
September 2, 1974. No liability to the PBGC (other than for the
payment of current premiums which are not past due) by the Borrower,
any Subsidiary or any ERISA Affiliate has been or is expected by the
Borrower, any Subsidiary or any ERISA Affiliate to be incurred with
respect to any Plan. No ERISA Event with respect to any Plan has
occurred.
(e) Full payment when due has been made of all amounts
which the Borrower, any Subsidiary or any ERISA Affiliate is required
under the terms of each Plan or applicable law to have paid as
contributions to such Plan, and no accumulated funding deficiency (as
defined in section 302 of ERISA and section 412 of the Code), whether
or not waived, exists with respect to any Plan.
(f) The actuarial present value of the benefit
liabilities under each Plan which is subject to Title IV of ERISA does
not, as of the end of the Borrower's most recently ended fiscal year,
exceed the current value of the assets (computed on a plan termination
basis in accordance with Title IV of ERISA) of such Plan allocable to
such benefit liabilities. The term "actuarial present value of the
benefit liabilities" shall have the meaning specified in section 4041
of ERISA.
(g) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains, or contributes to an employee welfare
benefit plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by the
Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion
at any time without any material liability.
(h) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains or contributes to, or has at any time in
the preceding six calendar years, sponsored, maintained or contributed
to, any Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA
Affiliate is required to provide security under section 401(a)(29) of
the Code due to a Plan amendment that results in an increase in
current liability for the Plan.
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Section 7.09 Taxes. Except as set out in Schedule 7.09, each
of the Borrower and its Subsidiaries has filed all United States
Federal income tax returns and all other tax returns which are
required to be filed by them and have paid all material taxes due
pursuant to such returns or pursuant to any assessment received by the
Borrower or any Subsidiary. The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries in respect of taxes and
other governmental charges are, in the opinion of the Borrower,
adequate. No tax lien has been filed and, to the knowledge of the
Borrower, no claim is being asserted with respect to any such tax, fee
or other charge.
Section 7.10 Titles, etc.
(a) Except as set out in Schedule 7.10, each of the
Borrower and its Subsidiaries has good and defensible title to its
material (individually or in the aggregate) Properties, free and clear
of all Liens except Liens permitted by Section 9.02. Except as set
forth in Schedule 7.10, after giving full effect to the Excepted
Liens, the Borrower, Merger Sub and Orion own the net interests in
production attributable to the Hydrocarbon Interests reflected in the
most recently delivered Reserve Report and the ownership of such
Properties shall not in any material respect obligate the Borrower,
Merger Sub or Orion to bear the costs and expenses relating to the
maintenance, development and operations of each such Property in an
amount in excess of the working interest of each Property set forth in
the most recently delivered Reserve Report. All information contained
in the most recently delivered Reserve Report is true and correct in
all material respects as of the date thereof.
(b) All leases and agreements necessary for the conduct
of the business of the Borrower and its Subsidiaries are valid and
subsisting, in full force and effect and there exists no default or
event or circumstance which with the giving of notice or the passage
of time or both would give rise to a default under any such lease or
leases, which would affect in any material respect the conduct of the
business of the Borrower and its Subsidiaries.
(c) The rights, Properties and other assets presently
owned, leased or licensed by the Borrower and its Subsidiaries
including, without limitation, all easements and rights of way,
include all rights, Properties and other assets necessary to permit
the Borrower and its Subsidiaries to conduct their business in all
material respects in the same manner as its business has been
conducted prior to the Closing Date.
(d) All of the assets and Properties of the Borrower and
its Subsidiaries which are reasonably necessary for the operation of
its business are in good working condition and are maintained in
accordance with prudent business standards.
Section 7.11 No Material Misstatements. No written
information, statement, exhibit, certificate, document or report furnished to
the Agent and the Lenders (or any of them) by the Borrower or any Subsidiary in
connection with the negotiation of this Agreement
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contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statement contained therein not materially
misleading in the light of the circumstances in which made and with respect to
the Borrower and its Subsidiaries taken as a whole. There is no fact peculiar
to the Borrower or any Subsidiary which has a Material Adverse Effect or in the
future is reasonably likely to have (so far as the Borrower can now foresee) a
Material Adverse Effect and which has not been set forth in this Agreement or
the other documents, certificates and statements furnished to the Agent by or
on behalf of the Borrower or any Subsidiary prior to, or on, the Closing Date
in connection with the transactions contemplated hereby.
Section 7.12 Investment Company Act. Neither the Borrower
nor any Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 Public Utility Holding Company Act. Neither the
Borrower nor any Subsidiary is a "holding company," or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries. Except as set forth on Schedule
7.14, the Borrower has no Subsidiaries.
Section 7.15 Location of Business and Offices. The
Borrower's principal place of business and chief executive offices are located
at the address stated on the signature page of this Agreement. The principal
place of business and chief executive office of each Subsidiary are located at
the addresses stated on Schedule 7.14.
Section 7.16 Defaults. Neither the Borrower nor any
Subsidiary is in default nor has any event or circumstance occurred which, but
for the expiration of any applicable grace period or the giving of notice, or
both, would constitute a default under any material agreement or instrument to
which the Borrower or any Subsidiary is a party or by which the Borrower or any
Subsidiary is bound which default would have a Material Adverse Effect. No
Default hereunder has occurred and is continuing.
Section 7.17 Environmental Matters. Except (i) as provided
in Schedule 7.17 or (ii) as would not have a Material Adverse Effect (or with
respect to (c), (d) and (e) below, where the failure to take such actions would
not have a Material Adverse Effect):
(a) Neither any Property of the Borrower or any
Subsidiary nor the operations conducted thereon violate any order or
requirement of any court or Governmental Authority or any
Environmental Laws;
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(b) Without limitation of clause (a) above, no Property
of the Borrower or any Subsidiary nor the operations currently
conducted thereon or, to the best knowledge of the Borrower, by any
prior owner or operator of such Property or operation, are in
violation of or subject to any existing, pending or threatened action,
suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority or to any remedial obligations under
Environmental Laws;
(c) All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed in connection
with the operation or use of any and all Property of the Borrower and
each Subsidiary, including without limitation past or present
treatment, storage, disposal or release of a hazardous substance or
solid waste into the environment, have been duly obtained or filed,
and the Borrower and each Subsidiary are in compliance with the terms
and conditions of all such notices, permits, licenses and similar
authorizations;
(d) All hazardous substances, solid waste, and oil and
gas exploration and production wastes, if any, generated at any and
all Property of the Borrower or any Subsidiary have in the past been
transported, treated and disposed of in accordance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to
public health or welfare or the environment, and, to the best
knowledge of the Borrower, all such transport carriers and treatment
and disposal facilities have been and are operating in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are
not the subject of any existing, pending or threatened action,
investigation or inquiry by any Governmental Authority in connection
with any Environmental Laws;
(e) The Borrower has taken all steps reasonably necessary
to determine and has determined that no hazardous substances, solid
waste, or oil and gas exploration and production wastes, have been
disposed of or otherwise released and there has been no threatened
release of any hazardous substances on or to any Property of the
Borrower or any Subsidiary except in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to
public health or welfare or the environment;
(f) To the extent applicable, all Property of the
Borrower and each Subsidiary currently satisfies all design,
operation, and equipment requirements imposed by the OPA or scheduled
as of the Closing Date to be imposed by OPA during the term of this
Agreement, and the Borrower does not have any reason to believe that
such Property, to the extent subject to OPA, will not be able to
maintain compliance with the OPA requirements during the term of this
Agreement; and
(g) Neither the Borrower nor any Subsidiary has any known
contingent liability in connection with any release or threatened
release of any oil, hazardous substance or solid waste into the
environment.
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Section 7.18 Compliance with the Law. Neither the Borrower
nor any Subsidiary has violated any Governmental Requirement or failed to
obtain any license, permit, franchise or other governmental authorization
necessary for the ownership of any of its Properties or the conduct of its
business, which violation or failure would have (in the event such violation or
failure were asserted by any Person through appropriate action) a Material
Adverse Effect.
Section 7.19 Insurance. Schedule 7.19 attached hereto
contains an accurate and complete description of all material policies of fire,
liability, workmen's compensation and other forms of insurance owned or held by
the Borrower and each Subsidiary. All such policies are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the date of the closing have been paid, and no notice of cancellation
or termination has been received with respect to any such policy. Such
policies are sufficient for compliance with all requirements of law and of all
agreements to which the Borrower or any Subsidiary is a party; are valid,
outstanding and enforceable policies; provide adequate insurance coverage in at
least such amounts and against at least such risks (but including in any event
public liability) as are usually insured against in the same general area by
companies engaged in the same or a similar business for the assets and
operations of the Borrower and each Subsidiary; will remain in full force and
effect through the respective dates set forth in Schedule 7.19 without the
payment of additional premiums; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. Schedule 7.19 identifies all material risks, if any, which the
Borrower and its Subsidiaries and their respective Board of Directors or
officers have designated as being self insured. Neither the Borrower nor any
Subsidiary has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited below usual and customary policy
limits, by an insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the last three years.
Section 7.20 Hedging Agreements. Schedule 7.20 sets forth,
as of the Closing Date, a true and complete list of all Hedging Agreements
(including commodity price swap agreements, forward agreements or contracts of
sale which provide for prepayment for deferred shipment or delivery of oil, gas
or other commodities) of the Borrower and each Subsidiary, the material terms
thereof (including the type, term, Closing Date, termination date and notional
amounts or volumes), the net mark to market value thereof, all credit support
agreements relating thereto (including any margin required or supplied), and
the counterparty to each such agreement.
Section 7.21 Subordinated Debt. The Indebtedness now
existing or hereafter arising under this Agreement or the Notes is and at all
times shall be Senior Indebtedness and Specified Senior Indebtedness pursuant
to and as defined in the Indenture.
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ARTICLE VIII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of all Indebtedness, all
interest thereon and all other amounts payable by the Borrower hereunder:
Section 8.01 Financial Statements. The Borrower shall
deliver, or shall cause to be delivered, to the Agent with sufficient copies of
each for the Lenders:
(a) As soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower, the audited
consolidated and unaudited consolidating statements of income,
stockholders' equity, changes in financial position and cash flow of
the Borrower and its Consolidated Subsidiaries for such fiscal year,
and the related consolidated and consolidating balance sheets of the
Borrower and its Consolidated Subsidiaries as at the end of such
fiscal year, and setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and accompanied
by the related opinion of independent public accountants of recognized
national standing acceptable to the Agent which opinion shall state
that said financial statements fairly present the consolidated and
consolidating financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries as at the end of, and for,
such fiscal year and that such financial statements have been prepared
in accordance with GAAP except for such changes in such principles
with which the independent public accountants shall have concurred and
such opinion shall not contain a "going concern" or like qualification
or exception, and a certificate of such accountants stating that, in
making the examination necessary for their opinion and without
specific investigation, they obtained no knowledge, except as
specifically stated, of any Default.
(b) As soon as available and in any event within 45 days
after the end of each of the first three fiscal quarterly periods of
each fiscal year of the Borrower, consolidated and consolidating
statements of income, stockholders' equity, changes in financial
position and cash flow of the Borrower and its Consolidated
Subsidiaries for such period and for the period from the beginning of
the respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such
period, and setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding
fiscal year, accompanied by the certificate of a Responsible Officer,
which certificate shall state that said financial statements fairly
present the consolidated and consolidating financial condition and
results of operations of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments).
(c) Promptly after the Borrower knows that any Default or
any Material Adverse Effect has occurred, a notice of such Default or
Material Adverse Effect,
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describing the same in reasonable detail and the action the Borrower
proposes to take with respect thereto.
(d) Promptly upon receipt thereof, a copy of each other
report or letter submitted to the Borrower or any Subsidiary by
independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower and its
Subsidiaries, and a copy of any response by the Borrower or any
Subsidiary of the Borrower, or the Board of Directors of the Borrower
or any Subsidiary of the Borrower, to such letter or report.
(e) Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by the Borrower to
stockholders generally and each regular or periodic report and any
registration statement, prospectus or written communication (other
than transmittal letters) in respect thereof filed by the Borrower
with or received by the Borrower in connection therewith from any
securities exchange or the SEC or any successor agency.
(f) Promptly after the furnishing thereof, copies of any
statement, report or notice furnished to or for any Person pursuant to
the terms of any indenture, loan or credit or other similar agreement,
other than this Agreement and not otherwise required to be furnished
to the Lenders pursuant to any other provision of this Section 8.01.
(g) From time to time such other information regarding
the business, affairs or financial condition of the Borrower or any
Subsidiary (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under
ERISA) as any Lender or the Agent may reasonably request.
(h) At the time it delivers the financial statements
pursuant to paragraph (a) or (b) above, a report, in form and
substance satisfactory to the Agent, setting forth as of the end of
the preceding calendar quarter a true and complete list of all Hedging
Agreements (including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas or other commodities) of the
Borrower and each Subsidiary, the material terms thereof (including
the type, term, Closing Date, termination date and notional amounts or
volumes), the net mark to market value therefor, any new credit
support agreements relating thereto not listed on Schedule 7.20, any
margin required or supplied under any credit support document, and the
counterparty to each such agreement.
The Borrower will furnish to the Agent, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate
substantially in the form of Exhibit C hereto executed by a Responsible Officer
(i) certifying as to the matters set forth therein and stating that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail), and (ii) setting forth
in reasonable detail the
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computations necessary to determine whether the Borrower is in compliance with
Sections 9.12, 9.13 and 9.14 as of the end of the respective fiscal quarter or
fiscal year.
Section 8.02 Litigation. The Borrower shall promptly give to
the Agent notice of all legal or arbitral proceedings, and of all proceedings
before any Governmental Authority affecting the Borrower or any Subsidiary,
except proceedings which, if adversely determined, would not have a Material
Adverse Effect.
Section 8.03 Maintenance, Etc.
(a) The Borrower shall and shall cause each Subsidiary
to: preserve and maintain its existence (except for mergers permitted
by Section 9.09) and all of its material rights, privileges and
franchises; except for such as are released, surrendered or disposed
of in the ordinary course of business and only if such release,
surrender or disposal does not cause a Material Adverse Effect; keep
books of record and account in which full, true and correct entries
will be made of all dealings or transactions in relation to its
business and activities; comply with all Governmental Requirements if
failure to comply with such requirements will have a Material Adverse
Effect; pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained; upon reasonable
notice, permit representatives of the Agent or any Lender, during
normal business hours, to examine, copy and make extracts from its
books and records, to inspect its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably
requested by such Lender or the Agent (as the case may be); and keep,
or cause to be kept, insured by financially sound and reputable
insurers all Property of a character usually insured by Persons
engaged in the same or similar business similarly situated against
loss or damage of the kinds and in the amounts customarily insured
against by such Persons and carry such other insurance as is usually
carried by such Persons.
(b) Contemporaneously with the delivery of the financial
statements required by Section 8.01(a) to be delivered for each year,
the Borrower will furnish or cause to be furnished to the Agent and
the Lenders a certificate of insurance coverage from the insurer in
form and substance satisfactory to the Agent and, if requested, will
furnish the Agent and the Lenders copies of the applicable policies.
(c) The Borrower will and will cause each Subsidiary to,
at its own expense, do or cause to be done all things reasonably
necessary to preserve and keep in good repair, working order and
efficiency all of its Oil and Gas Properties and other material
Properties including, without limitation, all equipment, machinery and
facilities, and from time to time will make all the reasonably
necessary repairs, renewals and replacements so that at all times the
state and condition of its Oil and Gas Properties and
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other material Properties will be fully preserved and maintained,
except to the extent a portion of such Properties is no longer capable
of producing Hydrocarbons in economically reasonable amounts. The
Borrower will and will cause each Subsidiary to promptly: (i) pay and
discharge, or make reasonable and customary efforts to cause to be
paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting
or pertaining to its Oil and Gas Properties, (ii) perform or make
reasonable and customary efforts to cause to be performed, in
accordance with industry standards, the obligations required by each
and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and
other material Properties, (iii) will and will cause each Subsidiary
to do all other things necessary to keep unimpaired, except for Liens
described in Section 9.02, its rights with respect thereto and prevent
any forfeiture thereof or a default thereunder, except to the extent a
portion of such Properties is no longer capable of producing
Hydrocarbons in economically reasonable amounts and except for
dispositions permitted by Section 9.15 hereof. The Borrower will and
will cause each Subsidiary to operate its Oil and Gas Properties and
other material Properties or cause or make reasonable and customary
efforts to cause such Oil and Gas Properties and other material
Properties to be operated in a careful and efficient manner in
accordance with the practices of the industry and in compliance with
all applicable contracts and agreements and in compliance in all
material respects with all Governmental Requirements.
Section 8.04 Environmental Matters.
(a) The Borrower will and will cause each Subsidiary to
establish and implement such procedures as may be reasonably necessary
to continuously determine and assure that any failure of the following
does not have a Material Adverse Effect: (i) all Property of the
Borrower and its Subsidiaries and the operations conducted thereon and
other activities of the Borrower and its Subsidiaries are in
compliance with and do not violate the requirements of any
Environmental Laws, (ii) no oil, hazardous substances or solid wastes
are disposed of or otherwise released on or to any Property owned by
any such party except in compliance with Environmental Laws, (iii) no
hazardous substance will be released on or to any such Property in a
quantity equal to or exceeding that quantity which requires reporting
pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas
exploration and production wastes or hazardous substance is released
on or to any such Property so as to pose an imminent and substantial
endangerment to public health or welfare or the environment.
(b) The Borrower will promptly notify the Agent and the
Lenders in writing of any threatened action, investigation or inquiry
by any Governmental Authority of which the Borrower has knowledge in
connection with any Environmental Laws, excluding any matters which,
if adversely determined, would not have a Material Adverse Effect.
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(c) The Borrower will and will cause each Subsidiary to
provide environmental audits and tests in accordance with American
Society for Testing and Materials standards as reasonably requested by
the Agent and the Lenders (or as otherwise required to be obtained by
the Agent or the Lenders by any Governmental Authority) in connection
with any future acquisitions of Oil and Gas Properties or other
material Properties.
Section 8.05 Further Assurances. The Borrower will and will
cause each Subsidiary to cure promptly any defects in the creation and issuance
of the Notes and the execution and delivery of the other Loan Documents. The
Borrower at its expense will and will cause each Subsidiary to promptly execute
and deliver to the Agent upon request all such other documents, agreements and
instruments to comply with or accomplish the covenants and agreements of the
Borrower or any Subsidiary, as the case may be, in the Loan Documents, or to
further evidence and more fully describe the collateral intended as security
for the Notes, or to correct any omissions in the Loan Documents or to state
more fully the security obligations set out herein or in any of the other Loan
Documents, or to perfect, protect or preserve any Liens created pursuant to any
of the Loan Documents, or to make any recordings, to file any notices or obtain
any consents, all as may be necessary or appropriate in connection therewith.
Section 8.06 Performance of Obligations. The Borrower will
pay the Notes according to the reading, tenor and effect thereof; and the
Borrower will and will cause each Subsidiary to do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, at the time or times and in the manner specified.
Section 8.07 Engineering Reports.
(a) Not more than 21 days after September 30, 1996, the
Borrower will furnish to the Agent and the Lenders an update of the
Initial Reserve Report in form and substance satisfactory to the
Lenders which, among other things, will specify the proved undeveloped
locations that have been reclassified as proved developed producing as
of September 30, 1996. Not less than 45 days prior to each other
Scheduled Redetermination Date, commencing with the Scheduled
Redetermination Date to occur on April 15, 1997, the Borrower shall
furnish to the Agent and the Lenders a Reserve Report. The Reserve
Report shall be prepared by or under the supervision of the chief
engineer of the Borrower and audited by Williamson Petroleum
Consultants, Inc. or such other certified independent petroleum
engineers or other independent petroleum consultant(s) acceptable to
the Agent, such audit to be in form and substance satisfactory to the
Lenders.
(b) In the event of an unscheduled redetermination, the
Borrower shall furnish to the Agent and the Lenders a Reserve Report
prepared by or under the supervision of the chief engineer of the
Borrower who shall certify such Reserve Report to be true and accurate
and to have been prepared in accordance with the procedures used in
the immediately preceding Reserve Report. For any unscheduled
redetermination requested
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by the Majority Lenders, the Borrower shall provide such Reserve
Report with an "as of" date as required by the Majority Lenders as
soon as possible, but in any event no later than 45 days following the
receipt of the request by the Agent.
(c) With the delivery of each Reserve Report, the
Borrower shall provide to the Agent and the Lenders, a certificate
from a Responsible Officer certifying that, to the best of his
knowledge and in all material respects: (i) the information contained
in the Reserve Report and any other information delivered in
connection therewith is true and correct, (ii) the Borrower or Merger
Sub owns good and defensible title to the Oil and Gas Properties
evaluated in such Reserve Report and such Properties are free of all
Liens except for Liens permitted by Section 9.02, and (iii) except as
set forth on an exhibit to the certificate, on a net basis there are
no gas imbalances, take or pay or other prepayments with respect to
its Oil and Gas Properties evaluated in such Reserve Report which
would require the Borrower or Merger Sub to deliver Hydrocarbons
produced from such Oil and Gas Properties at some future time without
then or thereafter receiving full payment therefor and which would
exceed $1,000,000 in the aggregate for the Borrower and Merger Sub.
Section 8.08 ERISA Information and Compliance. The Borrower
will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate
to promptly furnish to the Agent with sufficient copies to the Lenders (i)
promptly after the filing thereof with the United States Secretary of Labor,
the Internal Revenue Service or the PBGC, copies of each annual and other
report with respect to each Plan or any trust created thereunder, (ii)
immediately upon becoming aware of the occurrence of any ERISA Event or of any
"prohibited transaction," as described in section 406 of ERISA or in section
4975 of the Code, in connection with any Plan or any trust created thereunder,
a written notice signed by a Responsible Officer specifying the nature thereof,
what action the Borrower, the Subsidiary or the ERISA Affiliate is taking or
proposes to take with respect thereto, and, when known, any action taken or
proposed by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, and (iii) immediately upon receipt thereof, copies of any
notice of the PBGC's intention to terminate or to have a trustee appointed to
administer any Plan. With respect to each Plan (other than a Multiemployer
Plan), the Borrower will, and will cause each Subsidiary and ERISA Affiliate
to, (i) satisfy in full and in a timely manner, without incurring any late
payment or underpayment charge or penalty and without giving rise to any lien,
all of the contribution and funding requirements of section 412 of the Code
(determined without regard to subsections (d), (e), (f) and (k) thereof) and of
section 302 of ERISA (determined without regard to sections 303, 304 and 306 of
ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner,
without incurring any late payment or underpayment charge or penalty, all
premiums required pursuant to sections 4006 and 4007 of ERISA.
Section 8.09 Subsidiary Guaranty. The Borrower shall at all
times cause each of its Subsidiaries to guarantee the Indebtedness pursuant to
a guaranty agreement substantially in the form of Exhibit G provided that any
Subsidiary with total assets of less than $10,000,000 shall not need to execute
a guaranty agreement unless required to do so by the following sentence.
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Also, on or before the date that any Subsidiary executes a guaranty agreement
of the Subordinated Debt, the Borrower shall cause such Subsidiary to execute a
guaranty agreement of the Indebtedness in form and substance acceptable to the
Agent to the extent that such Subsidiary is not already a party to a guaranty
agreement. The obligations of such Subsidiary under any guaranty agreement to
the Lenders of the Indebtedness shall be Subsidiary Guarantor Senior
Indebtedness and Specified Subsidiary Guarantor Senior Indebtedness pursuant to
and as defined in the Indenture.
ARTICLE IX
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder,
without the prior written consent of the Majority Lenders:
Section 9.01 Debt. Neither the Borrower nor any Subsidiary
will incur, create, assume or suffer to exist any Debt, except:
(a) the Notes or other Indebtedness or any guaranty of or
suretyship arrangement for the Notes or other Indebtedness;
(b) Debt of the Borrower or any Subsidiary existing on
the Closing Date which is reflected in the Financial Statements
pursuant to Section 7.02(c) or is disclosed in Schedules 9.01 or 7.20,
and any renewals or extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of
Property or services) from time to time incurred in the ordinary
course of business which, if greater than 90 days past the invoice or
billing date, are being contested in good faith by appropriate
proceedings if reserves adequate under GAAP shall have been
established therefor;
(d) Debt payable to any Subsidiary by the Borrower or
another Subsidiary provided such Debt is subordinated to the
Indebtedness on terms and conditions reasonably acceptable to the
Majority Lenders;
(e) Nonrecourse purchase money Debt or capital leases for
the purchase or lease of equipment not to exceed $1,500,000 with
respect to production and pipeline equipment (including pumps,
compressors and any other well and pipeline equipment necessary for
the operation of developed wells and gathering and transmission
pipelines) and not to exceed $1,500,000 with respect to other
equipment, in each case outstanding at any one time on a consolidated
basis for the Borrower and all of its Subsidiaries;
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(f) Debt arising under take-or-pay agreements or gas
balancing agreements which do not give rise to a liability in the
aggregate on a consolidated basis for the Borrower and its
Subsidiaries in excess of $500,000 at any one time outstanding;
(g) the Subordinated Debt not to exceed $75,000,000 of
principal outstanding at any time;
(h) any Subsidiary Subordinated Debt; provided that the
Borrower has complied with Section 8.09 of this Agreement;
(j) Debt of the Borrower and its Subsidiaries under
Hedging Agreements covering interest rates, oil or gas with any
Lender as a counterparty or with other Persons as approved by the
Majority Lenders entered into as a part of its normal business
operations as a risk management strategy and/or hedge against changes
resulting from market conditions related to the Borrower's or any
Subsidiary's operations but not to exceed the following:
(i) for oil, the total volumes to be hedged for
any year shall not exceed 60% of expected oil production of
the Borrower or the Subsidiary for such year, whichever is the
party to the Hedging Agreement;
(ii) for gas, the total volumes to be hedged for
any year shall not exceed 60% of expected gas production of
the Borrower or the Subsidiary for such year, whichever is the
party to the Hedging Agreement; and
(iii) for interest rates for the Borrower, the
aggregate notional amount to be hedged shall never exceed the
principal balance outstanding on the Notes;
(k) Debt associated with bonds or surety obligations
required by Governmental Requirements in connection with the operation
of the Oil and Gas Properties; and
(l) obligations of the Borrower or any Subsidiary under
contracts with pipelines for firm transportation of the natural gas of
the Borrower or any Subsidiary or volumes of natural gas exchanged for
the natural gas production of the Borrower or any Subsidiary; provided
that the volumes exchanged in any month do not exceed 20% of the total
production of the Borrower and its Subsidiaries for such month.
Section 9.02 Liens. Neither the Borrower nor any Subsidiary
will create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
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(a) Excepted Liens;
(b) Liens securing capital leases or the purchase money
Debt allowed under Section 9.01(e) but, in each case, only on the
Property under lease or purchased with such Debt;
(c) Liens disclosed on Schedule 9.02 and any renewals and
extensions thereof;
(d) Liens on cash or securities of the Borrower securing
the Debt described in Section 9.01(k); and
(e) Liens securing the Indebtedness.
Section 9.03 Investments, Loans and Advances. Neither the
Borrower nor any Subsidiary will make or permit to remain outstanding any loans
or advances to or investments in any Person, except that the foregoing
restriction shall not apply to:
(a) investments, loans or advances reflected in the
Financial Statements or which are disclosed to the Lenders in Schedule
9.03;
(b) accounts receivable arising in the ordinary course of
business;
(c) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency
thereof, in each case maturing within one year from the date of
creation thereof;
(d) commercial paper maturing within one year from the
date of creation thereof rated in the highest grade by Standard &
Poors Corporation or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by,
any Lender or any office located in the United States of any other
bank or trust company which is organized under the laws of the United
States or any state thereof, has capital, surplus and undivided
profits aggregating at least $100,000,000.00 (as of the date of such
Lender's or bank or trust company's most recent financial reports) and
has a short term deposit rating of no lower than A2 or P2, as such
rating is set forth from time to time, by Standard & Poors Corporation
or Moody's Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively
in investments described in Section 9.03(c), 9.03(d) or 9.03(e);
(g) investments in production payments from and
subordinated loans to WRL not to exceed $30,000,000 in the aggregate
outstanding at any time in connection with
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the sale of Oil and Gas Properties to WRL as permitted by the terms of
this Agreement or as already concluded;
(h) travel advances in the ordinary course of business of
the Borrower or any Subsidiary;
(i) loans to employees of the Borrower and its
Subsidiaries not to exceed in the aggregate $100,000 plus the amount
of any such loans reflected on the Financial Statements and loans to
key employees pursuant to an incentive compensation program to allow
the employees to purchase interests in Oil and Gas Properties not to
exceed $1,000,000 in the aggregate;
(j) advances from any Subsidiary or the Borrower to any
Wholly-Owned Subsidiary that is a Guarantor or to the Borrower
provided that such Debt is subordinated to Indebtedness on terms
reasonably satisfactory to the Agent;
(k) repurchase agreements of any commercial banks in the
United States and Canada, if the commercial paper of such bank or of
the bank holding company of which such bank is a wholly owned
subsidiary is rated in the highest rating categories of Standard &
Poors Corporation, Moody's Investors Service, Inc., or any other
rating agency satisfactory to the Majority Banks, that are fully
secured by securities described in Section 9.03(c);
(l) investments in stock of publicly traded companies not
to exceed $10,000 in the aggregate outstanding at any time;
(m) investments by the Borrower in direct ownership
interests in additional Oil and Gas Properties and gas gathering
systems related thereto; and
(n) other investments, loans or advances not to exceed
$10,000,000 in the aggregate at any time and involving the oil and gas
business and activities directly related thereto; and
Section 9.04 Dividends, Distributions and Redemptions. The
Borrower will not declare or pay any dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding, return any
capital to its stockholders or make any distribution of its assets to its
stockholders, except the Borrower may make dividends consisting entirely of
shares of stock of the Borrower and may purchase, redeem or issue stock as set
forth below if such action does not materially impair the Borrower's ability to
repay the Indebtedness as provided in this Agreement:
(a) redeem shares from its stockholders not to exceed
$5,000,000 in the aggregate since the Closing Date; and
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(b) repurchase shares under the existing repurchase
obligations set forth in the employment agreements with P. Michael
Highum and Nicholas J. Sutton, Jr., but only if such repurchases are
made with proceeds of insurance carried by the Borrower on such
individuals.
Section 9.05 Sales and Leasebacks. Neither the Borrower nor
any Subsidiary will enter into any arrangement, directly or indirectly, with
any Person whereby the Borrower or any Subsidiary shall sell or transfer any of
its Property, whether now owned or hereafter acquired, and whereby the Borrower
or any Subsidiary shall then or thereafter rent or lease as lessee such
Property or any part thereof or other Property which the Borrower or any
Subsidiary intends to use for substantially the same purpose or purposes as the
Property sold or transferred.
Section 9.06 Nature of Business. Neither the Borrower nor
any Subsidiary will allow any material change to be made in the character of
its business as an independent oil and gas exploration and production company.
Section 9.07 Limitation on Leases. Neither the Borrower nor
any Subsidiary will create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or
personal including capital leases but excluding leases of Hydrocarbon
Interests), under leases or lease agreements which would cause the aggregate
amount of all payments made by the Borrower and its Subsidiaries pursuant to
all such leases or lease agreements to exceed $5,000,000 in any period of
twelve consecutive calendar months during the life of such leases.
Section 9.08 Mergers, Etc. Neither the Borrower nor any
Subsidiary will merge into or with or consolidate with any other Person, or
sell, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its Property or assets to any
other Person, except that any Subsidiary may merge with any other Subsidiary
and except that any Person may merge into the Borrower provided that the
Borrower is the surviving corporation and immediately thereafter and giving
effect thereto, no event shall occur and be continuing which constitutes a
Default or an Event of Default.
Section 9.09 Proceeds of Notes. The Borrower will not permit
the proceeds of the Notes to be used for any purpose other than those permitted
by Section 7.07. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulation G, U or X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect.
Section 9.10 ERISA Compliance. The Borrower will not at any
time:
(a) Engage in, or permit any Subsidiary or ERISA
Affiliate to engage in, any transaction in connection with which the
Borrower, any Subsidiary or any ERISA
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Affiliate could be subjected to either a civil penalty assessed
pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by
Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA
Affiliate to terminate, any Plan in a manner, or take any other action
with respect to any Plan, which could result in any liability to the
Borrower, any Subsidiary or any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA
Affiliate to fail to make, full payment when due of all amounts which,
under the provisions of any Plan, agreement relating thereto or
applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is
required to pay as contributions thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA
Affiliate to permit to exist, any accumulated funding deficiency
within the meaning of Section 302 of ERISA or section 412 of the Code,
whether or not waived, with respect to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate to
permit, the actuarial present value of the benefit liabilities under
any Plan maintained by the Borrower, any Subsidiary or any ERISA
Affiliate which is regulated under Title IV of ERISA to exceed the
current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such
benefit liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of
ERISA;
(f) Contribute to or assume an obligation to contribute
to, or permit any Subsidiary or ERISA Affiliate to contribute to or
assume an obligation to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate
to acquire, an interest in any Person that causes such Person to
become an ERISA Affiliate with respect to the Borrower, any Subsidiary
or any ERISA Affiliate if such Person sponsors, maintains or
contributes to, or at any time in the six-year period preceding such
acquisition has sponsored, maintained, or contributed to, (1) any
Multiemployer Plan, or (2) any other Plan that is subject to Title IV
of ERISA under which the actuarial present value of the benefit
liabilities under such Plan exceeds the current value of the assets
(computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to
incur, a liability to or on account of a Plan under sections 515,
4062, 4063, 4064, 4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute
to, or permit any Subsidiary or ERISA Affiliate to contribute to or
assume an obligation to contribute to, any employee welfare benefit
plan, as defined in section 3(1) of ERISA, including,
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without limitation, any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated by such
entities in their sole discretion at any time without any material
liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to
amend, a Plan resulting in an increase in current liability such that
the Borrower, any Subsidiary or any ERISA Affiliate is required to
provide security to such Plan under section 401(a)(29) of the Code;
if, as a result of such event or condition, together with all other such events
or conditions, the Borrower, any Subsidiary or any ERISA Affiliate shall incur
or in the opinion of the Majority Banks shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the
foregoing) which is, in the determination of the Majority Banks, material in
relation to the financial position of the Borrower.
Section 9.11 Sale or Discount of Receivables. Neither the
Borrower nor any Subsidiary will discount or sell (with or without recourse)
any of its notes receivable or accounts receivable, except in connection with
the sale of the Oil and Gas Properties that generated the receivable.
Section 9.12 Working Capital. The Borrower will not permit
consolidated working capital to be less than zero at any time. As used in this
Section, "consolidated working capital" means the excess of its consolidated
current assets plus Available Commitment over its consolidated current
liabilities (excluding current maturities of Debt for borrowed money of the
Borrower and its Subsidiaries). As used in this Section, "Available
Commitment" shall mean the amount, to the extent necessary, up to the unused
amount of the Aggregate Commitments as of the date of calculation, which when
added to the consolidated current assets, will cause the Borrower to be in
compliance with this Section 9.12.
Section 9.13 Tangible Net Worth. The Borrower will not
permit its Tangible Net Worth to be less than $160,000,000 at any time plus 50%
of its consolidated net income, if positive, (determined in accordance with
GAAP) for each fiscal year of the Company, ending after the fiscal year ended
December 31, 1995.
Section 9.14 Interest Coverage Ratio. The Borrower will not
permit its Interest Coverage Ratio as of the end of any fiscal quarter of the
Borrower (calculated quarterly at the end of each fiscal quarter) to be less
than 2.75 to 1.00. For the purposes of this Section 9.14, "Interest Coverage
Ratio" shall mean the ratio of (i) EBITDA for the four fiscal quarters ending
on such date to (ii) cash interest payments made for such four fiscal quarters
of the Borrower and its Consolidated Subsidiaries.
Section 9.15 Sale of Oil and Gas Properties. The Borrower
will not, and will not permit any Subsidiary to, sell, assign, farm-out, convey
or otherwise transfer any Oil and Gas Property or any interest in any Oil and
Gas Property except for (i) the sale of Hydrocarbons in
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the ordinary course of business; (ii) farmouts of undeveloped acreage and
assignments in connection with such farmouts; (iii) the sale or transfer of
equipment that is no longer necessary for the business of the Borrower or such
Subsidiary or is replaced by equipment of at least comparable value and use,
(iv) during any consecutive 12 month period commencing with the date of this
Agreement, sales in the ordinary course of business of Oil and Gas Properties
which shall not exceed $5,000,000 in the aggregate in any fiscal year
including, but not limited to, the sale of the Hydrocarbon Interests
representing approximately the final 20% of the gas reserves in a Section 29
tax credit transaction as the values are set forth in the most recent Reserve
Report and (v) the sale of some or all of the Oil and Gas Properties acquired
from Basin to Wattenberg Resources Land, L.L.C. ("WRL"), provided that the
Borrowing Base is automatically reduced by the amount of the net cash proceeds
received by the Borrower or Orion from WRL.
Section 9.16 Environmental Matters. Neither the Borrower nor
any Subsidiary will cause or permit any of its Property to be in violation of,
or do anything or permit anything to be done which will subject any such
Property to any remedial obligations under any Environmental Laws, assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such Property where such
violations or remedial obligations would have a Material Adverse Effect.
Section 9.17 Transactions with Affiliates. Neither the
Borrower nor any Subsidiary will enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of Property or the
rendering of any service, with any Affiliate unless such transactions are
otherwise permitted under this Agreement, are in the ordinary course of its
business and are upon fair and reasonable terms no less favorable to it than it
would obtain in a comparable arm's length transaction with a Person not an
Affiliate.
Section 9.18 Subsidiaries. The Borrower shall not, and shall
not permit any Subsidiary to, create any additional Subsidiaries. The Borrower
shall not and shall not permit any Subsidiary to sell or to issue any stock or
ownership interest of a Subsidiary except in compliance with Section 9.03.
Section 9.19 Negative Pledge Agreements. Neither the
Borrower nor any Subsidiary will create, incur, assume or suffer to exist any
contract, agreement or understanding (other than this Agreement and the other
Loan Documents) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien on any of its Property or
restricts any Subsidiary from paying dividends to the Borrower, or which
requires the consent of or notice to other Persons in connection therewith.
Section 9.20 Subordinated Debt. The Borrower will not modify
or amend the terms of the Indenture as in existence on December 1, 1993 and any
related documents without the consent of the Majority Banks, if the effect of
such modification or amendment would be to shorten the time for payment on any
Subordinated Notes, increase the principal amount of the Subordinated Notes
above $75,000,000, increase the rate of interest on any Subordinated Note or
change the method of calculating interest so as to effectively increase the
rate of interest on
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any Subordinated Note, change any of the provisions of Sections 2.3, 5.1,
Article VIII, Article X, Article XI, Article XII, Article XIII or Article XIV,
and Section 1.1 as to any of the definitions used in or relating to any of the
above Sections and Articles, or any other provisions which would detrimentally
effect the rights of the Banks. The Indebtedness shall first be irrevocably
and indefeasibly paid in full in cash, or the immediate payment thereof duly
provided for in cash, and this Agreement terminated before the Company, any
Subsidiary or any Person acting on behalf of the Company or any Subsidiary
shall directly or indirectly pay, prepay, redeem, retire, repurchase or
otherwise acquire for value, or make a deposit pursuant to Article IV of the
Indenture in respect of, or make any other prepayment, payment or distribution
(whether in cash, property, securities or accommodation thereof or otherwise)
on account of the principal of (or premium, if any) or interest on, any
Subordinated Debt or Subsidiary Subordinated Debt; except that the Company may
make payments of interest that has accrued and is payable on the Subordinated
Notes pursuant to the terms of the Indenture and pay the principal of the
Subordinated Notes at the stated maturity of December 1, 2003, provided that no
Event of Default exists and is continuing and such payment shall not cause an
Event of Default.
Section 9.21 SEC 10 Value. The Borrower shall not allow the
ratio of the SEC 10 Value to the outstanding Loans and LC Exposure to be less
than 1.50 to 1.00 as of each Redetermination Date. As used in this Section
9.21, "SEC 10 Value" shall equal the value of the hydrocarbon reserves of the
Borrower and the Subsidiaries discounted at 10% and computed in accordance with
SEC guidelines with an as of date (i) for any Scheduled Redetermination Date
commencing on April 15, 1997 as of the end of the Borrower's preceding fiscal
year and (ii) for any other Redetermination Date as of such Redetermination
Date.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the
following events shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or
prepayment when due of any principal of or interest on any Loan, or
any reimbursement obligation for a disbursement made under any Letter
of Credit, or any fees or other amount payable by it under any Loan
Document and such default, other than a default of a payment or
prepayment of principal, shall continue unremedied for a period of 3
Business Days; or
(b) the Borrower or any Subsidiary shall default in the
payment when due of any principal of or interest on any of its other
Debt aggregating $1,000,000 or more, or any event specified in any
note, agreement, indenture or other document evidencing or relating to
any such Debt shall occur if the effect of such event is to cause, or
(with the giving of any notice or the lapse of time or both) to permit
the holder or holders of such
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Debt (or a trustee or agent on behalf of such holder or holders) to
cause, such Debt to become due prior to its stated maturity; or
(c) any representation, warranty or certification made or
deemed made herein or in any other Loan Document by the Borrower or
any Subsidiary, or any certificate furnished to any Lender or the
Agent pursuant to the provisions hereof or any Security Instrument,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
(d) the Borrower shall default in the performance of any
of its obligations under Article IX or any other Article of this
Agreement other than under Article VIII; or the Borrower shall default
in the performance of any of its obligations under Article VIII or any
other Loan Document (other than the payment of amounts due which shall
be governed by Section 10.01(a)) and such default shall continue
unremedied for a period of thirty (30) days after the earlier to occur
of (i) notice thereof to the Borrower by the Agent or any Lender
(through the Agent), or (ii) the Borrower otherwise becoming aware of
such default; or
(e) the Borrower shall admit in writing its inability to,
or be generally unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Federal
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, liquidation or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code,
or (vi) take any corporate action for the purpose of effecting any of
the foregoing; or
(g) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution
or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a trustee, receiver, custodian, liquidator or the
like of the Borrower of all or any substantial part of its assets, or
(iii) similar relief in respect of the Borrower under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 days; or (iv) an order for relief against the
Borrower shall be entered in an involuntary case under the Federal
Bankruptcy Code; or
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(h) a judgment or judgments for the payment of money in
excess of $1,000,000 in the aggregate shall be rendered by a court
against the Borrower or any Subsidiary and the same shall not be
discharged (or provision shall not be made for such discharge), or a
stay of execution thereof shall not be procured, within thirty (30)
days from the date of entry thereof and the Borrower or such
Subsidiary shall not, within said period of 30 days, or such longer
period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal; or
(i) (i) Any Person other than Nicholas J. Sutton, Jr.
and P. Michael Highum and their successors (but not assigns) shall,
after the date hereof, acquire any direct or indirect beneficial
ownership of voting securities (including securities convertible by
their terms into voting securities) of the Borrower so that such
Person shall have more than 25% of the total voting power of all such
securities issued by the Borrower on a fully diluted basis, or (ii)
any two or more Persons other than Nicholas J. Sutton, Jr., P. Michael
Highum and/or Natural Gas Partners, L.P. and their successors (but not
assigns) (hereinafter referred to as a "Group") who "act as a
partnership, limited partnership, syndicate or other group for the
purposes of acquiring, holding or disposing of securities" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
shall, after the date hereof, acquire any direct or indirect
beneficial ownership of voting securities (including securities
convertible by their terms into voting securities) of the Borrower so
that such Group shall have 25% or more of the total voting power of
all such securities issued by the Borrower or (iii) except with
respect to a majority on the Board of Directors nominated by Nicholas
J. Sutton, Jr., P. Michael Highum and/or Natural Gas Partners, L.P.
after the date hereof, the election by any Person or Group, together
with any Affiliates thereof, of a sufficient number of its or their
nominees to the Board of Directors of the Borrower to the extent that
such nominees, when added to any existing directors remaining on such
Board of Directors after such election who are Affiliates of such
Person or Group, shall constitute a majority of such Board of
Directors; or
(j) any Subsidiary takes, suffers or permits to exist any
of the events or conditions referred to in paragraphs (e), (f), (g) or
(h) hereof; or
(k) any Letter of Credit becomes the subject matter of
any order, judgment, injunction or any other such determination, or if
the Borrower or any other Person shall petition or apply for or obtain
any order restricting payment by the Agent under any Letter of Credit
or extending the Lenders' liability under any Letter of Credit beyond
the expiration date stated therein or otherwise agreed to by the
Agent.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one
referred to in clauses (e), (f) or (g) of Section 10.01 or in clause
(j) to the extent it relates to clauses (e), (f) or (g), the Agent
upon request of the Majority Lenders, shall, by notice to the
Borrower, cancel
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the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts
payable by the Borrower hereunder and under the Notes (including
without limitation the payment of cash collateral to secure the LC
Exposure as provided in Section 2.10(b) hereof) to be forthwith due
and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in clause
(j) to the extent it relates to clauses (e), (f) or (g), the
Commitments shall be automatically cancelled and the principal amount
then outstanding of, and the accrued interest on, the Loans and all
other amounts payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash collateral to secure
the LC Exposure as provided in Section 2.10(b) hereof) shall become
automatically immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or
other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
(c) All proceeds received after maturity of the Notes,
whether by acceleration or otherwise shall be applied first to
reimbursement of expenses and indemnities provided for in the Loan
Documents; second to accrued interest on the Notes; third to fees;
fourth pro rata to principal outstanding on the Notes and other
Indebtedness; fifth to serve as cash collateral to be held by the
Agent to secure the LC Exposure; and any excess shall be paid to the
Borrower or as otherwise required by any Governmental Requirement.
ARTICLE XI
THE AGENT
Section 11.01 Appointment, Powers and Immunities. Each
Lender hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Agent (which term as used in this sentence and in
Section 11.05 and the first sentence of Section 11.06 shall include reference
to its Affiliates and its and its Affiliates' officers, directors, employees,
attorneys, accountants, experts and agents): (i) shall have no duties or
responsibilities except those expressly set forth in the Loan Documents, and
shall not by reason of the Loan Documents be a trustee or fiduciary for any
Lender; (ii) makes no representation or warranty to any Lender and shall not be
responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement, or in any certificate or other document
referred to or provided for in, or received by any of them under,
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this Agreement, or for the value, validity, effectiveness, genuineness,
execution, effectiveness, legality, enforceability or sufficiency of this
Agreement, any Note or any other document referred to or provided for herein or
for any failure by the Borrower or any other Person (other than the Agent) to
perform any of its obligations hereunder or thereunder or for the existence,
value, perfection or priority of any collateral security or the financial or
other condition of the Borrower, its Subsidiaries or any other obligor or
guarantor; (iii) except pursuant to Section 11.07 shall not be required to
initiate or conduct any litigation or collection proceedings hereunder; and
(iv) shall not be responsible for any action taken or omitted to be taken by it
hereunder or under any other document or instrument referred to or provided for
herein or in connection herewith including its own ordinary negligence, except
for its own gross negligence or willful misconduct. The Agent may employ
agents, accountants, attorneys and experts and shall not be responsible for the
negligence or misconduct of any such agents, accountants, attorneys or experts
selected by it in good faith or any action taken or omitted to be taken in good
faith by it in accordance with the advice of such agents, accountants,
attorneys or experts. The Agent may deem and treat the payee of any Note as
the holder thereof for all purposes hereof unless and until a written notice of
the assignment or transfer thereof permitted hereunder shall have been filed
with the Agent. The Agent is authorized to release any collateral that is
permitted to be sold or released pursuant to the terms of the Loan Documents.
Section 11.02 Reliance by Agent. The Agent shall be entitled
to rely upon any certification, notice or other communication (including any
thereof by telephone, telex, telecopier, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.
Section 11.03 Defaults. The Agent shall not be deemed to
have knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans or of fees or failure to reimburse for Letter
of Credit drawings) unless the Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "Notice of
Default." In the event that the Agent receives such a notice of the occurrence
of a Default, the Agent shall give prompt notice thereof to the Lenders. In
the event of a payment Default, the Agent shall give each Lender prompt notice
of each such payment Default.
Section 11.04 Rights as a Lender. With respect to its
Commitments and the Loans made by it and its participation in the issuance of
Letters of Credit, Chase (and any successor acting as Agent) in its capacity as
a Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the Agent, and
the term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. Chase (and any successor acting
as Agent) and its Affiliates may (without having to account therefor to any
Lender) accept deposits from, lend money to and generally engage in any kind of
banking, trust or other business with the Borrower (and any of its Affiliates)
as if it were not acting as the Agent, and Chase and its Affiliates may accept
fees and other consideration from the Borrower for services in connection with
this Agreement or otherwise without having to account for the same to the
Lenders.
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Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO
INDEMNIFY THE AGENT RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE
INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED
OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE
OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH
MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF: (I) THE LOAN DOCUMENTS OR ANY OTHER DOCUMENTS
CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY,
BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY
DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT
OR OF ANY OTHER LOAN DOCUMENT; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN
THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE AGENT,
PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT
THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT.
Section 11.06 Non-Reliance on Agent and other Lenders. Each
Lender acknowledges and agrees that it has, independently and without reliance
on the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own credit analysis of the Borrower and
its decision to enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement. The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement, the Notes, the
other Loan Documents or any other document referred to or provided for herein
or to inspect the properties or books of the Borrower. Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Agent or any of
its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins
L.L.P. is acting in this transaction as special counsel to the Agent only,
except to the extent otherwise expressly stated in any legal opinion or any
Loan Document. Each Lender will consult with its own legal counsel to the
extent that it deems necessary in connection with the Loan Documents and the
matters contemplated therein.
Section 11.07 Action by Agent. Except for action or other
matters expressly required of the Agent hereunder, the Agent shall in all cases
be fully justified in failing or refusing to act hereunder unless it shall (i)
receive written instructions from the Majority Lenders (or the Super Majority
Lenders as expressly required by Sections 2.08 and 12.04 or all of the Lenders
as expressly required by Section 12.04) specifying the action to be taken, and
(ii) be indemnified to its satisfaction by the Lenders against any and all
liability and expenses which
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may be incurred by it by reason of taking or continuing to take any such
action. The instructions of the Majority Lenders (or the Super Majority
Lenders as expressly required by Sections 2.08 and 12.04 or all of the Lenders
as expressly required by Section 12.04) and any action taken or failure to act
pursuant thereto by the Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, the Agent shall take such action with
respect to such Default as shall be directed by the Majority Lenders (or the
Super Majority Lenders as expressly required by Sections 2.08 and 12.04 or all
of the Lenders as expressly required by Section 12.04) in the written
instructions (with indemnities) described in this Section 11.07, provided that,
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default as it shall deem advisable in the best
interests of the Lenders. In no event, however, shall the Agent be required to
take any action which exposes the Agent to personal liability or which is
contrary to the Loan Documents or applicable law.
Section 11.08 Resignation or Removal of Agent. Subject to
the appointment and acceptance of a successor Agent as provided below, the
Agent may resign at any time by giving notice thereof to the Lenders and the
Borrower, and the Agent may be removed at any time with or without cause by the
Majority Lenders. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Majority Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Agent's giving of notice
of resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon
the acceptance of such appointment hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article XI and Section 12.03 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver. No failure on the part of the Agent or
any Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under any of the Loan Documents
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under any of the Loan Documents preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
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Section 12.02 Notices. All notices and other communications
provided for herein and in the other Loan Documents (including, without
limitation, any modifications of, or waivers or consents under, this Agreement
or the other Loan Documents) shall be given or made by telex, telecopy, courier
or U.S. Mail or in writing and telexed, telecopied, mailed or delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or in the Loan Documents or, as to any party, at such
other address as shall be designated by such party in a notice to each other
party. Except as otherwise provided in this Agreement or in the other Loan
Documents, all such communications shall be deemed to have been duly given when
transmitted, if transmitted before 1:00 p.m. local time on a Business Day
(otherwise on the next succeeding Business Day) by telex or telecopier and
evidence or confirmation of receipt is obtained, or personally delivered or, in
the case of a mailed notice, three (3) Business Days after the date deposited
in the mails, postage prepaid, in each case given or addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, etc. The
Borrower agrees:
(a) whether or not the transactions hereby contemplated
are consummated, pay all reasonable expenses of the Agent in the
administration (both before and after the execution hereof and
including advice of counsel as to the rights and duties of the Agent
and the Lenders with respect thereto) of, and in connection with the
negotiation, syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights under,
enforcement of, and refinancing, renegotiation or restructuring of,
the Loan Documents and any amendment, waiver or consent relating
thereto (including, without limitation, travel, photocopy, mailing,
courier, telephone and other similar expenses of the Agent, the cost
of environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel and other
outside consultants for the Agent and, in the case of enforcement, the
reasonable fees and disbursements of counsel for the Agent and any of
the Lenders); and promptly reimburse the Agent for all amounts
expended, advanced or incurred by the Agent or the Lenders to satisfy
any obligation of the Borrower under this Agreement or any Security
Instrument, including without limitation, all costs and expenses of
foreclosure;
(b) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF
THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS
("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND
PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY
MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF
THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A
RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR
PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE LOANS OR
LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER
AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE BORROWER OR ANY
SUBSIDIARY TO
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COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT OR WITH ANY GOVERNMENTAL
REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF
ANY WARRANTY OF THE BORROWER SET FORTH IN ANY OF THE LOAN DOCUMENTS,
(VI) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR
FAILURE TO PAY UNDER ANY LETTER OF CREDIT, (VII) THE PAYMENT OF A
DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE,
NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED
DRAFT(S) AND CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS
WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE
LOAN DOCUMENTS OR (IX) ANY OTHER ASPECT OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS
OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR
CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE
ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL
INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE
LENDERS OR ANY LENDER AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST
THE AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST
RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND
LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY
OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A
RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY
SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR
ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY
SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME,
COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE,
STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF
THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR
(V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION
WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR
ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY
LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR
ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY
FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION
OR OTHERWISE.
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(d) No Indemnified Party may settle any claim to be
indemnified without the consent of the indemnitor, such consent not to
be unreasonably withheld; provided, that the indemnitor may not
reasonably withhold consent to any settlement that an Indemnified
Party proposes, if the indemnitor does not have the financial ability
to pay all its obligations outstanding and asserted against the
indemnitor at that time, including the maximum potential claims
against the Indemnified Party to be indemnified pursuant to this
Section 12.03.
(e) In the case of any indemnification hereunder, the
Agent or Lender, as appropriate shall give notice to the Borrower of
any such claim or demand being made against the Indemnified Party and
the Borrower shall have the non-exclusive right to join in the defense
against any such claim or demand provided that if the Borrower
provides a defense, the Indemnified Party shall bear its own cost of
defense unless there is a conflict between the Borrower and such
Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE
INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE
OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE
RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED
PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY
ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN
INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF
THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER
THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED
PARTY.
(g) The Borrower's obligations under this Section 12.03
shall survive any termination of this Agreement and the payment of the
Notes and shall continue thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this
Section 12.03 within thirty (30) days of the receipt by the Borrower
of notice of the amount due.
Section 12.04 Amendments, Etc. Any provision of this
Agreement or any Security Instrument may be amended, modified or waived with
the Borrower's and the Majority Lenders' prior written consent; provided that
(i) no amendment, modification or waiver which extends the maturity of the
Loans, releases any guarantor, if any, increases the Aggregate Maximum Credit
Amounts, forgives the principal amount of or interest on any Indebtedness
outstanding under this Agreement, reduces the interest rate applicable to the
Loans or the fees payable to the Lenders generally, releases any collateral
securing the Indebtedness except in connection with sales of Property permitted
by this Agreement, affects Section 2.03(a), this Section 12.04 or Section
12.06(a) or modifies the definition of "Super Majority Lenders" or
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"Majority Lenders" shall be effective without consent of all Lenders; (ii) no
amendment, modification or waiver which increases the Maximum Credit Amount of
any Lender shall be effective without the consent of such Lender; (iii) no
amendment, modification or waiver which modifies the rights, duties or
obligations of the Agent shall be effective without the consent of the Agent;
and (iv) no amendment affecting the Borrowing Base or Threshold Amount shall be
effective without consent of the Super Majority Lenders.
Section 12.05 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 12.06 Assignments and Participations.
(a) The Borrower may not assign its rights or obligations
hereunder or under the Notes or any Letters of Credit without the
prior consent of all of the Lenders and the Agent.
(b) Any Lender may, upon the written consent of the Agent
and the Borrower (which consent will not be unreasonably withheld),
assign to one or more assignees all or a portion of its rights and
obligations under this Agreement pursuant to an Assignment Agreement
substantially in the form of Exhibit E (an "Assignment") provided,
however, that (i) any such assignment shall be in the amount of at
least $10,000,000 or such lesser amount to which the Borrower has
consented and (ii) the assignee or assignor shall pay to the Agent a
processing and recordation fee of $2,500 for each assignment. Any
such assignment will become effective upon the execution and delivery
to the Agent of the Assignment and the consent of the Agent. Promptly
after receipt of an executed Assignment, the Agent shall send to the
Borrower a copy of such executed Assignment. Upon receipt of such
executed Assignment, the Borrower, will, at its own expense, execute
and deliver new Notes to the assignor and/or assignee, as appropriate,
in accordance with their respective interests as they appear. Upon
the effectiveness of any assignment pursuant to this Section 12.06(b),
the assignee will become a "Lender," if not already a "Lender," for
all purposes of this Agreement and the other Loan Documents. The
assignor shall be relieved of its obligations hereunder to the extent
of such assignment (and if the assigning Lender no longer holds any
rights or obligations under this Agreement, such assigning Lender
shall cease to be a "Lender" hereunder except that its rights under
Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Agent
will prepare on the last Business Day of each month during which an
assignment has become effective pursuant to this Section 12.06(b), a
new Annex I giving effect to all such assignments effected during such
month, and will promptly provide the same to the Borrower and each of
the Lenders.
(c) Each Lender may transfer, grant or assign
participations in all or any part of such Lender's interests hereunder
pursuant to this Section 12.06(c) to any Person, provided that: (i)
such Lender shall remain a "Lender" for all purposes of this Agreement
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and the transferee of such participation shall not constitute a
"Lender" hereunder; and (ii) no participant under any such
participation shall have rights to approve any amendment to or waiver
of any of the Loan Documents except to the extent such amendment or
waiver would (x) forgive any principal owing on any Indebtedness or
extend the Revolving Credit Termination Date, (y) reduce the interest
rate (other than as a result of waiving the applicability of any
post-default increases in interest rates) or fees applicable to any of
the Commitments or Loans or Letters of Credit in which such
participant is participating, or postpone the payment of any thereof,
or (z) release any guarantor of the Indebtedness or release all or
substantially all of the collateral (except as provided in the Loan
Documents) supporting any of the Commitments or Loans or Letters of
Credit in which such participant is participating. In the case of any
such participation, the participant shall not have any rights under
this Agreement or any of the other Loan Documents (the participant's
rights against the granting Lender in respect of such participation to
be those set forth in the agreement with such Lender creating such
participation), and all amounts payable by the Borrower hereunder
shall be determined as if such Lender had not sold such participation,
provided that such participant shall be entitled to receive additional
amounts under Article V on the same basis as if it were a Lender and
be indemnified under Section 12.03 as if it were a Lender. In
addition, each agreement creating any participation must include an
agreement by the participant to be bound by the provisions of Section
12.15.
(d) The Lenders may furnish any information concerning
the Borrower in the possession of the Lenders from time to time to
assignees and participants (including prospective assignees and
participants); provided that, such Persons agree to be bound by the
provisions of Section 12.15 hereof.
(e) Notwithstanding anything in this Section 12.06 to the
contrary, any Lender may assign and pledge its Note to any Federal
Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any operating circular issued by such Federal
Reserve System and/or such Federal Reserve Bank. No such assignment
and/or pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
(f) Notwithstanding any other provisions of this Section
12.06, no transfer or assignment of the interests or obligations of
any Lender or any grant of participations therein shall be permitted
if such transfer, assignment or grant would require the Borrower to
file a registration statement with the SEC or to qualify the Loans
under the "Blue Sky" laws of any state.
Section 12.07 Invalidity. In the event that any one or more
of the provisions contained in any of the Loan Documents or the Letters of
Credit, the Letter of Credit Agreements shall, for any reason, be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any Security Instrument.
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Section 12.08 Counterparts. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute this
Agreement by signing any such counterpart.
Section 12.09 References. The words "herein," "hereof,"
"hereunder" and other words of similar import when used in this Agreement refer
to this Agreement as a whole, and not to any particular article, section or
subsection. Any reference herein to a Section shall be deemed to refer to the
applicable Section of this Agreement unless otherwise stated herein. Any
reference herein to an exhibit or schedule shall be deemed to refer to the
applicable exhibit or schedule attached hereto unless otherwise stated herein.
Section 12.10 Survival. The obligations of the parties under
Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the
repayment of the Loans and the termination of the Commitments. To the extent
that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Indebtedness so satisfied shall be revived and continue as if such
payment or proceeds had not been received and the Agent's and the Lenders'
Liens, security interests, rights, powers and remedies under this Agreement and
each Security Instrument shall continue in full force and effect. In such
event, each Security Instrument shall be automatically reinstated and the
Borrower shall take such action as may be reasonably requested by the Agent and
the Lenders to effect such reinstatement.
Section 12.11 Captions. Captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY
THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL
OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE NOTES (INCLUDING, BUT NOT
LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF
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THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
BORROWER, THE AGENT AND EACH LENDER HEREBY ACCEPTS FOR ITSELF AND (TO
THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF
THE BORROWER, THE AGENT AND EACH LENDER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS
NON-EXCLUSIVE AND DOES NOT PRECLUDE THE PARTIES FROM OBTAINING
JURISDICTION OVER OTHER PARTIES IN ANY COURT OTHERWISE HAVING
JURISDICTION.
(C) THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION
LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS THE DESIGNEE,
APPOINTEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF
THE BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS. IT
IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT WILL BE
PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE BORROWER AT ITS ADDRESS
SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF THE BORROWER
TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS SAID ADDRESS, SUCH
SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
(D) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BORROWER,
THE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION,
INCLUDING WITHOUT LIMITATION, THE COMMENCEMENT OF ENFORCEMENT
PROCEEDINGS UNDER THE LOAN DOCUMENTS IN ALL APPLICABLE JURISDICTIONS.
(E) EACH OF THE BORROWER AND EACH LENDER HEREBY (I)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED
BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES,
OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III)
CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF
COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
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EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION 12.1.
Section 12.14 Interest. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to
any Lender under laws applicable to it (including the laws of the United States
of America and the State of New York or any other jurisdiction whose laws may
be mandatorily applicable to such Lender notwithstanding the other provisions
of this Agreement), then, in that event, notwithstanding anything to the
contrary in any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under law applicable
to any Lender that is contracted for, taken, reserved, charged or received by
such Lender under any of the Loan Documents or agreements or otherwise in
connection with the Notes shall under no circumstances exceed the maximum
amount allowed by such applicable law, and any excess shall be cancelled
automatically and if theretofore paid shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Borrower); and (ii) in the event that the
maturity of the Notes is accelerated by reason of an election of the holder
thereof resulting from any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Borrower). All sums paid or agreed to be paid
to any Lender for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law applicable to such Lender, be amortized,
prorated, allocated and spread throughout the full term of the Loans evidenced
by the Notes until payment in full so that the rate or amount of interest on
account of any Loans hereunder does not exceed the maximum amount allowed by
such applicable law. If at any time and from time to time (i) the amount of
interest payable to any Lender on any date shall be computed at the Highest
Lawful Rate applicable to such Lender pursuant to this Section 12.14 and (ii)
in respect of any subsequent interest computation period the amount of interest
otherwise payable to such Lender would be less than the amount of interest
payable to such Lender computed at the Highest Lawful Rate applicable to such
Lender, then the amount of interest payable to such Lender in respect of such
subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of
interest payable to such Lender shall equal the total amount of interest which
would have been
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payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.14.
Section 12.15 Confidentiality. In the event that the
Borrower provides to the Agent or the Lenders written confidential information
belonging to the Borrower, if the Borrower shall denominate such information in
writing as "confidential", the Agent and the Lenders shall thereafter maintain
such information in confidence in accordance with the standards of care and
diligence that each utilizes in maintaining its own confidential information.
This obligation of confidence shall not apply to such portions of the
information which (i) are in the public domain, (ii) hereafter become part of
the public domain without the Agent or the Lenders breaching their obligation
of confidence to the Borrower, (iii) are previously known by the Agent or the
Lenders from some source other than the Borrower, (iv) are hereafter developed
by the Agent or the Lenders without using the Borrower's information, (v) are
hereafter obtained by or available to the Agent or the Lenders from a third
party who owes no obligation of confidence to the Borrower with respect to such
information or through any other means other than through disclosure by the
Borrower, (vi) are disclosed with the Borrower's consent, (vii) must be
disclosed either pursuant to any Governmental Requirement or to Persons
regulating the activities of the Agent or the Lenders, or (viii) as may be
required by law or regulation or order of any Governmental Authority in any
judicial, arbitration or governmental proceeding. Further, the Agent or a
Lender may disclose any such information to any other Lender, any independent
petroleum engineers or consultants, any independent certified public
accountants, any legal counsel employed by such Person in connection with this
Agreement or any Security Instrument, including without limitation, the
enforcement or exercise of all rights and remedies thereunder, or any assignee
or participant (including prospective assignees and participants) in the Loans;
provided, however, that the Agent or the Lenders shall receive a
confidentiality agreement from the Person to whom such information is disclosed
such that said Person shall have the same obligation to maintain the
confidentiality of such information as is imposed upon the Agent or the Lenders
hereunder. Notwithstanding anything to the contrary provided herein, this
obligation of confidence shall cease three (3) years from the date the
information was furnished, unless the Borrower requests in writing at least
thirty (30) days prior to the expiration of such three year period, to maintain
the confidentiality of such information for an additional three year period.
The Borrower waives any and all other rights it may have to confidentiality as
against the Agent and the Lenders arising by contract, agreement, statute or
law except as expressly stated in this Section 12.15.
[SIGNATURES BEGIN NEXT PAGE]
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The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER: HS RESOURCES, INC.
By:
----------------------------------
Name: Annette Montoya
Title: Vice President
Address for Notices:
One Maritime Plaza
Fifteenth Floor
San Francisco, CA 94111
Telecopier No.: (415) 433-5811
Telephone No.: (415) 433-5795
Attention: James E. Duffy
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<PAGE> 85
LENDER AND AGENT: THE CHASE MANHATTAN BANK, N.A.
By:
------------------------------------
Name: Richard F. Betz
Title: Vice President
Lending Office for Base Rate Loans
and Eurodollar Loans:
The Chase Manhattan Bank, N.A.
270 Park Avenue
New York, NY 10017
Address for Notices:
The Chase Manhattan Bank, N.A.
4 Chase Metrotech Center, 13th Floor
Brooklyn, NY 11245
Telecopier No.: (718) 242-6910
Telephone No.: (718) 242-7969
Attention: NYAO
With a Copy to:
The Chase Manhattan Bank, N.A.
One Chase Manhattan Bank
New York, NY 10081
Telecopier No.: (212) 552-2680
Telephone No.: (212) 552-1687
Attention: Mr. Richard F. Betz
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<PAGE> 86
WELLS FARGO BANK, N.A.
By:
------------------------------------
Name: Charles D. Kirkham
Title: Vice President
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
Wells Fargo Bank, N.A.
420 Montgomery Street, 9th Floor
San Francisco, CA 94104
Address for Notices:
Wells Fargo Bank, N.A.
500 North Akard
3535 Lincoln Plaza
Dallas, TX 75201
Telecopier No.: (415) 989-4319
Telephone No.: (415) 396-3782
Attention: Barbara Kattman
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LENDERS: CIBC INC.
By:
----------------------------------------
Name: Gary C. Gaskill
Title: Authorized Signatory
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
2727 Paces Ferry Road, Suite 1200
Two Paces West
Atlanta, Georgia 30339
Address for Notices:
2727 Paces Ferry Road, Suite 1200
Two Paces West
Atlanta, Georgia 30339
Telecopier No.: 770/319-4950
Telephone No.: 770/319-4814
Attention: Ms. Pluria A. Howell
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CREDIT LYONNAIS NEW YORK BRANCH
By:
------------------------------------
Name: Pascal Poupelle
Title: Senior Vice President
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, NY 10019
Address for Notices:
Credit Lyonnais
c/o Houston Representative Office
1000 Louisiana, Suite 5360
Houston, TX 77002
Telecopier No.: (713) 751-0307 or 751-0421
Telephone No.: (713) 751-0500
Attention: Mr. Page Dillehunt
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<PAGE> 89
UNION BANK OF CALIFORNIA, N.A.
By:
-----------------------------------------
Name: Richard P. DeGrey, Jr.
Title: Vice President
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, CA 90071
Address for Notices:
Union Bank of California, N.A.
445 South Figueroa Street, 15th Floor
Los Angeles, CA 90071
Telecopier No.: (213) 236-4096
Telephone No.: (213) 236-5731
Attention: Richard DeGrey
With copy to: Patricia Ayala
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<PAGE> 90
ROYAL BANK OF CANADA
By:
------------------------------------------
Name J. D. Frost
Title: Senior Manager
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
Royal Bank of Canada
1 Financial Square, 23rd Floor
New York, NY 10005-3531
Address for Notices:
Royal Bank of Canada
600 Wilshire Blvd., Suite 800
Los Angeles, CA 90017
Telecopier No.: (213) 955-5310
Telephone No.: (713) 955-5350
Attention: Gil J. Benard, Senior Manager
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DEN NORSKE BANK ASA
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
Den norske Bank ASA
200 Park Avenue, 31st Floor
New York, NY 10166-0396
Address for Notices:
Den norske Bank ASA
200 Park Avenue, 31st Floor
New York, NY 10166-0396
Telecopier No.: (212) 681-4123
Telephone No.: (212) 681-3843
Attention: Alberto Caceda
With copy to:
Den norske Bank - Houston
Attention: Charles E. Hall
333 Clay Street, Suite 4890
Houston, TX 77005
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<PAGE> 92
MEESPIERSON, N.V.
By:
----------------------------------
Name:
Title:
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
Rotterdam
The Netherlands
Address for Notices:
Energy Group
Coolsingel 93
P. O. Box 749
3000 AS Rotterdam
The Netherlands
Telecopier No.: (011) 31 10 4016343
Telephone No.: (011) 31 10 4016191
with a copy to:
300 Crescent Court
Suite 1660
Dallas, Texas 75201
Attention: Darrel Holley
Telecopier No.: (214) 871-6870
Telephone No.: (214) 871-6888
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<PAGE> 93
ABN AMRO BANK N.V.
San Francisco International Branch
By: ABN AMRO NORTH AMERICA, INC.,
as agent
By:
----------------------------------------
Name:
Title:
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
ABN AMRO Bank N.V.
101 California Street - Suite 4550
San Francisco, CA 94111-5812
Address for Notices:
ABN AMRO
101 California Street - Suite 4550
San Francisco, CA 94111-5812
Telecopier No.: (415) 362-3524
Telephone No.: (415) 984-3720
Attention: Gloria Lee
With copy to:
Bradford H. Leahy
Officer
ABN AMRO North America, Inc.
101 California Street - Suite 4550
San Francisco, CA 94111-5812
(415) 984-3729
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<PAGE> 94
BANQUE PARIBAS
By:
----------------------------------------
Name: Charles K. Thompson
Title: Group Vice President
By:
----------------------------------------
Name: Tom McGrath
Title: Vice President
LENDING OFFICE FOR BASE RATE AND EURODOLLAR
LOANS:
Banque Paribas
787 7th Avenue
New York, NY 10019
Address for Notices:
Banque Paribas
787 7th Avenue
New York, NY 10019
Telecopier No.: (212) 841-2555
Telephone No.: (212) 841-2132
Attention: Greg Miller
With copy to:
Charlie Thompson
Telecopier No.: (212) 841-2555
Telephone No.: (212) 841-2133
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<PAGE> 95
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:
--------------------------------
Name: Michael J. Kolosowsky
Title: Vice President
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
301 South College Street
Charlotte, NC 28288
Address for Notices:
1001 Fannin Street, Suite 2255
Houston, TX 77002
Telecopier No.: (713) 650-6354
Telephone No.: (713) 650-3716
Attention: Paul N. Riddle
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<PAGE> 96
THE SANWA BANK, LIMITED
By:
---------------------------------
Name: Virginia Hart
Title: Vice President
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
The Sanwa Bank, Limited -
Los Angeles Branch
601 South Figueroa Street (W5-4)
Los Angeles, California 90017
Address for Notices:
The Sanwa Bank, Limited -
Los Angeles Branch
601 South Figueroa Street (W5-4)
Los Angeles, California 90017
Telecopier No.: 213/623-4912
Telephone No.: 213/896-7434
Attention: Washington Boza
With copy to:
Virginia Hart, Vice President
The Sanwa Bank, Limited -
Los Angeles Branch
601 South Figueroa Street (W5-4)
Los Angeles, California 90017
Telecopier No.: 213/623-4912
Telephone No.: 213/896-7469
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<PAGE> 97
SOCIETE GENERALE
By:
---------------------------------
Name: Richard A. Gould
Title: Vice President
LENDING OFFICE FOR BASE RATE AND
EURODOLLAR LOANS:
4800 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Address for Notices:
4800 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Telecopier No.: 214/979-1104
Telephone No.: 214/979-2777
Attention: Ralph Saheb
With copy to:
1111 Bagby, Suite 2020
Houston, Texas 77002
Telecopier No.: 713/650-0824
Telephone No.: 713/759-6324
Attention: Richard A. Gould
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<PAGE> 98
EXHIBIT G
FORM OF GUARANTY AGREEMENT
BY
_____________________________
IN FAVOR OF
THE CHASE MANHATTAN BANK, N.A., AS AGENT
______________, 199___
<PAGE> 99
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
General Terms
Section 1.1 Terms Defined Above 1
Section 1.2 Certain Definitions 1
Section 1.3 Credit Agreement Definitions 3
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed 4
Section 2.2 Nature of Guaranty 4
Section 2.3 Guarantor's Waivers 4
Section 2.4 Maturity of Liabilities; Payment 5
Section 2.5 Agent's Expenses 5
Section 2.6 Liability 5
Section 2.7 Events and Circumstances Not Reducing or Discharging Guarantor's Obligations 5
Section 2.8 Right of Subrogation and Contribution 7
ARTICLE 3
Representations and Warranties
Section 3.1 By Guarantor 8
Section 3.2 No Representation by Lenders 9
Section 3.3 Incorporation of Credit Agreement Representations, Warranties and Covenants 9
Section 3.4 Senior Indebtedness. 9
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 4
Subordination of Indebtedness
Section 4.1 Subordination of All Guarantor Claims 9
Section 4.2 Claims in Bankruptcy 10
Section 4.3 Payments Held in Trust 10
Section 4.4 Liens Subordinate 10
Section 4.5 Notation of Records 11
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns 11
Section 5.2 Notices 11
Section 5.3 Business and Financial Information 11
Section 5.4 GOVERNING LAW; SUBMISSION TO JURISDICTION 11
Section 5.5 Invalidity 13
Section 5.6 ENTIRE AGREEMENT 13
</TABLE>
G-3
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GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by _____________________ (hereinafter called
"Guarantor"), is in favor of THE CHASE MANHATTAN BANK, N.A., as agent (the
"Agent") for the lenders (the "Lenders") that are or become parties to the
Credit Agreement defined below.
W I T N E S S E T H:
WHEREAS, as of June 14, 1996, HS RESOURCES, INC., a Delaware
corporation ("Borrower"), the Agent and the Lenders have entered into that
certain Amended and Restated Credit Agreement (as the same may be amended from
time to time, the "Credit Agreement"); and
WHEREAS, one of the terms and conditions stated in the Credit
Agreement for the making of the loans described therein is the execution and
delivery to the Agent for the benefit of the Lenders of this Guaranty
Agreement;
NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lenders, at any time or from time
to time, to loan monies, with or without security to or for the account of
Borrower in accordance with the terms of the Credit Agreement, (iii) at the
special insistence and request of the Lenders, and (iv) for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Guarantor hereby agrees as follows:
ARTICLE 1
General Terms
Section 1.1 Terms Defined Above. As used in this Guaranty
Agreement, the terms "Borrower", "Guarantor", "Credit Agreement" and "Lenders"
shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Guaranty
Agreement, the following terms shall have the following meanings, unless the
context otherwise requires:
"Contribution Obligation" shall mean an amount equal, at any time and
from time to time and for each respective Subsidiary Guarantor, to the
product of (i) its Contribution Percentage times (ii) the total of (A)
the sum of all payments made previous to or at the time of calculation
by all Subsidiary Guarantors in respect of the Liabilities as a
Subsidiary Guarantor less (B) the sum of any such payments previously
returned to any Subsidiary Guarantor by operation of law or otherwise
less (C) to the extent included in (A), the sum of any payments made
by any
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Subsidiary Guarantor by way of its obligation of contribution under
Section 2.8 of its respective Guaranty Agreement), provided, however,
such Contribution Obligation for any Subsidiary Guarantor shall in no
event exceed such Subsidiary Guarantor's Maximum Guaranteed Amount, as
defined in the respective Guaranty Agreement of such Subsidiary
Guarantor.
"Contribution Percentage" shall mean for any Subsidiary Guarantor for
any applicable date as of which such percentage is being determined,
an amount equal to the quotient of (i) the Net Worth of such
Subsidiary Guarantor as of such date, divided by (ii) the sum of the
Net Worth of all the Subsidiary Guarantors as of such date.
"Guarantor Claims" shall have the meaning indicated in Section 4.1
hereof.
"Guaranty Agreement" shall mean this Guaranty Agreement, and where the
context indicates, the Guaranty Agreement of any other Subsidiary
Guarantor, as the same may from time to time be amended or
supplemented.
"Liabilities" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement,
including without limitation, the unpaid principal of and interest on
the Notes, including without limitation, interest accruing subsequent
to the filing of a petition or other action concerning bankruptcy or
other similar proceeding; (b) any additional loans made by the Lenders
to the Borrower; (c) payment of and performance of any and all present
or future obligations of the Borrower or any Subsidiary Guarantor
according to the terms of any present or future interest or currency
rate swap, rate cap, rate floor, rate collar, exchange transaction,
forward rate agreement or other exchange or rate protection agreements
or any option with respect to any such transaction now existing or
hereafter entered into between the Borrower and any of the Lenders and
permitted by the terms of the Credit Agreement; (d) payment of and
performance of any and all present or future obligations of the
Borrower or any Subsidiary Guarantor according to the terms of any
present or future swap agreements, cap, floor, collar, exchange
transaction, forward agreement or other exchange or protection
agreements relating to crude oil, natural gas or other hydrocarbons or
any option with respect to any such transaction now existing or
hereafter entered into between the Borrower and any of the Lenders and
permitted by the terms of the Credit Agreement; (e) any and all other
indebtedness, obligations and liabilities of any kind of the Borrower
to the Lenders, now or hereafter existing, arising directly between
the Borrower and the Lenders or acquired outright, as a participation,
conditionally or as collateral security from another by the Lenders,
absolute or contingent, joint and/or several, secured or unsecured,
due or not due, arising by operation of law or otherwise, or direct or
indirect, including indebtedness, obligations and liabilities to the
Lenders of the
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Borrower as a member of any partnership, syndicate, association or
other group, and whether incurred by the Borrower as principal,
surety, endorser, guarantor, accommodation party or otherwise and (f)
all renewals, rearrangements, increases, extensions for any period,
amendments or supplements in whole or in part of the Notes or any
documents evidencing the above.
"Maximum Guaranteed Amount" shall mean, for the Guarantor, the greater
of (i) the "reasonably equivalent value" or "fair consideration" (or
equivalent concept) received by the Guarantor in exchange for the
obligation incurred hereunder, within the meaning of any applicable
state or federal fraudulent conveyance or transfer laws; or (ii) the
lesser of (A) the maximum amount that will not render the Guarantor
insolvent, or (B) the maximum amount that will not leave the Guarantor
with any property deemed an unreasonably small capital. Clauses (A)
and (B) are and shall be determined pursuant to and as of the
appropriate date mandated by such applicable state or federal
fraudulent conveyance or transfer laws and to the extent allowed by
law take into account the rights to contribution and subrogation under
Section 2.8 in each Guaranty Agreement so as to provide for the
largest Maximum Guaranteed Amount possible.
"Net Payments" shall mean an amount equal, at any time and from time
to time and for each respective Subsidiary Guarantor, to the
difference of (i) the sum of all payments made previous to or at the
time of calculation by such Subsidiary Guarantor in respect to the
Liabilities, as a Subsidiary Guarantor, and in respect of its
obligations contained in this Guaranty Agreement, less (ii) the sum of
all such payments previously returned to such Subsidiary Guarantor by
operation of law or otherwise and including payments received by such
Subsidiary Guarantor by way of its rights of subrogation and
contribution under Section 2.8 of the other Guaranty Agreements.
"Net Worth" shall mean for any Subsidiary Guarantor, calculated on and
as of any applicable date on which such amount is being determined,
the difference between (i) the sum of all such Subsidiary Guarantor's
property, at a fair valuation and as of such date, minus (ii) the sum
of all such Subsidiary Guarantor's debts, at a fair valuation and as
of such date, excluding the Liabilities.
"Subsidiary Guarantors" shall mean the Guarantors as defined in the
Credit Agreement, including the Guarantor hereunder.
Section 1.3 Credit Agreement Definitions. Unless otherwise
defined herein, all terms beginning with a capital letter which are defined in
the Credit Agreement shall have the same meanings herein as therein.
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ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed. Guarantor hereby irrevocably
and unconditionally guarantees the prompt payment of the Liabilities when due,
whether at maturity or otherwise, provided, however, that, notwithstanding
anything herein or in any other Loan Document to the contrary, the maximum
liability of Guarantor hereunder shall in no event exceed the Maximum
Guaranteed Amount.
Section 2.2 Nature of Guaranty. This Guaranty Agreement is an
absolute, irrevocable, completed and continuing guaranty of payment and not a
guaranty of collection, and no notice of the Liabilities or any extension of
credit already or hereafter contracted by or extended to Borrower need be given
to Guarantor. This Guaranty Agreement may not be revoked by Guarantor and
shall continue to be effective with respect to debt under the Liabilities
arising or created after any attempted revocation by Guarantor and shall remain
in full force and effect until the Liabilities are indefeasibly paid in full
and the Commitments terminated notwithstanding that from time to time prior
thereto no Liabilities may be outstanding. Borrower and the Lenders may
modify, alter, rearrange, extend for any period and/or renew from time to time,
the Liabilities, and the Lenders may waive any Default or Events of Default
without notice to the Guarantor and in such event Guarantor will remain fully
bound hereunder on the Liabilities. This Guaranty Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time any payment
of the Liabilities is rescinded or must otherwise be returned by any of the
Lenders upon the insolvency, bankruptcy or reorganization of Borrower or
otherwise, all as though such payment had not been made. This Guaranty
Agreement may be enforced by the Agent and any subsequent holder of any of the
Liabilities and shall not be dis charged by the assignment or negotiation of
all or part of the Liabilities. Guarantor hereby expressly waives presentment,
demand, notice of non-payment, protest and notice of protest and dishonor,
notice of Default or Event of Default, notice of intent to accelerate the
maturity and notice of acceleration of the maturity and any other notice in
connection with the Liabilities, and also notice of acceptance of this Guaranty
Agreement, acceptance on the part of the Lenders being conclusively presumed by
the Lenders' request for this Guaranty Agreement and delivery of the same to
the Agent.
Section 2.3 Guarantor's Waivers. Guarantor waives any right to
require any of the Lenders to (i) proceed against Borrower or any other person
liable on the Liabilities, (ii) enforce any of their rights against any other
guarantor of the Liabilities (iii) proceed or enforce any of their rights
against or exhaust any security given to secure the Liabilities (iv) have
Borrower joined with Guarantor in any suit arising out of this Guaranty
Agreement and/or the Liabilities, or (v) pursue any other remedy in the
Lenders' powers whatsoever. The Lenders shall not be required to mitigate
damages or take any action to reduce, collect or enforce the Liabilities.
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of Borrower or any other
guarantor of the Liabilities, and shall remain
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liable hereon regardless of whether Borrower or any other guarantor be found
not liable thereon for any reason. Whether and when to exercise any of the
remedies of the Lenders under any of the Loan Documents shall be in the sole
and absolute discretion of the Agent, and no delay by the Agent in enforcing
any remedy, including delay in conducting a foreclosure sale, shall be a
defense to the Guarantor's liability under this Guaranty Agreement. To the
extent allowed by applicable law, the Guarantor hereby waives any good faith
duty on the part of the Agent in exercising any remedies provided in the Loan
Documents.
Section 2.4 Maturity of Liabilities; Payment. Guarantor agrees
that if the maturity of any of the Liabilities is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to Guarantor. Guarantor will,
forthwith upon notice from the Agent, pay to the Agent the amount due and
unpaid by Borrower and guaranteed hereby. The failure of the Agent to give
this notice shall not in any way release Guarantor hereunder.
Section 2.5 Agent's Expenses. If Guarantor fails to pay the
Liabilities after notice from the Agent of Borrower's failure to pay any
Liabilities at maturity, and if the Agent obtains the services of an attorney
for collection of amounts owing by Guarantor hereunder, or obtaining advice of
counsel in respect of any of their rights under this Guaranty Agreement, or if
suit is filed to enforce this Guaranty Agreement, or if proceedings are had in
any bankruptcy, probate, receivership or other judicial proceedings for the
establishment or collection of any amount owing by Guarantor hereunder, or if
any amount owing by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay to the Agent the Agent's reasonable attorneys' fees.
Section 2.6 Liability. It is expressly agreed that the liability
of the Guarantor for the payment of the Liabilities guaranteed hereby shall be
primary and not secondary.
Section 2.7 Events and Circumstances Not Reducing or Discharging
Guarantor's Obligations. Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:
(a) Modifications, etc. Any renewal, extension,
modification, increase, decrease, alteration or rearrangement of all
or any part of the Liabilities, or of the Notes, or the Credit
Agreement or any instrument executed in connection therewith, or any
contract or understanding between Borrower and any of the Lenders, or
any other Person, pertaining to the Liabilities;
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(b) Adjustment, etc. Any adjustment, indulgence,
forbearance or compromise that might be granted or given by any of the
Lenders to Borrower or Guarantor or any Person liable on the
Liabilities;
(c) Condition of Borrower or Guarantor. The insolvency,
bankruptcy arrangement, adjustment, composition, liquidation,
disability, dissolution, death or lack of power of Borrower or
Guarantor or any other Person at any time liable for the payment of
all or part of the Liabilities; or any dissolution of Borrower or
Guarantor, or any sale, lease or transfer of any or all of the assets
of Borrower or Guarantor, or any changes in the shareholders,
partners, or members of Borrower or Guarantor; or any reorganization
of Borrower or Guarantor;
(d) Invalidity of Liabilities. The invalidity,
illegality or unenforceability of all or any part of the Liabilities,
or any document or agreement executed in connection with the
Liabilities, for any reason whatsoever, including without limitation
the fact that the Liabilities, or any part thereof, exceed the amount
permitted by law, the act of creating the Liabilities or any part
thereof is ultra vires, the officers or representatives executing the
documents or otherwise creating the Liabilities acted in excess of
their authority, the Liabilities violate applicable usury laws, the
Borrower has valid defenses, claims or offsets (whether at law, in
equity or by agreement) which render the Liabilities wholly or
partially uncollectible from Borrower, the creation, performance or
repayment of the Liabilities (or the execution, delivery and
performance of any document or instrument representing part of the
Liabilities or executed in connection with the Liabilities, or given
to secure the repayment of the Liabilities) is illegal, uncollectible,
legally impossible or unenforceable, or the Credit Agreement or other
documents or instruments pertaining to the Liabilities have been
forged or otherwise are irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of
the liability of Borrower on the Liabilities or any part thereof, of
any co-guarantors, or any other Person now or hereafter liable,
whether directly or indirectly, jointly, severally, or jointly and
severally, to pay, perform, guarantee or assure the payment of the
Liabilities or any part thereof, it being recognized, acknowledged and
agreed by Guarantor that Guarantor may be required to pay the
Liabilities in full without assistance or support of any other Person,
and Guarantor has not been induced to enter into this Guaranty
Agreement on the basis of a contemplation, belief, understanding or
agreement that other parties other than the Borrower will be liable to
perform the Liabilities, or the Lenders will look to other parties to
perform the Liabilities;
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(f) Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for
all or any part of the Liabilities;
(g) Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or impairment
(including without limitation negligent, willful, unreasonable or
unjustifiable impairment) of any collateral, property or security, at
any time existing in connection with, or assuring or securing payment
of, all or any part of the Liabilities;
(h) Care and Diligence. The failure of the Lenders or
any other Person to exercise diligence or reasonable care in the
preservation, protection, enforcement, sale or other handling or
treatment of all or any part of such collateral, property or security;
(i) Status of Liens. The fact that any collateral,
security, security interest or lien contemplated or intended to be
given, created or granted as security for the repayment of the
Liabilities shall not be properly perfected or created, or shall prove
to be unenforceable or subordinate to any other security interest or
lien, it being recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty Agreement in reliance on, or in
contemplation of the benefits of, the validity, enforceability,
collectibility or value of any of the collateral for the Liabilities;
(j) Payments Rescinded. Any payment by Borrower to the
Lenders is held to constitute a preference under the bankruptcy laws,
or for any reason the Lenders are required to refund such payment or
pay such amount to Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action
taken or omitted to be taken with respect to the Credit Agreement, the
Liabilities, or the security and collateral therefor, whether or not
such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay the Liabilities
pursuant to the terms hereof; it being the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to pay the
Liabilities when due, notwithstanding any occurrence, circumstance,
event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described
herein, except for the full and final payment and satisfaction of the
Liabilities.
Section 2.8 Right of Subrogation and Contribution. If Guarantor
makes a payment in respect of the Liabilities, it shall be subrogated to the
rights of the Lenders against the Borrower with respect to such payment and
shall have the rights of contribution against the other
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Subsidiary Guarantors set forth in Section 2.8 of the Subsidiary Guarantors'
Guaranty Agreements; provided that the Guarantor shall not enforce its rights
to any payment by way of subrogation or by exercising its rights of
contribution or reimbursement or the right to participate in any security now
or hereafter held by or for the benefit of the Lenders until the Liabilities
have been paid in full. The Guarantor agrees that after all the Liabilities
have been paid in full that if its then current Net Payments are less than the
amount of its then current Contribution Obligation, the Guarantor shall pay to
the other Subsidiary Guarantors an amount (together with any payments required
of the other Subsidiary Guarantors by Section 2.8 of each other Guaranty
Agreement) such that the Net Payments made by all Subsidiary Guarantors in
respect of the Liabilities shall be shared among all of the Subsidiary
Guarantors in proportion to their respective Contribution Percentage.
ARTICLE 3
Representations and Warranties
Section 3.1 By Guarantor. In order to induce the Lenders to
accept this Guaranty Agreement, Guarantor represents and warrants to the
Lenders (which representations and warranties will survive the creation of the
Liabilities and any extension of credit thereunder) that:
(a) Benefit to Guarantor. Guarantor's guaranty pursuant
to this Guaranty Agreement reasonably may be expected to benefit,
directly or indirectly, Guarantor.
(b) Corporate Existence. Guarantor is a corporation duly
organized, legally existing and in good standing under the laws of the
State of its incorporation and is duly qualified as a foreign
corporation in all jurisdictions wherein the property owned or the
business transacted by it makes such qualification necessary.
(c) Corporate Power and Authorization. Guarantor is duly
authorized and empowered to execute, deliver and perform this Guaranty
Agreement and all corporate action on Guarantor's part requisite for
the due execution, delivery and performance of this Guaranty Agreement
has been duly and effectively taken.
(d) Binding Obligations. This Guaranty Agreement
constitutes valid and binding obligations of Guarantor, enforceable in
accordance with its terms (except that enforcement may be subject to
any applicable bankruptcy, insolvency or similar laws generally
affecting the enforcement of creditors' rights).
(e) No Legal Bar or Resultant Lien. This Guaranty
Agreement will not violate any provisions of Guarantor's articles or
certificate of incorporation,
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bylaws, or any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which Guarantor is subject, or
result in the creation or imposition of any Lien upon any Properties
of Guarantor.
(f) No Consent. Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the consent or
approval of any other Person, including without limitation any
regulatory authority or governmental body of the United States or any
state thereof or any political subdivision of the United States or any
state thereof.
(g) Solvency. (i) It is not insolvent as of the date
hereof and will not be rendered insolvent as a result of this Guaranty
Agreement, (ii) it is not engaged in business or a transaction, or
about to engage in a business or a transaction, for which any property
or assets remaining with such Guarantor is unreasonably small capital,
and (iii) it does not intend to incur, or believe it will incur, debts
that will be beyond its ability to pay as such debts mature.
Section 3.2 No Representation by Lenders. Neither the Lenders
nor any other Person has made any representation, warranty or statement to the
Guarantor in order to induce the Guarantor to execute this Guaranty Agreement.
Section 3.3 Incorporation of Credit Agreement Representations,
Warranties and Covenants. The Guarantor hereby represents and warrants that the
matters contained in each of the applicable representations and warranties
contained in Article VII of the Credit Agreement pertaining to the Guarantor or
its Properties are true and correct as of the date of this Guaranty Agreement,
and covenants and agrees, so long as any of the Liabilities or Commitments
remain outstanding, to comply with the applicable covenants contained in
Articles VIII and IX of the Credit Agreement pertaining to the Guarantor or its
Properties. The guarantor hereby acknowledges that it has been furnished a copy
of the Credit Agreement and that it is thoroughly familiar with the
representations, warranties and covenants which are incorporated herein by
virtue of this Section 3.3.
Section 3.4 Senior Indebtedness. The Liabilities shall be
Subsidiary Guarantor Senior Indebtedness and Specified Subsidiary Guarantor
Senior Indebtedness pursuant to and as defined in the Indenture.
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ARTICLE 4
Subordination of Indebtedness
Section 4.1 Subordination of All Guarantor Claims. As used
herein, the term "Guarantor Claims" shall mean all debts and liabilities of
Borrower to Guarantor, whether such debts and liabilities now exist or are
hereafter incurred or arise, or whether the obligation of Borrower thereon be
direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or liabilities be evidenced
by note, contract, open account, or otherwise, and irrespective of the person
or persons in whose favor such debts or liabilities may, at their inception,
have been, or may hereafter be created, or the manner in which they have been
or may hereafter be acquired by Guarantor. The Guarantor Claims shall include
without limitation all rights and claims of Guarantor against Borrower arising
as a result of subrogation or otherwise as a result of Guarantor's payment of
all or a portion of the Liabilities. Until the Liabilities shall be paid and
satisfied in full and Guarantor shall have performed all of its obligations
hereunder, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any amount upon the Guarantor Claims.
Section 4.2 Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, the Lenders shall have the right to
prove their claim in any proceeding, so as to establish its rights hereunder
and receive directly from the receiver, trustee or other court custodian,
dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to the Lenders. Should
the Agent or any Lender receive, for application upon the Liabilities, any such
dividend or payment which is otherwise payable to Guarantor, and which, as
between Borrower and Guarantor, shall constitute a credit upon the Guarantor
Claims, then upon payment in full of the Liabilities, Guarantor shall become
subrogated to the rights of the Lenders to the extent that such payments to the
Lenders on the Guarantor Claims have contributed toward the liquidation of the
Liabilities, and such subrogation shall be with respect to that proportion of
the Liabilities which would have been unpaid if the Agent or a Lender had not
received dividends or payments upon the Guarantor Claims.
Section 4.3 Payments Held in Trust. In the event that
notwithstanding Sections 4.1 and 4.2 above, Guarantor should receive any funds,
payments, claims or distributions which is prohibited by such Sections,
Guarantor agrees to hold in trust for the Lenders an amount equal to the amount
of all funds, payments, claims or distributions so received, and agrees that it
shall have absolutely no dominion over the amount of such funds, payments,
claims or distributions except to pay them promptly to the Agent, and Guarantor
covenants promptly to pay the same to the Agent.
Section 4.4 Liens Subordinate. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the
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<PAGE> 111
Guarantor Claims shall be and remain inferior and subordinate to any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Liabilities, regardless of whether
such encumbrances in favor of Guarantor, the Agent or the Lenders presently
exist or are hereafter created or attach. Without the prior written consent of
the Lenders, Guarantor shall not (a) exercise or enforce any creditor's right
it may have against the Borrower, or (b) foreclose, repossess, sequester or
otherwise take steps or institute any action or proceeding (judicial or
otherwise, including without limitation the commencement of or joinder in any
liquidation, bankruptcy, rearrangement, debtor's relief or insolvency
proceeding) to enforce any lien, mortgages, deeds of trust, security interest,
collateral rights, judgments or other encumbrances on assets of Borrower held
by Guarantor.
Section 4.5 Notation of Records. All promissory notes, accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or
held by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns. This Guaranty Agreement is
and shall be in every particular available to the successors and assigns of the
Lenders and is and shall always be fully binding upon the legal
representatives, heirs, successors and assigns of Guarantor, notwithstanding
that some or all of the monies, the repayment of which this Guaranty Agreement
applies, may be actually advanced after any bankruptcy, receivership,
reorganization, death, disability or other event affecting Guarantor.
Section 5.2 Notices. Any notice or demand to Guarantor under or
in connection with this Guaranty Agreement may be given and shall conclusively
be deemed and considered to have been given and received in accordance with
Section 12.02 of the Credit Agreement, addressed to Guarantor at the address on
the signature page hereof or at such other address provided to the Agent in
writing.
Section 5.3 Business and Financial Information. The Guarantor
will promptly furnish to the Agent and the Lenders from time to time upon
request such information regarding the business and affairs and financial
condition of the Guarantor and its subsidiaries as the Agent and the Lenders
may reasonably request.
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<PAGE> 112
Section 5.4 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS GUARANTY AGREEMENT (INCLUDING, BUT NOT LIMITED
TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY AGREEMENT, THE
GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS
SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE
PARTIES FROM OBTAINING JURISDICTION OVER OTHER PARTIES IN ANY COURT
OTHERWISE HAVING JURISDICTION.
(c) THE GUARANTOR HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS
THE DESIGNEE, APPOINTEE AND AGENT OF THE GUARANTOR TO RECEIVE, FOR AND
ON BEHALF OF THE GUARANTOR, SERVICE OF PROCESS IN SUCH RESPECTIVE
JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED
ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE
GUARANTOR AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE
FAILURE OF THE GUARANTOR TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY
WAY THE SERVICE OF SUCH PROCESS. THE GUARANTOR FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE GUARANTOR AT ITS
SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER
SUCH MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE GUARANTOR
THE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY OTHER JURISDICTION,
INCLUDING WITHOUT LIMITATION, THE COMMENCEMENT OF ENFORCEMENT
PROCEEDINGS UNDER THE LOAN DOCUMENTS IN ALL APPLICABLE JURISDICTIONS.
G-15
<PAGE> 113
(e) THE GUARANTOR HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN;
(II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 5.4.
Section 5.5 Invalidity. In the event that any one or more of the
provisions contained in this Guaranty Agreement shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this Guaranty
Agreement.
Section 5.6 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LENDERS AND THE
GUARANTOR AND SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN
GUARANTY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[SIGNATURES BEGIN NEXT PAGE]
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<PAGE> 114
WITNESS THE EXECUTION HEREOF, as of this the ____ day of _______,
199__.
------------------------------------------
By:
---------------------------------------
Name:
Title:
Address: One Maritime Plaza
Fifteenth Floor
San Francisco, CA 94111
Telecopier No.: (415) 433-5811
Telephone No.: (415) 433-5795
Attention: James E. Duffy
G-17
<PAGE> 1
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is among: HS RESOURCES, INC., a corporation formed under
the laws of the State of Delaware (the "Borrower"); each of the lenders that is
a signatory hereto; and THE CHASE MANHATTAN BANK, N.A., a national banking
association (in its individual capacity, "Chase"), as agent for the Lenders (in
such capacity, together with its successors in such capacity, the "Agent").
R E C I T A L S
A. The Borrower, the Agent, and the Lenders (as defined in the
Credit Agreement as hereafter defined) have entered into that certain Amended
and Restated Credit Agreement dated as of June 14, 1996 (the "Credit
Agreement"), pursuant to which the Lenders have agreed to make certain loans
and extensions of credit to the Borrower upon the terms and conditions as
provided therein; and
B. The Borrower, the Agent, and the Lenders now desire to make
certain amendments to the Credit Agreement in connection with hedging
agreements.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
2. Clause (x) of the definition of Debt in Section 1.02 of the
Credit Agreement is hereby amended to read as follows:
"(x) all obligations of such Person under Hedging Agreements;"
3. The definition "Indebtedness" in Section 1.02 of the Credit
Agreement is hereby amended to read as follows:
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower and the Guarantors to the Agent and/or Lenders
in connection with (i) the Loan Documents, (ii) Hedging Agreements now
or hereafter arising between the Borrower or any Guarantor and any
Lender and permitted by the terms of Section 9.01(j) of this
Agreement, (iii) any guaranty arrangement between the Borrower or any
Guarantor and any Lender and permitted by the terms of Section 9.01
(m) of this Agreement and (iv) all renewals, extensions and/or
rearrangements of any of the above."
<PAGE> 2
4. Section 1.02 of the Credit Agreement is hereby supplemented,
where alphabetically appropriate, with the addition of the following
definitions:
"First Amendment" shall mean that certain First Amendment to
Amended and Restated Credit Agreement dated as of June 17, 1996,
among the Borrower, the Lenders and the Agent."
"TW Trading" shall mean Tide West Trading & Transport Company,
a Wholly-Owned Subsidiary of the Borrower."
5. Section 8.09 of the Credit Agreement is hereby amended to add
the following sentence at the end of such Section:
"Notwithstanding the provisions of this Section 8.09, TW Trading will
not become a Guarantor unless both, the other provisions of this
Section 8.09 require it and the Majority Lenders so request."
6. Section 9.01(j) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"(j) Debt of the Borrower and the Guarantors under Hedging
Agreements covering interest rates, oil or gas with any Lender as a
counterparty or with other Persons as approved by the Majority Lenders
entered into as a part of its normal business operations as a risk
management strategy and/or hedge against changes resulting from market
conditions related to the Borrower's or any Guarantor's operations but
not to exceed the following:
(i) for oil, the total volumes to be hedged for
any year shall not exceed 60% of expected oil production of
the Borrower and the Guarantors for such year;
(ii) for gas, the total volumes to be hedged for
any year shall not exceed 60% of expected gas production of
the Borrower and the Guarantors for such year; and
(iii) for interest rates for the Borrower and the
Guarantors, the aggregate notional amount to be hedged shall
never exceed the principal balance outstanding on the Notes;"
7. Section 9.01 of the Credit Agreement is hereby amended by
adding the following clauses (m) and (n):
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<PAGE> 3
"(m) Debt of the Borrower or any Guarantor arising under
guaranty arrangements of Hedging Agreements and Hydrocarbon purchase,
sale, exchange or storage agreements supporting the trading business
of TW Trading while a Wholly-Owned Subsidiary of the Borrower not to
exceed $10,000,000 in outstanding mark to market exposure in the
aggregate at any one time; provided that Letters of Credit issued to
benefit TW Trading shall reduce the $10,000,000 basket in this clause
(m) by the aggregate face amount of such Letters of Credit outstanding
at such time and, further, provided that all guaranty arrangements
benefitting the same counterparty other than a Lender shall have a
maximum guaranteed amount of no more than $3,000,000 in the aggregate
and benefitting the same counterparty that is a Lender shall have a
maximum guaranteed amount of no more than $7,500,000 in the aggregate;
and
(n) Debt of TW Trading arising under Hedging Agreements
entered into in the ordinary course of its trading business; provided
that neither the Borrower nor any other Subsidiary is liable for such
Debt, except to the extent allowed under Section 9.01(m)."
8. Section 9.02 of the Credit Agreement is hereby amended by
adding the following clauses (f) and (g):
"(f) Liens on cash or securities of the Borrower or any
Guarantor securing the Debt described in Section 9.01(m) not to exceed
$5,000,000 of such collateral outstanding at any one time; provided
that no Lender benefits from such Liens; and
(g) Liens on cash or securities of TW Trading securing
the Debt described in Section 9.01(n)."
9. Section 9.03 of the Credit Agreement is hereby amended by
adding the following clause (o):
"(o) investments, loans or advances by the Borrower or any
Guarantor in or to TW Trading as a result of the Debt permitted
pursuant to Section 9.01(m)."
10. This Amendment shall become binding on the Lenders when, and
only when, the Agent shall have received each of the following in form and
substance satisfactory to the Agent or its counsel:
(a) counterparts of this Amendment executed by the
Borrower and the Majority Lenders;
(b) counterparts of amendments to the Security Agreements
reflecting the changes to the definition of "Indebtedness" set forth
in this Amendment; and
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<PAGE> 4
(c) such other documents as it or its counsel may
reasonably request.
11. The parties hereto hereby acknowledge and agree that, except
as specifically supplemented and amended, changed or modified hereby, the
Credit Agreement shall remain in full force and effect in accordance with its
terms.
12. The Borrower hereby reaffirms that as of the date of this
Amendment, the representations and warranties contained in Article VII of the
Credit Agreement are true and correct on the date hereof as though made on and
as of the date of this Amendment, except as such representations and warranties
are expressly limited to an earlier date.
13. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY
AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES
THEREOF.
14. This Amendment may be executed in two or more counterparts,
and it shall not be necessary that the signatures of all parties hereto be
contained on any one counterpart hereof; each counterpart shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
[SIGNATURES BEGIN NEXT PAGE]
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of June 17, 1996.
BORROWER: HS RESOURCES, INC.
By:
----------------------------------
Name:
Title:
LENDER AND AGENT: THE CHASE MANHATTAN BANK, N.A.
By:
----------------------------------
Name: Richard F Betz
Title: Vice President
LENDERS: CIBC INC.
By:
----------------------------------
Name:
Title:
WELLS FARGO BANK, N.A.
By:
---------------------------------
Name:
Title:
S - 1
<PAGE> 6
CREDIT LYONNAIS NEW YORK BRANCH
By:
---------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By:
---------------------------------
Name:
Title:
DEN NORSKE BANK ASA
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
MEESPIERSON, N.V.
By:
---------------------------------
Name:
Title:
S - 2
<PAGE> 7
ABN AMRO BANK N.V.
San Francisco International Branch
By: ABN AMRO NORTH AMERICA, INC.,
as agent
By:
---------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:
---------------------------------
Name:
Title:
THE SANWA BANK, LIMITED
By:
---------------------------------
Name:
Title:
SOCIETE GENERALE
By:
---------------------------------
Name:
Title:
S - 3
<PAGE> 8
BANQUE PARIBAS
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
S - 4
<PAGE> 1
ASSIGNMENT OF LIENS AND AMENDMENT OF
AMENDED, RESTATED AND CONSOLIDATED MORTGAGE,
ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT
AND FINANCING STATEMENT
THIS ASSIGNMENT OF LIENS AND AMENDMENT OF AMENDED, RESTATED AND
CONSOLIDATED MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT AND
FINANCING STATEMENT (this "Assignment and Amendment") is made as of June 14,
1996 among:
The Chase Manhattan Bank, N.A., as agent, a national banking association with
an address of 1 Chase Manhattan Plaza, New York, New York 10005 ("Assignor");
The Chase Manhattan Bank, N.A., as agent, a national banking association with
an address of 1 Chase Manhattan Plaza, New York, New York 10005 ("Assignee");
and
HS Resources, Inc., a Delaware corporation with an address of
One Maritime Plaza, Fifteenth Floor, San Francisco, California 94111 (the
"Company").
R E C I T A L S
A. Pursuant to that certain Credit Agreement dated as of July 15,
1994 (as amended the "1994 Credit Agreement") among the Company, Assignor, and
the banks party thereto (collectively, the "Banks"), Assignor and the Banks
provided a loan facility to the Company up to the aggregate principal amount of
$125,000,000, which loan facility was evidenced by notes from the Company to
the Banks (collectively, the "1994 Notes").
B. As partial security for the payment of the 1994 Notes and the
performance of all of the other obligations of the Company under the 1994
Credit Agreement, the Company and Energy Minerals Corporation executed and
delivered to Assignor those certain mortgages more particularly described on
Schedule A attached hereto which were subsequently amended, restated and
consolidated by Amended, Restated and Consolidated Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated as of September 1,
1995 (as amended, the "Mortgage").
C. The Mortgage was duly recorded in the counties as set forth on
Schedule A.
D. The debt under the 1994 Credit Agreement was amended and
restated and carried forward pursuant to a Credit Agreement dated as of June 7,
1996 (the "Existing Credit Agreement") among the Company, Assignor and the
lenders party thereto (collectively, the "Existing Lenders").
E. The debt under the Existing Credit Agreement has been assigned
to Assignee.
F. Subject to the exception and reservation unto Assignor of
those certain obligations of indemnity and reimbursement described in Section
1.5 below owed by the Company under
<PAGE> 2
the Existing Credit Agreement and under the Mortgage, Assignee desires that all
of Assignor's rights, titles and interests in and to the Mortgage be assigned
to Assignee.
G. Assignor desires to grant, transfer, assign and convey to
Assignee the Mortgage.
ASSIGNMENT:
1.1. Assignment of Mortgage.
Assignor, for good and valuable consideration paid by Assignee, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, does hereby grant, assign, sell, transfer and convey to
Assignee, without recourse, warranty or representation, except as specifically
and expressly set forth in Section 1.5 hereof, the Mortgage, to have and to
hold unto Assignee and its successors and assigns forever. The interest in the
debts and liens being assigned by this Assignment and Amendment shall be
referred to herein collectively as the "Assigned Interests".
1.2. Representations and Warranties of Assignor.
Assignor represents and warrants to Assignee that it has the full
power, legal capacity and authority to enter into, perform its obligations
under and execute this Assignment and Amendment.
1.3. Representations and Warranties of Assignee.
Assignee represents and warrants to Assignor that it has full power,
legal capacity and authority to enter into this Assignment and Amendment.
1.4. Representations and Warranties of the Company.
The Company represents and warrants to Assignee and Assignor as
follows:
(a) It has the full power, legal capacity and authority
to enter into and perform its obligations under this Assignment and
Amendment.
(b) Each of this Assignment and Amendment, the Existing
Credit Agreement and the Mortgage to which it is a party constitutes
its valid and binding obligation, enforceable against it in accordance
with its terms, except insofar as enforcement of terms may be limited
by any bankruptcy, insolvency, reorganization, fraudulent conveyance,
receivership and other similar laws and judicial decisions of general
application relating to or affecting the enforcement of creditors'
rights, and by general equitable principles (whether considered in a
proceeding at law or in equity).
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<PAGE> 3
(c) It has not assigned its rights or obligations under
the Existing Credit Agreement or Mortgage.
1.5. Reserved Obligations.
Notwithstanding any other provisions hereof or in any other agreement,
the Company shall remain fully liable to Assignor and the Existing Lenders
with respect to all its obligations and liabilities regarding indemnification
and reimbursement of fees and expenses, including, but not limited to Section
12.03 of the Existing Credit Agreement, and with respect to all payments
heretofore or concurrently made by the Company under or pursuant to the
Existing Credit Agreement or the Mortgage (collectively, the "Reserved
Obligations"), and such Reserved Obligations shall be excepted and reserved by
Assignor for itself and the Lenders from the rights, titles and interests
assigned by it to Assignee hereunder. The Company hereby affirms its
obligations in favor of Assignor and the Existing Lenders under Section 12.03
of the Existing Credit Agreement.
1.6. Releases.
To induce Assignor to sell, and Assignee to purchase, the rights under
the Mortgage, except for those rights specifically reserved herein, at the
special insistence and request of Assignee and Assignor, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company hereby fully releases and discharges Assignor and the
Existing Lenders and their successors and assigns, including but not limited to
Assignee, and its officers, directors, employees, representatives, agents and
affiliates, from all claims, demands, causes of action, liabilities or other
obligations of any kind whatsoever, including, without limitation, offsets,
reductions, rebatements or claims of usury, known or unknown, whether now
existing or hereafter arising, in connection with the Existing Credit Agreement
and the Mortgage. The Company hereby further releases Assignor and the
Existing Lenders from any of its obligations and commitments under the Existing
Credit Agreement and the Mortgage, if any.
1.7. Further Assurances.
Assignor will promptly, upon reasonable request and at the sole
expense of Assignee, execute and deliver all such other documents and take such
other action as may be reasonable and necessary to fully effectuate the
provisions of this Assignment and Amendment.
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<PAGE> 4
AMENDMENT:
2.1. Capitalized Terms.
All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Mortgage.
2.2. Definitions.
(a) All references in the Mortgage to "this Mortgage"
shall mean the Mortgage as amended hereby and as the same may from
time to time be further amended or supplemented.
(b) All references in the Mortgage to "Credit Agreement",
"Indebtedness" or "Notes" shall be deemed to be references to the
"Credit Agreement", "Indebtedness" or "Notes" defined below.
(c) All references in the Mortgage to "Bank" and "Banks"
shall be deemed to be references to "Lender" and "Lenders",
respectively which are or become parties to the Credit Agreement
defined below..
2.3. Indebtedness Secured.
Section II of the Mortgage is hereby deleted in its entirety and the
following is substituted therefor:
"II
This Mortgage is executed and delivered by Mortgagor to secure
and enforce the Indebtedness described below:
(a) any and all indebtedness, obligations and liabilities
incurred by Mortgagor pursuant to the Amended and Restated Credit
Agreement dated as of June 14, 1996 (such Credit Agreement as the same
may be amended, modified or restated from time to time, the "CREDIT
AGREEMENT") among the Company, Assignee and the lenders that are now
or hereafter parties to the Credit Agreement ("Lenders"), including
without limitation, those certain promissory notes which have been or
may be executed by Mortgagor payable to the order of the Lenders and
being in the aggregate principal amount of $350,000,000 with final
maturity on or before June 14, 2001 and all other notes given in
substitution therefor or in modification, renewal or extension
thereof, in whole or in part (such notes, as from time to time
supplemented, amended or modified and all other notes given in
substitution therefor or in modification, renewal or extension
thereof, in whole or in part, being hereafter called the "NOTES").
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<PAGE> 5
(b) payment of and performance of any and all present or
future obligations of Mortgagor, Orion Acquisition, Inc. and HSR
Acquisition, Inc. ("GUARANTORS") according to the terms of any present
or future interest rate or currency swap, cap, floor, collar, exchange
transaction, forward agreement or other exchange or protection
agreements or any option with respect to any such transaction now
existing or hereafter entered into between Mortgagor or any Guarantor
and Mortgagee or any of the Lenders and permitted by the terms of the
Credit Agreement.
(c) payment of and performance of any and all present or
future obligations of Mortgagor and any Guarantor according to the
terms of any present or future swap agreements, cap, floor, collar,
exchange transaction, forward agreement or other exchange or
protection agreements relating to crude oil, natural gas or other
hydrocarbons or any option with respect to any such transaction now
existing or hereafter entered into between Mortgagor or any Guarantor
and Mortgagee or any of the Lenders and permitted by the terms of the
Credit Agreement.
(d) performance of all letter of credit agreements
executed from time to time by Mortgagor under or pursuant to the
Credit Agreement and all reimbursement obligations for drawn or
undrawn portions under any letter of credit now outstanding or
hereafter issued under or pursuant to the Credit Agreement.
The term "INDEBTEDNESS" as used herein shall mean and include
the Notes and all other indebtedness described, referred to or
mentioned in paragraphs (a) through (d), inclusive, of this Section
II."
2.4. Grant of Mortgaged Property.
The Company hereby confirms that it has heretofore granted, bargained,
sold, assigned, mortgaged, warranted, transferred and conveyed to Assignor, the
Mortgaged Property, and the Company further grants, bargains, sells, assigns,
mortgages, warrants, transfers and conveys the Mortgaged Property to Assignee
for the benefit of the Lenders to secure the payment and performance of the
Indebtedness herein described.
2.5 Assignment of Production.
The Company hereby confirms that it has heretofore absolutely and
unconditionally assigned, transferred and conveyed and does hereby absolutely
and unconditionally assign, transfer and convey to Assignee for the benefit of
the Lenders, its successors and assigns, all of the Hydrocarbons and all
products obtained or processed therefrom attributable to the Hydrocarbon
Property, and the revenues and proceeds now and hereafter attributable to the
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<PAGE> 6
Hydrocarbons and said products and all payments in lieu of the Hydrocarbons
such as "take or pay" payments or settlements.
2.6. Priority.
The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Mortgage shall remain in
full force and effect in accordance with its terms. None of the rights, titles
and interests existing and to exist under the Mortgage are hereby released,
diminished or impaired, and the Company hereby reaffirms all covenants,
representations and warranties made in the Mortgage.
MISCELLANEOUS:
3.1. Taxes, Etc.
Except to the extent prohibited by applicable law, Assignee agrees to
pay or to cause to be paid all governmental assessments, charges or taxes
(excluding federal, state or local income taxes), including any stamp or
documentary or mortgage registration or other excise or property taxes and any
interest or penalties on any such assessments, charges or taxes, at any time
payable or ruled to be payable in respect of the execution or delivery of this
Assignment and Amendment by reason of any federal, state or local statutory or
regulatory provision in force on the date hereof, or in accordance with a
specific proposal for the amendment of, or enactment of, any such statutory or
regulatory provision published on or before the date hereof which is thereafter
enacted in material conformity to the form published and any taxes, levies,
imports, assessments or charges imposed in replacement of or in substitution
for any of the foregoing and which are substantially similar thereto
(collectively, the "Taxes"), and to indemnify, defend and hold Assignor
harmless against liability in connection with any such Taxes.
3.2. Successors and Assigns.
This Assignment and Amendment shall be binding upon the parties hereto
and their respective successors and assigns.
3.3. Counterparts.
This Assignment and Amendment is being executed in several
counterparts. All of such counterparts together shall constitute one and the
same instrument.
3.4. Governing Law.
This Assignment and Amendment shall be governed by and construed in
accordance with the laws of the State of Colorado.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Assignment and
Amendment to be executed by their duly authorized officers effective as of the
date first above written.
ASSIGNOR: THE CHASE MANHATTAN BANK, N.A.,
AS AGENT
By:
-------------------------------------
Name: Richard F. Betz
Title: Vice President
ASSIGNEE: THE CHASE MANHATTAN BANK, N.A.,
AS AGENT
By:
-------------------------------------
Name: Richard F. Betz
Title: Vice President
ATTEST: HS RESOURCES, INC.
By: By:
------------------------------ -------------------------------------
Name: James M. Piccone Name: Annette Montoya
Title: Secretary Title: Vice President
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<PAGE> 8
STATE OF COLORADO )
)
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me on June ___, 1996
by Richard F. Betz, Vice President of The Chase Manhattan Bank, N.A., a
national banking association, on behalf of such association.
-------------------------------
Notary Public in and for the
State of Colorado
My Commission expires:
---------
STATE OF COLORADO )
)
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me on June ___, 1996
by Annette Montoya, Vice President of HS Resources, Inc., a Delaware
corporation, on behalf of such corporation.
-------------------------------
Notary Public in and for the
State of Colorado
My Commission expires:
---------
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<PAGE> 1
GUARANTY AGREEMENT
BY
HSR ACQUISITION, INC.
IN FAVOR OF
THE CHASE MANHATTAN BANK, N.A., AS AGENT
JUNE 14, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
General Terms
Section 1.1 Terms Defined Above . . . . . . . . . . . . . . . . 1
Section 1.2 Certain Definitions . . . . . . . . . . . . . . . . 1
Section 1.3 Credit Agreement Definitions . . . . . . . . . . . 3
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed . . . . . . . . . . . . . . 4
Section 2.2 Nature of Guaranty . . . . . . . . . . . . . . . . 4
Section 2.3 Guarantor's Waivers . . . . . . . . . . . . . . . . 4
Section 2.4 Maturity of Liabilities; Payment . . . . . . . . . 5
Section 2.5 Agent's Expenses . . . . . . . . . . . . . . . . . 5
Section 2.6 Liability . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7 Events and Circumstances Not Reducing or Discharging
Guarantor's Obligations . . . . . . . . . . . . . . 5
Section 2.8 Right of Subrogation and Contribution . . . . . . . 7
ARTICLE 3
Representations and Warranties
Section 3.1 By Guarantor . . . . . . . . . . . . . . . . . . . 8
Section 3.2 No Representation by Lenders . . . . . . . . . . . 9
Section 3.3 Incorporation of Credit Agreement Representations,
Warranties and Covenants . . . . . . . . . . . . . 9
Section 3.4 Senior Indebtedness. . . . . . . . . . . . . . . . 9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 4
Subordination of Indebtedness
Section 4.1 Subordination of All Guarantor Claims . . . . . . . 9
Section 4.2 Claims in Bankruptcy . . . . . . . . . . . . . . 10
Section 4.3 Payments Held in Trust . . . . . . . . . . . . . 10
Section 4.4 Liens Subordinate . . . . . . . . . . . . . . . . 10
Section 4.5 Notation of Records . . . . . . . . . . . . . . . 11
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns . . . . . . . . . . . . . 11
Section 5.2 Notices . . . . . . . . . . . . . . . . . . . . . 11
Section 5.3 Business and Financial Information . . . . . . . 11
Section 5.4 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . 11
Section 5.5 Invalidity . . . . . . . . . . . . . . . . . . . 13
Section 5.6 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . 13
</TABLE>
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<PAGE> 4
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by HSR ACQUISITION, INC. (hereinafter called
"Guarantor"), is in favor of THE CHASE MANHATTAN BANK, N.A., as agent (the
"Agent") for the lenders (the "Lenders") that are or become parties to the
Credit Agreement defined below.
W I T N E S S E T H:
WHEREAS, as of June 14, 1996, HS RESOURCES, INC., a Delaware
corporation ("Borrower"), the Agent and the Lenders have entered into that
certain Amended and Restated Credit Agreement (as the same may be amended from
time to time, the "Credit Agreement"); and
WHEREAS, one of the terms and conditions stated in the Credit
Agreement for the making of the loans described therein is the execution and
delivery to the Agent for the benefit of the Lenders of this Guaranty
Agreement;
NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lenders, at any time or from time
to time, to loan monies, with or without security to or for the account of
Borrower in accordance with the terms of the Credit Agreement, (iii) at the
special insistence and request of the Lenders, and (iv) for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Guarantor hereby agrees as follows:
ARTICLE 1
General Terms
Section 1.1 Terms Defined Above. As used in this Guaranty
Agreement, the terms "Borrower", "Guarantor", "Credit Agreement" and "Lenders"
shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Guaranty
Agreement, the following terms shall have the following meanings, unless the
context otherwise requires:
"Contribution Obligation" shall mean an amount equal, at any time and
from time to time and for each respective Subsidiary Guarantor, to the
product of (i) its Contribution Percentage times (ii) the total of (A)
the sum of all payments made previous to or at the time of calculation
by all Subsidiary Guarantors in respect of the Liabilities as a
Subsidiary Guarantor less (B) the sum of any such payments previously
returned to any Subsidiary Guarantor by operation of law or otherwise
less (C) to the extent included in (A), the sum of any payments made
by any Subsidiary Guarantor by way of its obligation of contribution
under Section 2.8
<PAGE> 5
of its respective Guaranty Agreement), provided, however, such
Contribution Obligation for any Subsidiary Guarantor shall in no event
exceed such Subsidiary Guarantor's Maximum Guaranteed Amount, as
defined in the respective Guaranty Agreement of such Subsidiary
Guarantor.
"Contribution Percentage" shall mean for any Subsidiary Guarantor for
any applicable date as of which such percentage is being determined,
an amount equal to the quotient of (i) the Net Worth of such
Subsidiary Guarantor as of such date, divided by (ii) the sum of the
Net Worth of all the Subsidiary Guarantors as of such date.
"Guarantor Claims" shall have the meaning indicated in Section 4.1
hereof.
"Guaranty Agreement" shall mean this Guaranty Agreement, and where the
context indicates, the Guaranty Agreement of any other Subsidiary
Guarantor, as the same may from time to time be amended or
supplemented.
"Liabilities" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement,
including without limitation, the unpaid principal of and interest on
the Notes, including without limitation, interest accruing subsequent
to the filing of a petition or other action concerning bankruptcy or
other similar proceeding; (b) any additional loans made by the Lenders
to the Borrower; (c) payment of and performance of any and all present
or future obligations of the Borrower or any Subsidiary Guarantor
according to the terms of any present or future interest or currency
rate swap, rate cap, rate floor, rate collar, exchange transaction,
forward rate agreement or other exchange or rate protection agreements
or any option with respect to any such transaction now existing or
hereafter entered into between the Borrower and any of the Lenders and
permitted by the terms of the Credit Agreement; (d) payment of and
performance of any and all present or future obligations of the
Borrower or any Subsidiary Guarantor according to the terms of any
present or future swap agreements, cap, floor, collar, exchange
transaction, forward agreement or other exchange or protection
agreements relating to crude oil, natural gas or other hydrocarbons or
any option with respect to any such transaction now existing or
hereafter entered into between the Borrower and any of the Lenders and
permitted by the terms of the Credit Agreement; (e) any and all other
indebtedness, obligations and liabilities of any kind of the Borrower
to the Lenders, now or hereafter existing, arising directly between
the Borrower and the Lenders or acquired outright, as a participation,
conditionally or as collateral security from another by the Lenders,
absolute or contingent, joint and/or several, secured or unsecured,
due or not due, arising by operation of law or otherwise, or direct or
indirect, including indebtedness, obligations and liabilities to the
Lenders of the Borrower as a member of any partnership, syndicate,
association or other group,
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<PAGE> 6
and whether incurred by the Borrower as principal, surety, endorser,
guarantor, accommodation party or otherwise and (f) all renewals,
rearrangements, increases, extensions for any period, amendments or
supplements in whole or in part of the Notes or any documents
evidencing the above.
"Maximum Guaranteed Amount" shall mean, for the Guarantor, the greater
of (i) the "reasonably equivalent value" or "fair consideration" (or
equivalent concept) received by the Guarantor in exchange for the
obligation incurred hereunder, within the meaning of any applicable
state or federal fraudulent conveyance or transfer laws; or (ii) the
lesser of (A) the maximum amount that will not render the Guarantor
insolvent, or (B) the maximum amount that will not leave the Guarantor
with any property deemed an unreasonably small capital. Clauses (A)
and (B) are and shall be determined pursuant to and as of the
appropriate date mandated by such applicable state or federal
fraudulent conveyance or transfer laws and to the extent allowed by
law take into account the rights to contribution and subrogation under
Section 2.8 in each Guaranty Agreement so as to provide for the
largest Maximum Guaranteed Amount possible.
"Net Payments" shall mean an amount equal, at any time and from time
to time and for each respective Subsidiary Guarantor, to the
difference of (i) the sum of all payments made previous to or at the
time of calculation by such Subsidiary Guarantor in respect to the
Liabilities, as a Subsidiary Guarantor, and in respect of its
obligations contained in this Guaranty Agreement, less (ii) the sum of
all such payments previously returned to such Subsidiary Guarantor by
operation of law or otherwise and including payments received by such
Subsidiary Guarantor by way of its rights of subrogation and
contribution under Section 2.8 of the other Guaranty Agreements.
"Net Worth" shall mean for any Subsidiary Guarantor, calculated on and
as of any applicable date on which such amount is being determined,
the difference between (i) the sum of all such Subsidiary Guarantor's
property, at a fair valuation and as of such date, minus (ii) the sum
of all such Subsidiary Guarantor's debts, at a fair valuation and as
of such date, excluding the Liabilities.
"Subsidiary Guarantors" shall mean the Guarantors as defined in the
Credit Agreement, including the Guarantor hereunder.
Section 1.3 Credit Agreement Definitions. Unless otherwise
defined herein, all terms beginning with a capital letter which are defined in
the Credit Agreement shall have the same meanings herein as therein.
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<PAGE> 7
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed. Guarantor hereby irrevocably
and unconditionally guarantees the prompt payment of the Liabilities when due,
whether at maturity or otherwise, provided, however, that, notwithstanding
anything herein or in any other Loan Document to the contrary, the maximum
liability of Guarantor hereunder shall in no event exceed the Maximum
Guaranteed Amount.
Section 2.2 Nature of Guaranty. This Guaranty Agreement is an
absolute, irrevocable, completed and continuing guaranty of payment and not a
guaranty of collection, and no notice of the Liabilities or any extension of
credit already or hereafter contracted by or extended to Borrower need be given
to Guarantor. This Guaranty Agreement may not be revoked by Guarantor and
shall continue to be effective with respect to debt under the Liabilities
arising or created after any attempted revocation by Guarantor and shall remain
in full force and effect until the Liabilities are indefeasibly paid in full
and the Commitments terminated notwithstanding that from time to time prior
thereto no Liabilities may be outstanding. Borrower and the Lenders may
modify, alter, rearrange, extend for any period and/or renew from time to time,
the Liabilities, and the Lenders may waive any Default or Events of Default
without notice to the Guarantor and in such event Guarantor will remain fully
bound hereunder on the Liabilities. This Guaranty Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time any payment
of the Liabilities is rescinded or must otherwise be returned by any of the
Lenders upon the insolvency, bankruptcy or reorganization of Borrower or
otherwise, all as though such payment had not been made. This Guaranty
Agreement may be enforced by the Agent and any subsequent holder of any of the
Liabilities and shall not be discharged by the assignment or negotiation of all
or part of the Liabilities. Guarantor hereby expressly waives presentment,
demand, notice of non-payment, protest and notice of protest and dishonor,
notice of Default or Event of Default, notice of intent to accelerate the
maturity and notice of acceleration of the maturity and any other notice in
connection with the Liabilities, and also notice of acceptance of this Guaranty
Agreement, acceptance on the part of the Lenders being conclusively presumed by
the Lenders' request for this Guaranty Agreement and delivery of the same to
the Agent.
Section 2.3 Guarantor's Waivers. Guarantor waives any right to
require any of the Lenders to (i) proceed against Borrower or any other person
liable on the Liabilities, (ii) enforce any of their rights against any other
guarantor of the Liabilities (iii) proceed or enforce any of their rights
against or exhaust any security given to secure the Liabilities (iv) have
Borrower joined with Guarantor in any suit arising out of this Guaranty
Agreement and/or the Liabilities, or (v) pursue any other remedy in the
Lenders' powers whatsoever. The Lenders shall not be required to mitigate
damages or take any action to reduce, collect or enforce the Liabilities.
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of Borrower or any other
guarantor of the Liabilities, and shall remain
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<PAGE> 8
liable hereon regardless of whether Borrower or any other guarantor be found
not liable thereon for any reason. Whether and when to exercise any of the
remedies of the Lenders under any of the Loan Documents shall be in the sole
and absolute discretion of the Agent, and no delay by the Agent in enforcing
any remedy, including delay in conducting a foreclosure sale, shall be a
defense to the Guarantor's liability under this Guaranty Agreement. To the
extent allowed by applicable law, the Guarantor hereby waives any good faith
duty on the part of the Agent in exercising any remedies provided in the Loan
Documents.
Section 2.4 Maturity of Liabilities; Payment. Guarantor agrees
that if the maturity of any of the Liabilities is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to Guarantor. Guarantor will,
forthwith upon notice from the Agent, pay to the Agent the amount due and
unpaid by Borrower and guaranteed hereby. The failure of the Agent to give
this notice shall not in any way release Guarantor hereunder.
Section 2.5 Agent's Expenses. If Guarantor fails to pay the
Liabilities after notice from the Agent of Borrower's failure to pay any
Liabilities at maturity, and if the Agent obtains the services of an attorney
for collection of amounts owing by Guarantor hereunder, or obtaining advice of
counsel in respect of any of their rights under this Guaranty Agreement, or if
suit is filed to enforce this Guaranty Agreement, or if proceedings are had in
any bankruptcy, probate, receivership or other judicial proceedings for the
establishment or collection of any amount owing by Guarantor hereunder, or if
any amount owing by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay to the Agent the Agent's reasonable attorneys' fees.
Section 2.6 Liability. It is expressly agreed that the liability
of the Guarantor for the payment of the Liabilities guaranteed hereby shall be
primary and not secondary.
Section 2.7 Events and Circumstances Not Reducing or Discharging
Guarantor's Obligations. Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:
(a) Modifications, etc. Any renewal, extension,
modification, increase, decrease, alteration or rearrangement of all
or any part of the Liabilities, or of the Notes, or the Credit
Agreement or any instrument executed in connection therewith, or any
contract or understanding between Borrower and any of the Lenders, or
any other Person, pertaining to the Liabilities;
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<PAGE> 9
(b) Adjustment, etc. Any adjustment, indulgence,
forbearance or compromise that might be granted or given by any of the
Lenders to Borrower or Guarantor or any Person liable on the
Liabilities;
(c) Condition of Borrower or Guarantor. The insolvency,
bankruptcy arrangement, adjustment, composition, liquidation,
disability, dissolution, death or lack of power of Borrower or
Guarantor or any other Person at any time liable for the payment of all
or part of the Liabilities; or any dissolution of Borrower or
Guarantor, or any sale, lease or transfer of any or all of the assets
of Borrower or Guarantor, or any changes in the shareholders, partners,
or members of Borrower or Guarantor; or any reorganization of
Borrower or Guarantor;
(d) Invalidity of Liabilities. The invalidity, illegality
or unenforceability of all or any part of the Liabilities, or any
document or agreement executed in connection with the Liabilities, for
any reason whatsoever, including without limitation the fact that the
Liabilities, or any part thereof, exceed the amount permitted by law,
the act of creating the Liabilities or any part thereof is ultra vires,
the officers or representatives executing the documents or otherwise
creating the Liabilities acted in excess of their authority, the
Liabilities violate applicable usury laws, the Borrower has valid
defenses, claims or offsets (whether at law, in equity or by agreement)
which render the Liabilities wholly or partially uncollectible from
Borrower, the creation, performance or repayment of the Liabilities (or
the execution, delivery and performance of any document or instrument
representing part of the Liabilities or executed in connection with the
Liabilities, or given to secure the repayment of the Liabilities) is
illegal, uncollectible, legally impossible or unenforceable, or the
Credit Agreement or other documents or instruments pertaining to the
Liabilities have been forged or otherwise are irregular or not genuine
or authentic;
(e) Release of Obligors. Any full or partial release of
the liability of Borrower on the Liabilities or any part thereof, of
any co-guarantors, or any other Person now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally,
to pay, perform, guarantee or assure the payment of the Liabilities or
any part thereof, it being recognized, acknowledged and agreed by
Guarantor that Guarantor may be required to pay the Liabilities in full
without assistance or support of any other Person, and Guarantor has
not been induced to enter into this Guaranty Agreement on the basis of
a contemplation, belief, understanding or agreement that other parties
other than the Borrower will be liable to perform the Liabilities, or
the Lenders will look to other parties to perform the Liabilities;
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<PAGE> 10
(f) Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for
all or any part of the Liabilities;
(g) Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or impairment
(including without limitation negligent, willful, unreasonable or
unjustifiable impairment) of any collateral, property or security, at
any time existing in connection with, or assuring or securing payment
of, all or any part of the Liabilities;
(h) Care and Diligence. The failure of the Lenders or
any other Person to exercise diligence or reasonable care in the
preservation, protection, enforcement, sale or other handling or
treatment of all or any part of such collateral, property or security;
(i) Status of Liens. The fact that any collateral,
security, security interest or lien contemplated or intended to be
given, created or granted as security for the repayment of the
Liabilities shall not be properly perfected or created, or shall prove
to be unenforceable or subordinate to any other security interest or
lien, it being recognized and agreed by Guarantor that Guarantor is not
entering into this Guaranty Agreement in reliance on, or in
contemplation of the benefits of, the validity, enforceability,
collectibility or value of any of the collateral for the Liabilities;
(j) Payments Rescinded. Any payment by Borrower to the
Lenders is held to constitute a preference under the bankruptcy laws,
or for any reason the Lenders are required to refund such payment or
pay such amount to Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action
taken or omitted to be taken with respect to the Credit Agreement, the
Liabilities, or the security and collateral therefor, whether or not
such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay the Liabilities
pursuant to the terms hereof; it being the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to pay the
Liabilities when due, notwithstanding any occurrence, circumstance,
event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described
herein, except for the full and final payment and satisfaction of the
Liabilities.
Section 2.8 Right of Subrogation and Contribution. If Guarantor
makes a payment in respect of the Liabilities, it shall be subrogated to the
rights of the Lenders against the Borrower with respect to such payment and
shall have the rights of contribution against the other
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<PAGE> 11
Subsidiary Guarantors set forth in Section 2.8 of the Subsidiary Guarantors'
Guaranty Agreements; provided that the Guarantor shall not enforce its rights to
any payment by way of subrogation or by exercising its rights of contribution or
reimbursement or the right to participate in any security now or hereafter held
by or for the benefit of the Lenders until the Liabilities have been paid in
full. The Guarantor agrees that after all the Liabilities have been paid in full
that if its then current Net Payments are less than the amount of its then
current Contribution Obligation, the Guarantor shall pay to the other Subsidiary
Guarantors an amount (together with any payments required of the other
Subsidiary Guarantors by Section 2.8 of each other Guaranty Agreement) such that
the Net Payments made by all Subsidiary Guarantors in respect of the Liabilities
shall be shared among all of the Subsidiary Guarantors in proportion to their
respective Contribution Percentage.
ARTICLE 3
Representations and Warranties
Section 3.1 By Guarantor. In order to induce the Lenders to
accept this Guaranty Agreement, Guarantor represents and warrants to the
Lenders (which representations and warranties will survive the creation of the
Liabilities and any extension of credit thereunder) that:
(a) Benefit to Guarantor. Guarantor's guaranty pursuant
to this Guaranty Agreement reasonably may be expected to benefit,
directly or indirectly, Guarantor.
(b) Corporate Existence. Guarantor is a corporation duly
organized, legally existing and in good standing under the laws of the
State of its incorporation and is duly qualified as a foreign
corporation in all jurisdictions wherein the property owned or the
business transacted by it makes such qualification necessary.
(c) Corporate Power and Authorization. Guarantor is duly
authorized and empowered to execute, deliver and perform this Guaranty
Agreement and all corporate action on Guarantor's part requisite for
the due execution, delivery and performance of this Guaranty Agreement
has been duly and effectively taken.
(d) Binding Obligations. This Guaranty Agreement
constitutes valid and binding obligations of Guarantor, enforceable in
accordance with its terms (except that enforcement may be subject to
any applicable bankruptcy, insolvency or similar laws generally
affecting the enforcement of creditors' rights).
(e) No Legal Bar or Resultant Lien. This Guaranty
Agreement will not violate any provisions of Guarantor's articles or
certificate of incorporation,
- 8 -
<PAGE> 12
bylaws, or any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which Guarantor is subject, or
result in the creation or imposition of any Lien upon any Properties
of Guarantor.
(f) No Consent. Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the consent or
approval of any other Person, including without limitation any
regulatory authority or governmental body of the United States or any
state thereof or any political subdivision of the United States or any
state thereof.
(g) Solvency. (i) It is not insolvent as of the date
hereof and will not be rendered insolvent as a result of this Guaranty
Agreement, (ii) it is not engaged in business or a transaction, or
about to engage in a business or a transaction, for which any property
or assets remaining with such Guarantor is unreasonably small capital,
and (iii) it does not intend to incur, or believe it will incur, debts
that will be beyond its ability to pay as such debts mature.
Section 3.2 No Representation by Lenders. Neither the Lenders
nor any other Person has made any representation, warranty or statement to the
Guarantor in order to induce the Guarantor to execute this Guaranty Agreement.
Section 3.3 Incorporation of Credit Agreement Representations,
Warranties and Covenants. The Guarantor hereby represents and warrants that the
matters contained in each of the applicable representations and warranties
contained in Article VII of the Credit Agreement pertaining to the Guarantor or
its Properties are true and correct as of the date of this Guaranty Agreement,
and covenants and agrees, so long as any of the Liabilities or Commitments
remain outstanding, to comply with the applicable covenants contained in
Articles VIII and IX of the Credit Agreement pertaining to the Guarantor or its
Properties. The guarantor hereby acknowledges that it has been furnished a copy
of the Credit Agreement and that it is thoroughly familiar with the
representations, warranties and covenants which are incorporated herein by
virtue of this Section 3.3.
Section 3.4 Senior Indebtedness. The Liabilities shall be
Subsidiary Guarantor Senior Indebtedness and Specified Subsidiary Guarantor
Senior Indebtedness pursuant to and as defined in the Indenture.
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ARTICLE 4
Subordination of Indebtedness
Section 4.1 Subordination of All Guarantor Claims. As used
herein, the term "Guarantor Claims" shall mean all debts and liabilities of
Borrower to Guarantor, whether such debts and liabilities now exist or are
hereafter incurred or arise, or whether the obligation of Borrower thereon be
direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or liabilities be evidenced
by note, contract, open account, or otherwise, and irrespective of the person
or persons in whose favor such debts or liabilities may, at their inception,
have been, or may hereafter be created, or the manner in which they have been
or may hereafter be acquired by Guarantor. The Guarantor Claims shall include
without limitation all rights and claims of Guarantor against Borrower arising
as a result of subrogation or otherwise as a result of Guarantor's payment of
all or a portion of the Liabilities. Until the Liabilities shall be paid and
satisfied in full and Guarantor shall have performed all of its obligations
hereunder, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any amount upon the Guarantor Claims.
Section 4.2 Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, the Lenders shall have the right to
prove their claim in any proceeding, so as to establish its rights hereunder
and receive directly from the receiver, trustee or other court custodian,
dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to the Lenders. Should
the Agent or any Lender receive, for application upon the Liabilities, any such
dividend or payment which is otherwise payable to Guarantor, and which, as
between Borrower and Guarantor, shall constitute a credit upon the Guarantor
Claims, then upon payment in full of the Liabilities, Guarantor shall become
subrogated to the rights of the Lenders to the extent that such payments to the
Lenders on the Guarantor Claims have contributed toward the liquidation of the
Liabilities, and such subrogation shall be with respect to that proportion of
the Liabilities which would have been unpaid if the Agent or a Lender had not
received dividends or payments upon the Guarantor Claims.
Section 4.3 Payments Held in Trust. In the event that
notwithstanding Sections 4.1 and 4.2 above, Guarantor should receive any funds,
payments, claims or distributions which is prohibited by such Sections,
Guarantor agrees to hold in trust for the Lenders an amount equal to the amount
of all funds, payments, claims or distributions so received, and agrees that it
shall have absolutely no dominion over the amount of such funds, payments,
claims or distributions except to pay them promptly to the Agent, and Guarantor
covenants promptly to pay the same to the Agent.
Section 4.4 Liens Subordinate. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the
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<PAGE> 14
Guarantor Claims shall be and remain inferior and subordinate to any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Liabilities, regardless of whether
such encumbrances in favor of Guarantor, the Agent or the Lenders presently
exist or are hereafter created or attach. Without the prior written consent of
the Lenders, Guarantor shall not (a) exercise or enforce any creditor's right
it may have against the Borrower, or (b) foreclose, repossess, sequester or
otherwise take steps or institute any action or proceeding (judicial or
otherwise, including without limitation the commencement of or joinder in any
liquidation, bankruptcy, rearrangement, debtor's relief or insolvency
proceeding) to enforce any lien, mortgages, deeds of trust, security interest,
collateral rights, judgments or other encumbrances on assets of Borrower held
by Guarantor.
Section 4.5 Notation of Records. All promissory notes, accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or
held by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns. This Guaranty Agreement is
and shall be in every particular available to the successors and assigns of the
Lenders and is and shall always be fully binding upon the legal
representatives, heirs, successors and assigns of Guarantor, notwithstanding
that some or all of the monies, the repayment of which this Guaranty Agreement
applies, may be actually advanced after any bankruptcy, receivership,
reorganization, death, disability or other event affecting Guarantor.
Section 5.2 Notices. Any notice or demand to Guarantor under or
in connection with this Guaranty Agreement may be given and shall conclusively
be deemed and considered to have been given and received in accordance with
Section 12.02 of the Credit Agreement, addressed to Guarantor at the address on
the signature page hereof or at such other address provided to the Agent in
writing.
Section 5.3 Business and Financial Information. The Guarantor
will promptly furnish to the Agent and the Lenders from time to time upon
request such information regarding the business and affairs and financial
condition of the Guarantor and its subsidiaries as the Agent and the Lenders
may reasonably request.
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Section 5.4 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS GUARANTY AGREEMENT (INCLUDING, BUT NOT LIMITED
TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY AGREEMENT, THE
GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS,
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION
OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO
JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE PARTIES FROM
OBTAINING JURISDICTION OVER OTHER PARTIES IN ANY COURT OTHERWISE HAVING
JURISDICTION.
(c) THE GUARANTOR HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS THE
DESIGNEE, APPOINTEE AND AGENT OF THE GUARANTOR TO RECEIVE, FOR AND ON
BEHALF OF THE GUARANTOR, SERVICE OF PROCESS IN SUCH RESPECTIVE
JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON
SUCH AGENT WILL BE PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE
GUARANTOR AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE
FAILURE OF THE GUARANTOR TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY
WAY THE SERVICE OF SUCH PROCESS. THE GUARANTOR FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE GUARANTOR AT ITS
SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER
SUCH MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE GUARANTOR
THE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY OTHER JURISDICTION,
INCLUDING WITHOUT LIMITATION, THE COMMENCEMENT OF ENFORCEMENT
PROCEEDINGS UNDER THE LOAN DOCUMENTS IN ALL APPLICABLE JURISDICTIONS.
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<PAGE> 16
(e) THE GUARANTOR HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN;
(II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 5.4.
Section 5.5 Invalidity. In the event that any one or more of the
provisions contained in this Guaranty Agreement shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this Guaranty
Agreement.
Section 5.6 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LENDERS AND THE
GUARANTOR AND SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN
GUARANTY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[SIGNATURES BEGIN NEXT PAGE]
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<PAGE> 1
GUARANTY AGREEMENT
BY
ORION ACQUISITION, INC.
IN FAVOR OF
THE CHASE MANHATTAN BANK, N.A., AS AGENT
JUNE 14, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
General Terms
Section 1.1 Terms Defined Above . . . . . . . . . . . . . . . . . . . . 4
Section 1.2 Certain Definitions . . . . . . . . . . . . . . . . . . . . 4
Section 1.3 Credit Agreement Definitions . . . . . . . . . . . . . . . 6
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed . . . . . . . . . . . . . . . . . . 7
Section 2.2 Nature of Guaranty . . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Guarantor's Waivers . . . . . . . . . . . . . . . . . . . . 7
Section 2.4 Maturity of Liabilities; Payment . . . . . . . . . . . . . 8
Section 2.5 Agent's Expenses . . . . . . . . . . . . . . . . . . . . . 8
Section 2.6 Liability . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.7 Events and Circumstances Not Reducing or Discharging
Guarantor's Obligations . . . . . . . . . . . . . . . . . 8
Section 2.8 Right of Subrogation and Contribution . . . . . . . . . . . 10
ARTICLE 3
Representations and Warranties
Section 3.1 By Guarantor . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2 No Representation by Lenders . . . . . . . . . . . . . . . 12
Section 3.3 Incorporation of Credit Agreement Representations,
Warranties and Covenants . . . . . . . . . . . . . . . . . 12
Section 3.4 Senior Indebtedness. . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 4
Subordination of Indebtedness
Section 4.1 Subordination of All Guarantor Claims . . . . . . . . . . 13
Section 4.2 Claims in Bankruptcy . . . . . . . . . . . . . . . . . . 13
Section 4.3 Payments Held in Trust . . . . . . . . . . . . . . . . . 13
Section 4.4 Liens Subordinate . . . . . . . . . . . . . . . . . . . . 13
Section 4.5 Notation of Records . . . . . . . . . . . . . . . . . . . 14
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns . . . . . . . . . . . . . . . . . 14
Section 5.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.3 Business and Financial Information . . . . . . . . . . . 14
Section 5.4 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . 15
Section 5.5 Invalidity . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.6 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<PAGE> 4
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by ORION ACQUISITION, INC. (hereinafter
called "Guarantor"), is in favor of THE CHASE MANHATTAN BANK, N.A., as agent
(the "Agent") for the lenders (the "Lenders") that are or become parties to the
Credit Agreement defined below.
W I T N E S S E T H:
WHEREAS, as of June 14, 1996, HS RESOURCES, INC., a Delaware
corporation ("Borrower"), the Agent and the Lenders have entered into that
certain Amended and Restated Credit Agreement (as the same may be amended from
time to time, the "Credit Agreement") which amended and restated a credit
agreement the indebtedness of which was guaranteed by Guarantor; and
WHEREAS, one of the terms and conditions stated in the Credit
Agreement for the making of the loans described therein is the execution and
delivery to the Agent for the benefit of the Lenders of this Guaranty Agreement
which amends and restates the Guaranty Agreement dated June 7, 1996 from the
Guarantor in favor of the Agent;
NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lenders, at any time or from time
to time, to loan monies, with or without security to or for the account of
Borrower in accordance with the terms of the Credit Agreement, (iii) at the
special insistence and request of the Lenders, and (iv) for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Guarantor hereby agrees as follows:
ARTICLE 1
General Terms
Section 1.1 Terms Defined Above. As used in this Guaranty
Agreement, the terms "Borrower", "Guarantor", "Credit Agreement" and "Lenders"
shall have the meanings indicated above.
Section 1.2 Certain Definitions. As used in this Guaranty
Agreement, the following terms shall have the following meanings, unless the
context otherwise requires:
"Contribution Obligation" shall mean an amount equal, at any time and
from time to time and for each respective Subsidiary Guarantor, to the
product of (i) its Contribution Percentage times (ii) the total of (A)
the sum of all payments made previous to or at the time of calculation
by all Subsidiary Guarantors in respect of the Liabilities as a
Subsidiary Guarantor less (B) the sum of any such payments
<PAGE> 5
previously returned to any Subsidiary Guarantor by operation of law or
otherwise less (C) to the extent included in (A), the sum of any
payments made by any Subsidiary Guarantor by way of its obligation of
contribution under Section 2.8 of its respective Guaranty Agreement),
provided, however, such Contribution Obligation for any Subsidiary
Guarantor shall in no event exceed such Subsidiary Guarantor's Maximum
Guaranteed Amount, as defined in the respective Guaranty Agreement of
such Subsidiary Guarantor.
"Contribution Percentage" shall mean for any Subsidiary Guarantor for
any applicable date as of which such percentage is being determined,
an amount equal to the quotient of (i) the Net Worth of such
Subsidiary Guarantor as of such date, divided by (ii) the sum of the
Net Worth of all the Subsidiary Guarantors as of such date.
"Guarantor Claims" shall have the meaning indicated in Section 4.1
hereof.
"Guaranty Agreement" shall mean this Guaranty Agreement, and where the
context indicates, the Guaranty Agreement of any other Subsidiary
Guarantor, as the same may from time to time be amended or
supplemented.
"Liabilities" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement,
including without limitation, the unpaid principal of and interest on
the Notes, including without limitation, interest accruing subsequent
to the filing of a petition or other action concerning bankruptcy or
other similar proceeding; (b) any additional loans made by the Lenders
to the Borrower; (c) payment of and performance of any and all present
or future obligations of the Borrower or any Subsidiary Guarantor
according to the terms of any present or future interest or currency
rate swap, rate cap, rate floor, rate collar, exchange transaction,
forward rate agreement or other exchange or rate protection agreements
or any option with respect to any such transaction now existing or
hereafter entered into between the Borrower and any of the Lenders and
permitted by the terms of the Credit Agreement; (d) payment of and
performance of any and all present or future obligations of the
Borrower or any Subsidiary Guarantor according to the terms of any
present or future swap agreements, cap, floor, collar, exchange
transaction, forward agreement or other exchange or protection
agreements relating to crude oil, natural gas or other hydrocarbons or
any option with respect to any such transaction now existing or
hereafter entered into between the Borrower and any of the Lenders and
permitted by the terms of the Credit Agreement; (e) any and all other
indebtedness, obligations and liabilities of any kind of the Borrower
to the Lenders, now or hereafter existing, arising directly between
the Borrower and the Lenders or acquired outright, as a participation,
conditionally or as collateral security from another by the Lenders,
absolute or contingent, joint and/or several, secured or
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<PAGE> 6
unsecured, due or not due, arising by operation of law or otherwise,
or direct or indirect, including indebtedness, obligations and
liabilities to the Lenders of the Borrower as a member of any
partnership, syndicate, association or other group, and whether
incurred by the Borrower as principal, surety, endorser, guarantor,
accommodation party or otherwise and (f) all renewals, rearrangements,
increases, extensions for any period, amendments or supplements in
whole or in part of the Notes or any documents evidencing the above.
"Maximum Guaranteed Amount" shall mean, for the Guarantor, the greater
of (i) the "reasonably equivalent value" or "fair consideration" (or
equivalent concept) received by the Guarantor in exchange for the
obligation incurred hereunder, within the meaning of any applicable
state or federal fraudulent conveyance or transfer laws; or (ii) the
lesser of (A) the maximum amount that will not render the Guarantor
insolvent, or (B) the maximum amount that will not leave the Guarantor
with any property deemed an unreasonably small capital. Clauses (A)
and (B) are and shall be determined pursuant to and as of the
appropriate date mandated by such applicable state or federal
fraudulent conveyance or transfer laws and to the extent allowed by
law take into account the rights to contribution and subrogation under
Section 2.8 in each Guaranty Agreement so as to provide for the
largest Maximum Guaranteed Amount possible.
"Net Payments" shall mean an amount equal, at any time and from time
to time and for each respective Subsidiary Guarantor, to the
difference of (i) the sum of all payments made previous to or at the
time of calculation by such Subsidiary Guarantor in respect to the
Liabilities, as a Subsidiary Guarantor, and in respect of its
obligations contained in this Guaranty Agreement, less (ii) the sum of
all such payments previously returned to such Subsidiary Guarantor by
operation of law or otherwise and including payments received by such
Subsidiary Guarantor by way of its rights of subrogation and
contribution under Section 2.8 of the other Guaranty Agreements.
"Net Worth" shall mean for any Subsidiary Guarantor, calculated on and
as of any applicable date on which such amount is being determined,
the difference between (i) the sum of all such Subsidiary Guarantor's
property, at a fair valuation and as of such date, minus (ii) the sum
of all such Subsidiary Guarantor's debts, at a fair valuation and as
of such date, excluding the Liabilities.
"Subsidiary Guarantors" shall mean the Guarantors as defined in the
Credit Agreement, including the Guarantor hereunder.
Section 1.3 Credit Agreement Definitions. Unless otherwise
defined herein, all terms beginning with a capital letter which are defined in
the Credit Agreement shall have the same meanings herein as therein.
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<PAGE> 7
ARTICLE 2
The Guaranty
Section 2.1 Liabilities Guaranteed. Guarantor hereby irrevocably
and unconditionally guarantees the prompt payment of the Liabilities when due,
whether at maturity or otherwise, provided, however, that, notwithstanding
anything herein or in any other Loan Document to the contrary, the maximum
liability of Guarantor hereunder shall in no event exceed the Maximum
Guaranteed Amount.
Section 2.2 Nature of Guaranty. This Guaranty Agreement is an
absolute, irrevocable, completed and continuing guaranty of payment and not a
guaranty of collection, and no notice of the Liabilities or any extension of
credit already or hereafter contracted by or extended to Borrower need be given
to Guarantor. This Guaranty Agreement may not be revoked by Guarantor and
shall continue to be effective with respect to debt under the Liabilities
arising or created after any attempted revocation by Guarantor and shall remain
in full force and effect until the Liabilities are indefeasibly paid in full
and the Commitments terminated notwithstanding that from time to time prior
thereto no Liabilities may be outstanding. Borrower and the Lenders may
modify, alter, rearrange, extend for any period and/or renew from time to time,
the Liabilities, and the Lenders may waive any Default or Events of Default
without notice to the Guarantor and in such event Guarantor will remain fully
bound hereunder on the Liabilities. This Guaranty Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time any payment
of the Liabilities is rescinded or must otherwise be returned by any of the
Lenders upon the insolvency, bankruptcy or reorganization of Borrower or
otherwise, all as though such payment had not been made. This Guaranty
Agreement may be enforced by the Agent and any subsequent holder of any of the
Liabilities and shall not be discharged by the assignment or negotiation of all
or part of the Liabilities. Guarantor hereby expressly waives presentment,
demand, notice of non-payment, protest and notice of protest and dishonor,
notice of Default or Event of Default, notice of intent to accelerate the
maturity and notice of acceleration of the maturity and any other notice in
connection with the Liabilities, and also notice of acceptance of this Guaranty
Agreement, acceptance on the part of the Lenders being conclusively presumed by
the Lenders' request for this Guaranty Agreement and delivery of the same to
the Agent.
Section 2.3 Guarantor's Waivers. Guarantor waives any right to
require any of the Lenders to (i) proceed against Borrower or any other person
liable on the Liabilities, (ii) enforce any of their rights against any other
guarantor of the Liabilities (iii) proceed or enforce any of their rights
against or exhaust any security given to secure the Liabilities (iv) have
Borrower joined with Guarantor in any suit arising out of this Guaranty
Agreement and/or the Liabilities, or (v) pursue any other remedy in the
Lenders' powers whatsoever. The Lenders shall not be required to mitigate
damages or take any action to reduce, collect or enforce the Liabilities.
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or
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<PAGE> 8
power, or other defense of Borrower or any other guarantor of the Liabilities,
and shall remain liable hereon regardless of whether Borrower or any other
guarantor be found not liable thereon for any reason. Whether and when to
exercise any of the remedies of the Lenders under any of the Loan Documents
shall be in the sole and absolute discretion of the Agent, and no delay by the
Agent in enforcing any remedy, including delay in conducting a foreclosure
sale, shall be a defense to the Guarantor's liability under this Guaranty
Agreement. To the extent allowed by applicable law, the Guarantor hereby
waives any good faith duty on the part of the Agent in exercising any remedies
provided in the Loan Documents.
Section 2.4 Maturity of Liabilities; Payment. Guarantor agrees
that if the maturity of any of the Liabilities is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to Guarantor. Guarantor will,
forthwith upon notice from the Agent, pay to the Agent the amount due and
unpaid by Borrower and guaranteed hereby. The failure of the Agent to give
this notice shall not in any way release Guarantor hereunder.
Section 2.5 Agent's Expenses. If Guarantor fails to pay the
Liabilities after notice from the Agent of Borrower's failure to pay any
Liabilities at maturity, and if the Agent obtains the services of an attorney
for collection of amounts owing by Guarantor hereunder, or obtaining advice of
counsel in respect of any of their rights under this Guaranty Agreement, or if
suit is filed to enforce this Guaranty Agreement, or if proceedings are had in
any bankruptcy, probate, receivership or other judicial proceedings for the
establishment or collection of any amount owing by Guarantor hereunder, or if
any amount owing by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay to the Agent the Agent's reasonable attorneys' fees.
Section 2.6 Liability. It is expressly agreed that the liability
of the Guarantor for the payment of the Liabilities guaranteed hereby shall be
primary and not secondary.
Section 2.7 Events and Circumstances Not Reducing or Discharging
Guarantor's Obligations. Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:
(a) Modifications, etc. Any renewal, extension,
modification, increase, decrease, alteration or rearrangement of all
or any part of the Liabilities, or of the Notes, or the Credit
Agreement or any instrument executed in connection therewith, or any
contract or understanding between Borrower and any of the Lenders, or
any other Person, pertaining to the Liabilities;
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<PAGE> 9
(b) Adjustment, etc. Any adjustment, indulgence,
forbearance or compromise that might be granted or given by any of the
Lenders to Borrower or Guarantor or any Person liable on the
Liabilities;
(c) Condition of Borrower or Guarantor. The insolvency,
bankruptcy arrangement, adjustment, composition, liquidation,
disability, dissolution, death or lack of power of Borrower or
Guarantor or any other Person at any time liable for the payment of
all or part of the Liabilities; or any dissolution of Borrower or
Guarantor, or any sale, lease or transfer of any or all of the assets
of Borrower or Guarantor, or any changes in the shareholders,
partners, or members of Borrower or Guarantor; or any reorganization
of Borrower or Guarantor;
(d) Invalidity of Liabilities. The invalidity,
illegality or unenforceability of all or any part of the Liabilities,
or any document or agreement executed in connection with the
Liabilities, for any reason whatsoever, including without limitation
the fact that the Liabilities, or any part thereof, exceed the amount
permitted by law, the act of creating the Liabilities or any part
thereof is ultra vires, the officers or representatives executing the
documents or otherwise creating the Liabilities acted in excess of
their authority, the Liabilities violate applicable usury laws, the
Borrower has valid defenses, claims or offsets (whether at law, in
equity or by agreement) which render the Liabilities wholly or
partially uncollectible from Borrower, the creation, performance or
repayment of the Liabilities (or the execution, delivery and
performance of any document or instrument representing part of the
Liabilities or executed in connection with the Liabilities, or given
to secure the repayment of the Liabilities) is illegal, uncollectible,
legally impossible or unenforceable, or the Credit Agreement or other
documents or instruments pertaining to the Liabilities have been
forged or otherwise are irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of
the liability of Borrower on the Liabilities or any part thereof, of
any co-guarantors, or any other Person now or hereafter liable,
whether directly or indirectly, jointly, severally, or jointly and
severally, to pay, perform, guarantee or assure the payment of the
Liabilities or any part thereof, it being recognized, acknowledged and
agreed by Guarantor that Guarantor may be required to pay the
Liabilities in full without assistance or support of any other Person,
and Guarantor has not been induced to enter into this Guaranty
Agreement on the basis of a contemplation, belief, understanding or
agreement that other parties other than the Borrower will be liable to
perform the Liabilities, or the Lenders will look to other parties to
perform the Liabilities;
- 6 -
<PAGE> 10
(f) Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for
all or any part of the Liabilities;
(g) Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or impairment
(including without limitation negligent, willful, unreasonable or
unjustifiable impairment) of any collateral, property or security, at
any time existing in connection with, or assuring or securing payment
of, all or any part of the Liabilities;
(h) Care and Diligence. The failure of the Lenders or
any other Person to exercise diligence or reasonable care in the
preservation, protection, enforcement, sale or other handling or
treatment of all or any part of such collateral, property or security;
(i) Status of Liens. The fact that any collateral,
security, security interest or lien contemplated or intended to be
given, created or granted as security for the repayment of the
Liabilities shall not be properly perfected or created, or shall prove
to be unenforceable or subordinate to any other security interest or
lien, it being recognized and agreed by Guarantor that Guarantor is
not entering into this Guaranty Agreement in reliance on, or in
contemplation of the benefits of, the validity, enforceability,
collectibility or value of any of the collateral for the Liabilities;
(j) Payments Rescinded. Any payment by Borrower to the
Lenders is held to constitute a preference under the bankruptcy laws,
or for any reason the Lenders are required to refund such payment or
pay such amount to Borrower or someone else; or
(k) Other Actions Taken or Omitted. Any other action
taken or omitted to be taken with respect to the Credit Agreement, the
Liabilities, or the security and collateral therefor, whether or not
such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay the Liabilities
pursuant to the terms hereof; it being the unambiguous and unequivocal
intention of Guarantor that Guarantor shall be obligated to pay the
Liabilities when due, notwithstanding any occurrence, circumstance,
event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not otherwise or particularly described
herein, except for the full and final payment and satisfaction of the
Liabilities.
Section 2.8 Right of Subrogation and Contribution. If Guarantor
makes a payment in respect of the Liabilities, it shall be subrogated to the
rights of the Lenders against the Borrower with respect to such payment and
shall have the rights of contribution against the other
- 7 -
<PAGE> 11
Subsidiary Guarantors set forth in Section 2.8 of the Subsidiary Guarantors'
Guaranty Agreements; provided that the Guarantor shall not enforce its rights
to any payment by way of subrogation or by exercising its rights of
contribution or reimbursement or the right to participate in any security now
or hereafter held by or for the benefit of the Lenders until the Liabilities
have been paid in full. The Guarantor agrees that after all the Liabilities
have been paid in full that if its then current Net Payments are less than the
amount of its then current Contribution Obligation, the Guarantor shall pay to
the other Subsidiary Guarantors an amount (together with any payments required
of the other Subsidiary Guarantors by Section 2.8 of each other Guaranty
Agreement) such that the Net Payments made by all Subsidiary Guarantors in
respect of the Liabilities shall be shared among all of the Subsidiary
Guarantors in proportion to their respective Contribution Percentage.
ARTICLE 3
Representations and Warranties
Section 3.1 By Guarantor. In order to induce the Lenders to
accept this Guaranty Agreement, Guarantor represents and warrants to the
Lenders (which representations and warranties will survive the creation of the
Liabilities and any extension of credit thereunder) that:
(a) Benefit to Guarantor. Guarantor's guaranty pursuant
to this Guaranty Agreement reasonably may be expected to benefit,
directly or indirectly, Guarantor.
(b) Corporate Existence. Guarantor is a corporation duly
organized, legally existing and in good standing under the laws of the
State of its incorporation and is duly qualified as a foreign
corporation in all jurisdictions wherein the property owned or the
business transacted by it makes such qualification necessary.
(c) Corporate Power and Authorization. Guarantor is duly
authorized and empowered to execute, deliver and perform this Guaranty
Agreement and all corporate action on Guarantor's part requisite for
the due execution, delivery and performance of this Guaranty Agreement
has been duly and effectively taken.
(d) Binding Obligations. This Guaranty Agreement
constitutes valid and binding obligations of Guarantor, enforceable in
accordance with its terms (except that enforcement may be subject to
any applicable bankruptcy, insolvency or similar laws generally
affecting the enforcement of creditors' rights).
(e) No Legal Bar or Resultant Lien. This Guaranty
Agreement will not violate any provisions of Guarantor's articles or
certificate of incorporation,
- 8 -
<PAGE> 12
bylaws, or any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which Guarantor is subject, or
result in the creation or imposition of any Lien upon any Properties
of Guarantor.
(f) No Consent. Guarantor's execution, delivery and
performance of this Guaranty Agreement does not require the consent or
approval of any other Person, including without limitation any
regulatory authority or governmental body of the United States or any
state thereof or any political subdivision of the United States or any
state thereof.
(g) Solvency. (i) It is not insolvent as of the date
hereof and will not be rendered insolvent as a result of this Guaranty
Agreement, (ii) it is not engaged in business or a transaction, or
about to engage in a business or a transaction, for which any property
or assets remaining with such Guarantor is unreasonably small capital,
and (iii) it does not intend to incur, or believe it will incur, debts
that will be beyond its ability to pay as such debts mature.
Section 3.2 No Representation by Lenders. Neither the Lenders
nor any other Person has made any representation, warranty or statement to the
Guarantor in order to induce the Guarantor to execute this Guaranty Agreement.
Section 3.3 Incorporation of Credit Agreement Representations,
Warranties and Covenants. The Guarantor hereby represents and warrants that the
matters contained in each of the applicable representations and warranties
contained in Article VII of the Credit Agreement pertaining to the Guarantor or
its Properties are true and correct as of the date of this Guaranty Agreement,
and covenants and agrees, so long as any of the Liabilities or Commitments
remain outstanding, to comply with the applicable covenants contained in
Articles VIII and IX of the Credit Agreement pertaining to the Guarantor or its
Properties. The guarantor hereby acknowledges that it has been furnished a copy
of the Credit Agreement and that it is thoroughly familiar with the
representations, warranties and covenants which are incorporated herein by
virtue of this Section 3.3.
Section 3.4 Senior Indebtedness. The Liabilities shall be
Subsidiary Guarantor Senior Indebtedness and Specified Subsidiary Guarantor
Senior Indebtedness pursuant to and as defined in the Indenture.
- 9 -
<PAGE> 13
ARTICLE 4
Subordination of Indebtedness
Section 4.1 Subordination of All Guarantor Claims. As used
herein, the term "Guarantor Claims" shall mean all debts and liabilities of
Borrower to Guarantor, whether such debts and liabilities now exist or are
hereafter incurred or arise, or whether the obligation of Borrower thereon be
direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or liabilities be evidenced
by note, contract, open account, or otherwise, and irrespective of the person
or persons in whose favor such debts or liabilities may, at their inception,
have been, or may hereafter be created, or the manner in which they have been
or may hereafter be acquired by Guarantor. The Guarantor Claims shall include
without limitation all rights and claims of Guarantor against Borrower arising
as a result of subrogation or otherwise as a result of Guarantor's payment of
all or a portion of the Liabilities. Until the Liabilities shall be paid and
satisfied in full and Guarantor shall have performed all of its obligations
hereunder, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any amount upon the Guarantor Claims.
Section 4.2 Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, the Lenders shall have the right to
prove their claim in any proceeding, so as to establish its rights hereunder
and receive directly from the receiver, trustee or other court custodian,
dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to the Lenders. Should
the Agent or any Lender receive, for application upon the Liabilities, any such
dividend or payment which is otherwise payable to Guarantor, and which, as
between Borrower and Guarantor, shall constitute a credit upon the Guarantor
Claims, then upon payment in full of the Liabilities, Guarantor shall become
subrogated to the rights of the Lenders to the extent that such payments to the
Lenders on the Guarantor Claims have contributed toward the liquidation of the
Liabilities, and such subrogation shall be with respect to that proportion of
the Liabilities which would have been unpaid if the Agent or a Lender had not
received dividends or payments upon the Guarantor Claims.
Section 4.3 Payments Held in Trust. In the event that
notwithstanding Sections 4.1 and 4.2 above, Guarantor should receive any funds,
payments, claims or distributions which is prohibited by such Sections,
Guarantor agrees to hold in trust for the Lenders an amount equal to the amount
of all funds, payments, claims or distributions so received, and agrees that it
shall have absolutely no dominion over the amount of such funds, payments,
claims or distributions except to pay them promptly to the Agent, and Guarantor
covenants promptly to pay the same to the Agent.
Section 4.4 Liens Subordinate. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the
- 10 -
<PAGE> 14
Guarantor Claims shall be and remain inferior and subordinate to any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Liabilities, regardless of whether
such encumbrances in favor of Guarantor, the Agent or the Lenders presently
exist or are hereafter created or attach. Without the prior written consent of
the Lenders, Guarantor shall not (a) exercise or enforce any creditor's right
it may have against the Borrower, or (b) foreclose, repossess, sequester or
otherwise take steps or institute any action or proceeding (judicial or
otherwise, including without limitation the commencement of or joinder in any
liquidation, bankruptcy, rearrangement, debtor's relief or insolvency
proceeding) to enforce any lien, mortgages, deeds of trust, security interest,
collateral rights, judgments or other encumbrances on assets of Borrower held
by Guarantor.
Section 4.5 Notation of Records. All promissory notes, accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or
held by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
ARTICLE 5
Miscellaneous
Section 5.1 Successors and Assigns. This Guaranty Agreement is
and shall be in every particular available to the successors and assigns of the
Lenders and is and shall always be fully binding upon the legal
representatives, heirs, successors and assigns of Guarantor, notwithstanding
that some or all of the monies, the repayment of which this Guaranty Agreement
applies, may be actually advanced after any bankruptcy, receivership,
reorganization, death, disability or other event affecting Guarantor.
Section 5.2 Notices. Any notice or demand to Guarantor under or
in connection with this Guaranty Agreement may be given and shall conclusively
be deemed and considered to have been given and received in accordance with
Section 12.02 of the Credit Agreement, addressed to Guarantor at the address on
the signature page hereof or at such other address provided to the Agent in
writing.
Section 5.3 Business and Financial Information. The Guarantor
will promptly furnish to the Agent and the Lenders from time to time upon
request such information regarding the business and affairs and financial
condition of the Guarantor and its subsidiaries as the Agent and the Lenders
may reasonably request.
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<PAGE> 15
Section 5.4 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS GUARANTY AGREEMENT (INCLUDING, BUT NOT LIMITED
TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY AGREEMENT, THE
GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY
LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS
SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE
PARTIES FROM OBTAINING JURISDICTION OVER OTHER PARTIES IN ANY COURT
OTHERWISE HAVING JURISDICTION.
(C) THE GUARANTOR HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS
THE DESIGNEE, APPOINTEE AND AGENT OF THE GUARANTOR TO RECEIVE, FOR AND
ON BEHALF OF THE GUARANTOR, SERVICE OF PROCESS IN SUCH RESPECTIVE
JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED
ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE
GUARANTOR AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE
FAILURE OF THE GUARANTOR TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY
WAY THE SERVICE OF SUCH PROCESS. THE GUARANTOR FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE GUARANTOR AT ITS
SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER
SUCH MAILIN.
(D) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE GUARANTOR
THE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY OTHER JURISDICTION,
INCLUDING WITHOUT LIMITATION, THE COMMENCEMENT OF ENFORCEMENT
PROCEEDINGS UNDER THE LOAN DOCUMENTS IN ALL APPLICABLE JURISDICTIONS.
- 12 -
<PAGE> 16
(E) THE GUARANTOR HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY
AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN;
(II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 5.4.
Section 5.5 Invalidity. In the event that any one or more of the
provisions contained in this Guaranty Agreement shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this Guaranty
Agreement.
Section 5.6 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LENDERS AND THE
GUARANTOR AND SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN
GUARANTY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[SIGNATURES BEGIN NEXT PAGE]
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<PAGE> 17
WITNESS THE EXECUTION HEREOF, as of this the 14th day of June, 1996.
ORION ACQUISITION, INC.
By:
-------------------------------------
Name: Annette Montoya
Title: Vice President
Address: One Maritime Plaza
Fifteenth Floor
San Francisco, CA 94111
Telecopier No.: (415) 433-5811
Telephone No.: (415) 433-5795
Attention: James E. Duffy
- 14 -
<PAGE> 1
FIRST AMENDMENT TO GUARANTY AGREEMENT
THIS FIRST AMENDMENT TO GUARANTY AGREEMENT (this "Amendment")
is among: ORION ACQUISITION, INC., a corporation formed under the laws of the
State of Delaware (the "Borrower") and THE CHASE MANHATTAN BANK, N.A., a
national banking association, as agent (the "Agent") for the lenders (the
"Lenders") that are or become parties to the Credit Agreement defined below.
R E C I T A L S
A. HS Resources, Inc., a Delaware corporation (the "Borrower"),
the Agent and the Lenders (as defined in the Credit Agreement as hereafter
defined) have entered into that certain Amended and Restated Credit Agreement
dated as of June 14, 1996 (the "Credit Agreement"), pursuant to which the
Lenders have agreed to make certain loans and extensions of credit to the
Borrower upon the terms and conditions as provided therein; and
B. One of the terms and conditions stated in the Credit
Agreement is the execution and delivery to the Agent for the benefit of the
Lenders that certain Guaranty Agreement dated as of June 14, 1996 (the
"Guaranty Agreement").
C. Of even date herewith, the Borrower, the Agent and the Lenders
are making certain amendments to the Credit Agreement in connection with
hedging agreements and in connection therewith, desire to make certain
amendments to the Guaranty Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Guaranty
Agreement.
2. The definition of "Liabilities" in Section 1.2 of the Guaranty
Agreement is hereby amended to read as follows:
"Liabilities" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement,
including without limitation, the unpaid principal of and interest on
the Notes, including without limitation, interest accruing subsequent
to the filing of a petition or other action concerning bankruptcy or
other similar proceeding; (b) any additional loans made by the Lenders
to the Borrower; (c) payment of and performance of any and all present
or future obligations of the Borrower or any Subsidiary Guarantor
under Hedging Agreements now existing or hereafter entered into
between the Borrower or any Subsidiary Guarantor and any of the
Lenders and permitted by Section 9.01(j) of
<PAGE> 2
the Credit Agreement; (d) payment of and performance of any and all
present or future obligations of the Borrower or any Subsidiary
Guarantor under guaranty arrangements of Hedging Agreements now
existing or hereafter entered into between the Borrower or any
Subsidiary Guarantor and any of the Lenders and permitted by Section
9.01(m) of the Credit Agreement; (e) any and all other indebtedness,
obligations and liabilities of any kind of the Borrower to the
Lenders, now or hereafter existing, arising directly between the
Borrower and the Lenders or acquired outright, as a participation,
conditionally or as collateral security from another by the Lenders,
absolute or contingent, joint and/or several, secured or unsecured,
due or not due, arising by operation of law or otherwise, or direct or
indirect, including indebtedness, obligations and liabilities to the
Lenders of the Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by the Borrower as
principal, surety, endorser, guarantor, accommodation party or
otherwise and permitted by the terms of the Credit Agreement and (f)
all renewals, rearrangements, increases, extensions for any period,
amendments or supplements in whole or in part of the Notes or any
documents evidencing the above.
3. The parties hereto hereby acknowledge and agree that, except
as specifically supplemented and amended, changed or modified hereby, the
Guaranty Agreement shall remain in full force and effect in accordance with its
terms.
4. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY
AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES
THEREOF.
5. This Amendment may be executed in two or more counterparts,
and it shall not be necessary that the signatures of all parties hereto be
contained on any one counterpart hereof; each counterpart shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of June 17, 1996.
GUARANTOR: ORION ACQUISITION, INC.
By:
--------------------------------
Name:
Title:
AGENT: THE CHASE MANHATTAN BANK, N.A.
By:
--------------------------------
Name: Richard F Betz
Title: Vice President
-3-
<PAGE> 1
FIRST AMENDMENT TO GUARANTY AGREEMENT
THIS FIRST AMENDMENT TO GUARANTY AGREEMENT (this "Amendment")
is among: HSRTW, INC. (formerly known as HSR ACQUISITION, INC.), a corporation
formed under the laws of the State of Delaware (the "Borrower") and THE CHASE
MANHATTAN BANK, N.A., a national banking association, as agent (the "Agent")
for the lenders (the "Lenders") that are or become parties to the Credit
Agreement defined below.
R E C I T A L S
A. HS Resources, Inc., a Delaware corporation (the "Borrower"),
the Agent and the Lenders (as defined in the Credit Agreement as hereafter
defined) have entered into that certain Amended and Restated Credit Agreement
dated as of June 14, 1996 (the "Credit Agreement"), pursuant to which the
Lenders have agreed to make certain loans and extensions of credit to the
Borrower upon the terms and conditions as provided therein; and
B. One of the terms and conditions stated in the Credit
Agreement is the execution and delivery to the Agent for the benefit of the
Lenders that certain Guaranty Agreement dated as of June 14, 1996 (the
"Guaranty Agreement").
C. Of even date herewith, the Borrower, the Agent and the Lenders
are making certain amendments to the Credit Agreement in connection with
hedging agreements and in connection therewith, desire to make certain
amendments to the Guaranty Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Guaranty
Agreement.
2. The definition of "Liabilities" in Section 1.2 of the Guaranty
Agreement is hereby amended to read as follows:
"Liabilities" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement,
including without limitation, the unpaid principal of and interest on
the Notes, including without limitation, interest accruing subsequent
to the filing of a petition or other action concerning bankruptcy or
other similar proceeding; (b) any additional loans made by the Lenders
to the Borrower; (c) payment of and performance of any and all present
or future obligations of the Borrower or any Subsidiary Guarantor
under Hedging Agreements now existing or hereafter entered into
between the Borrower or any Subsidiary Guarantor and any of the
Lenders and permitted by Section 9.01(j) of
<PAGE> 2
the Credit Agreement; (d) payment of and performance of any and all
present or future obligations of the Borrower or any Subsidiary
Guarantor under guaranty arrangements of Hedging Agreements now
existing or hereafter entered into between the Borrower or any
Subsidiary Guarantor and any of the Lenders and permitted by Section
9.01(m) of the Credit Agreement; (e) any and all other indebtedness,
obligations and liabilities of any kind of the Borrower to the
Lenders, now or hereafter existing, arising directly between the
Borrower and the Lenders or acquired outright, as a participation,
conditionally or as collateral security from another by the Lenders,
absolute or contingent, joint and/or several, secured or unsecured,
due or not due, arising by operation of law or otherwise, or direct or
indirect, including indebtedness, obligations and liabilities to the
Lenders of the Borrower as a member of any partnership, syndicate,
association or other group, and whether incurred by the Borrower as
principal, surety, endorser, guarantor, accommodation party or
otherwise and permitted by the terms of the Credit Agreement and (f)
all renewals, rearrangements, increases, extensions for any period,
amendments or supplements in whole or in part of the Notes or any
documents evidencing the above.
3. The parties hereto hereby acknowledge and agree that, except
as specifically supplemented and amended, changed or modified hereby, the
Guaranty Agreement shall remain in full force and effect in accordance with its
terms.
4. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY
AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES
THEREOF.
5. This Amendment may be executed in two or more counterparts,
and it shall not be necessary that the signatures of all parties hereto be
contained on any one counterpart hereof; each counterpart shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of June 17, 1996.
GUARANTOR: HSRTW, INC.
By:
---------------------------------------
Name:
Title:
AGENT: THE CHASE MANHATTAN BANK, N.A.
By:
---------------------------------------
Name: Richard F Betz
Title: Vice President
-3-
<PAGE> 1
THIRD AMENDMENT AND SUPPLEMENT TO
AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, ASSIGNMENT
OF PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT
THIS THIRD AMENDMENT AND SUPPLEMENT TO AMENDED, RESTATED AND
CONSOLIDATED MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT AND
FINANCING STATEMENT (this "AMENDMENT") is entered into as of the effective time
and date hereinafter stated (the "EFFECTIVE DATE") by and between HS RESOURCES,
INC., a Delaware corporation with an address for notice hereunder of One
Maritime Plaza, 15th Floor, San Francisco, California 94111 ("MORTGAGOR") and
THE CHASE MANHATTAN BANK, N.A., a national banking association with offices and
banking quarters at One Chase Manhattan Plaza, New York, New York 10005, as
agent for the lenders which are or become parties to the Credit Agreement
referred to below (collectively called the "LENDERS") (in such capacity as
agent, together with its successors in such capacity, the "MORTGAGEE").
R E C I T A L S
A. Mortgagor, the Agent and certain lenders entered into a Credit
Agreement dated as of July 15, 1994 (as amended, the "1994 CREDIT AGREEMENT")
which amended and restated that certain Credit Agreement dated as of March 11,
1993, as amended.
B. The 1994 Credit Agreement was secured by, among other things,
that certain Amended, Restated and Consolidated Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated March 11, 1993
from Mortgagor to the Mortgagee, duly recorded on March 12, 1993 in Book 1373,
Film 1766 of the Real Estate Records of Weld County, Colorado with Reception
No. 02324792, as amended by First Amendment to Amended, Restated and
Consolidated Mortgage, Assignment of Production, Security Agreement and
Financing Statement dated May 19, 1993 and duly recorded on August 30, 1993 in
Book 1399, Film 1243 of the Real Estate Records of Weld County, Colorado with
Reception No. 02348251, Second Amendment to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing Statement
dated December 10, 1993 and duly recorded on December 20, 1993 in Book 1417,
Film 1622 of the Real Estate Records of Weld County, Colorado with Reception
No. 02364884 and Third Amendment to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing Statement
dated as of July 15, 1994 and duly recorded on August 4, 1994 in Book 1453 at
Film 1745 of the Real Estate Records of Weld County, Colorado with Reception
No. 2401068 (collectively, the "HSR MORTGAGE").
C. The 1994 Credit Agreement was also secured by that certain
Mortgage, Assignment of Production, Security Agreement and Financing Statement
dated as of as of July 30, 1993 from Energy Minerals Corporation and recorded
in various counties in the State of Colorado as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Date
County Filed/Recorded Recording Data
------ -------------- --------------
<S> <C> <C>
Adams August 4, 1993 Book 4123, Film 621,
Reception No. 01163316
Arapahoe August 4, 1993 Book 7064, Film 262
Baca August 3, 1993 Book 554, Film 471,
Reception No. 379179
Elbert August 4, 1993 Book 475, Film 742,
Reception No. 311772
Logan August 3, 1993 Book 872, Film 259,
Reception No. 605307
Morgan August 4, 1993 Book 957, Film 582,
Reception No. 737381
Weld August 4, 1993 Book 1395,
Reception No. 22344624
Yuma August 3, 1993 Book 720, Film 233,
Reception No. 469207;
</TABLE>
as amended by First Amendment to Mortgage, Assignment of Production, Security
Agreement and Financing Statement dated as of July 15, 1994 (collectively, the
"EMC MORTGAGE") and recorded in various counties in the State of Colorado as
follows:
<TABLE>
<CAPTION>
Date
County Filed/Recorded Recording Data
------ -------------- --------------
<S> <C> <C>
Adams August 5, 1994 Book 4369, Page 567,
Reception No. C0006364
Arapahoe August 8, 1994 Book 7660, Page 545,
Reception No. 112791
Baca August 10, 1994 Book 558, Page 622,
Reception No. 381282
Elbert August 4, 1994 Book 500, Page 607
Logan August 4, 1994 Book 883, Page 462
Morgan August 4, 1994 Book 971, Page 170
Weld August 4, 1994 Book 1453, Page 1743,
Reception No. 2401066
Yuma August 4, 1994 Book 735, Page 99,
Reception No. 473320
</TABLE>
D. To evidence the merger of Energy Minerals Corporation into
Mortgagor, Mortgagor and Mortgagee amended, restated and consolidated the HSR
Mortgage and the EMC Mortgage by Amended, Restated and Consolidated Mortgage,
Assignment of Production,
-2-
<PAGE> 3
Security Agreement and Financing Statement dated as of September 1, 1995, which
was recorded in various counties in the State of Colorado as follows:
<TABLE>
<CAPTION>
Date
County Filed/Recorded Recording Data
------ -------------- --------------
<S> <C> <C>
Adams September 14, 1995 Book 4588, Page 745,
Reception No. C0107105
Arapahoe September 15, 1995 Book 8109, Page 405,
Reception No. 96553
Baca September 13, 1995 Book 563, Page 714,
Reception No. 383819
Elbert September 13, 1995 Book 526, Page 722
Logan September 13, 1995 Book 894, Page 370
Morgan September 15, 1995 Book 985, Page 428
Weld September 13, 1995 Book 1511, Page 203,
Reception No. 2455532
Yuma September 13, 1995 Book 752, Page 227,
Reception No. 478288;
</TABLE>
as amended by First Amendment and Supplement to Amended, Restated and
Consolidated Mortgage, Assignment of Production, Security Agreement and
Financing Statement dated as of December 14, 1995 between Mortgagor and
Mortgagee and duly recorded on December 20, 1995 in Weld County, Colorado in
Book 1523, Page 665, Reception No. 246877 (collectively, the "MORTGAGE").
E. Mortgagor, Mortgagee and certain lenders refinanced the debt
under the 1994 Credit Agreement by entering into that certain Credit Agreement
dated as of June 7, 1996 (the "JUNE 7 CREDIT AGREEMENT").
F. Mortgagor, Mortgagee and certain lenders (the "LENDERS")
amended and restated the June 7 Credit Agreement by that certain Amended and
Restated Credit Agreement dated as of June 14, 1996 (the "CREDIT AGREEMENT").
G. The Mortgage has been assigned and amended by Assignment of
Liens and Amendment of Amended, Restated and Consolidated Mortgage, Assignment
of Production, Security Agreement and Financing Statement dated as of June 14,
1996, which was duly recorded in the State of Colorado as follows:
<TABLE>
<CAPTION> Date
County Filed/Recorded Recording Data
------ -------------- --------------
<S> <C> <C>
Adams
Arapahoe
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C> <C>
Baca 6/28/96 Book 567, Page 414
Elbert 6/27/96 Book 548, Page 116
Logan 6/28/96 Book 903, Page 330
Morgan 7/3/96 Book 996, Page 959
Weld 6/27/96 Book 1554, Page 151
Yuma 6/28/96 Book 764, Page 214
</TABLE>
F. Mortgagor and Mortgagee now desire to amend and supplement the
Mortgage.
NOW, THEREFORE, in view of the foregoing, Mortgagor and Mortgagee do
hereby agree as follows:
1. All capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Mortgage.
2. All references in the Mortgage to "this Mortgage", as defined
in the opening paragraph of the Mortgage shall mean the Mortgage, as amended
and as supplemented hereby and as the same may from time to time be further
amended or supplemented.
3. Clauses (b) and (c) of Section II of the Mortgage are amended
in their entirety to hereafter read as follows:
"(b) payment of and performance of any and all present or
future obligations of Mortgagor, Orion Acquisition, Inc. or HSRTW,
Inc. (the "GUARANTORS") under Hedging Agreements (as defined in the
Credit Agreement) now existing or hereafter entered into between
Mortgagor or any Guarantor and any of the Lenders and permitted by
Section 9.01(j) of the Credit Agreement.
(c) payment of and performance of any and all present or
future obligations of Mortgagor or any Guarantor under guaranty
arrangements of Hedging Agreements (as defined in the Credit
Agreement) now existing or hereafter entered into between Mortgagor or
any Guarantor and any of the Lenders and permitted by Section 9.01(m)
of the Credit Agreement."
4. Mortgagor hereby confirms that it has heretofore granted,
bargained, sold, assigned, mortgaged, warranted, transferred and conveyed, and
granted a security interest to Mortgagee in, the Mortgaged Property, and
Mortgagor further grants, bargains, sells, assigns, mortgages, warrants,
transfers and conveys, and grants a security interest to Mortgagee in, the
Mortgaged Property, to Mortgagee on behalf of the Lenders to secure the payment
and performance of the Indebtedness as such definition is amended herein.
5. Mortgagor hereby confirms that it has heretofore absolutely
and unconditionally assigned, transferred and conveyed and does hereby
absolutely and unconditionally assign, transfer and convey to Mortgagee, its
successors and assigns, in accordance with the Mortgage
-4-
<PAGE> 5
as amended hereby, all of the Hydrocarbons and all products obtained or
processed therefrom attributable to the Hydrocarbon Property, and the revenues
and proceeds now and hereafter attributable to the Hydrocarbons and said
products and all payments in lieu of the Hydrocarbons such as "take or pay"
payments or settlements.
6. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Mortgage, as amended,
shall remain in full force and effect in accordance with its terms. None of
the rights, titles and interests existing and to exist under the Mortgage, as
amended, are hereby released, diminished or impaired, and Mortgagor hereby
reaffirms all covenants, representations and warranties made in the Mortgage,
as amended.
7. This Amendment may be executed in two or more counterparts,
and it shall not be necessary that the signatures of all parties hereto be
contained on any one counterpart hereof.
EXECUTED as of the ____ day of July, 1996. (the "EFFECTIVE DATE").
MORTGAGOR:
HS RESOURCES, INC.
Attest:
By: By:
------------------------------- ----------------------------------
Name: Name:
Title: Title:
MORTGAGEE:
THE CHASE MANHATTAN BANK, N.A.,
AS AGENT
By:
---------------------------------
Name: Richard F. Betz
Title: Vice President
-5-
<PAGE> 6
STATE OF COLORADO )
)
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me on July ____, 1996
by __________________________, _________________ of HS RESOURCES, INC., a
Delaware corporation, on behalf of such corporation.
--------------------------------
Notary Public in and for the
State of Colorado
Seal:
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me on July ____, 1996
by Richard F. Betz, Vice President of THE CHASE MANHATTAN BANK, N.A., a
national banking association, on behalf of such association.
--------------------------------
Notary Public in and for the
State of Colorado
Seal:
-6-
<PAGE> 1
Date: March 29, 1996
To: HS Resources, Inc.
Attn: Ann Zumwalt
Fax: 415 433 5811
cc: Dale Cantwell
Fax: (303) 296-3601
Re: Natural Gas Commodity Swap - Chase Ref # sw0201070
Reference is made to the Master Forward and Protection Agreement dated as of
December 2, 1991 (the "Agreement") between The Chase Manhattan Bank N.A.
("Chase") and HS Resources, Inc., pursuant to which this Notice of Execution is
delivered and to which the Transaction contemplated hereby is subject. This
Notice of Execution shall constitute a supplement to the Agreement and will be
read and construed along with the Agreement between the parties as a single
agreement.
We hereby confirm the following terms:
1. Type of Transaction: Swap
2. Relevant Commodity: Natural Gas
3. Fixed Amount Payer: Chase
4. Floating Amount Payer: HS Resources, Inc.
5. Commencement Date: May 1, 1996
6. Termination Date: December 1, 1996
7. Fixed Price: See Schedule A Schedule A
<TABLE>
<CAPTION>
Quantity per
Settlement Calculation
Fixed Price Period Periods
<S> <C> <C>
$1.9800/mm 10,000 01-May-96
$1.9300/mm 30,000 01-Jun-96
$1.8800/mm 40,000 01-Jul-96
$1.8400/mm 50,000 01-Aug-96
$1.8800/mm 50,000 01-Sep-96
$1.9000/mm 90,000 01-Oct-96
$1.9300/mm 80,000 01-Nov-96
$2.0700/mm 70,000 01-Dec-96
</TABLE>
<PAGE> 2
8. Period End Dates: 01-May-96
01-Jun-96
01-Jul-96
01-Aug-96
01-Sep-96
01-Oct-96
01-Nov-96
01-Dec-96
9. Quantity Per Settlement Period: See schedule A
10. Index Price:
Index Price will be equal to the posted index in "Inside F.E.R.C.'s Gas
Market Report" as posted in "Prices of Spot Gas Delivered to Pipelines"
under the heading "Natural Gas Pipeline Co. of America, Oklahoma for
the first publication of the relevant month.
11. Transaction Fee: N/A
Confirmed by: The Chase Manhattan Bank, N.A.
HS Resources, Inc.
/s/ IGNACIO MACHADO
-----------------------------
By: Ignacio Machado
Second Vice President
By: /s/ JAMES E. DUFFY
---------------------
Name: James E. Duffy Fax: (212) 552-4910
Title: Vice President Phone: (212) 552-5146
<PAGE> 1
Date: March 29, 1996
To: HS Resources, Inc.
Attn: Ann Zumwalt
Fax: 415 433 5811
cc: Dale Cantwell
Fax: (303) 296-3601
Re: Natural Gas Commodity Swap - Chase Ref # sw0201065
Reference is made to the Master Forward and Protection Agreement dated as of
December 2, 1991 (the "Agreement") between The Chase Manhattan Bank N.A.
("Chase") and HS Resources, Inc., pursuant to which this Notice of Execution is
delivered and to which the Transaction contemplated hereby is subject. This
Notice of Execution shall constitute a supplement to the Agreement and will be
read and construed along with the Agreement between the parties as a single
agreement.
We hereby confirm the following terms:
1. Type of Transaction: Swap
2. Relevant Commodity: Natural Gas
3. Fixed Amount Payer: Chase
4. Floating Amount Payer: HS Resources, Inc.
5. Commencement Date: May 1, 1996
6. Termination Date: December 1, 1996
7. Fixed Price: See Schedule A Schedule A
<TABLE>
<CAPTION>
Quantity per
Settlement Calculation
Fixed Price Period Periods
<S> <C> <C>
$1.0200/mm 120,000 01-May-96
$1.0200/mm 90,000 01-June-96
$1.0200/mm 90,000 01-Jul-96
$1.0200/mm 70,000 01-Aug-96
$1.0200/mm 70,000 01-Sep-96
$1.0200/mm 30,000 01-Oct-96
$1.3800/mm 40,000 01-Nov-96
$1.5700/mm 40,000 01-Dec-96
</TABLE>
<PAGE> 2
8. Period End Dates: 01-May-96
01-Jun-96
01-Jul-96
01-Aug-96
01-Sep-96
01-Oct-96
01-Nov-96
01-Dec-96
9. Quantity Per Settlement Period: See schedule A
10. Index Price:
Index Price will be equal to the posted index in "Inside F.E.R.C.'s Gas
Market Report" as posted in "Prices of Spot Gas Delivered to Pipelines"
under the heading "Colorado Interstate Gas Co., Rocky Mountains" for
the first publication of the relevant month.
11. Transaction Fee: N/A
Confirmed by: The Chase Manhattan Bank, N.A.
HS Resources, Inc.
/s/ IGNACIO MACHADO
-----------------------------
By: Ignacio Machado
Second Vice President
By: /s/ JAMES E. DUFFY
---------------------
Name: James E. Duffy Fax: (212) 552-4910
Title: Vice President Phone: (212) 552-5146
<PAGE> 1
Date: March 29, 1996
To: HS Resources, Inc.
Attn: Ann Zumwalt
Fax: 415 433 5811
cc: Dale Cantwell
Fax: (303) 296-3601
Re: Natural Gas Commodity Swap - Chase Ref # sw0800688
Reference is made to the Master Forward and Protection Agreement dated as of
December 2, 1991 (the "Agreement") between The Chase Manhattan Bank N.A.
("Chase") and HS Resources, Inc., pursuant to which this Notice of Execution is
delivered and to which the Transaction contemplated hereby is subject. This
Notice of Execution shall constitute a supplement to the Agreement and will be
read and construed along with the Agreement between the parties as a single
agreement.
We hereby confirm the following terms:
1. Type of Transaction: Swap
2. Relevant Commodity: Crude Oil
3. Fixed Amount Payer: Chase
4. Floating Amount Payer: HS Resources, Inc.
5. Commencement Date: June 1, 1996
6. Termination Date: December 31, 1996
7. Fixed Price: See Schedule A Schedule A
<TABLE>
<CAPTION>
Quantity per
Settlement Calculation
Fixed Price Period Periods
<S> <C> <C>
$19.38/bbl 15,000 June 1 - 30, 1996
$18.77/bbl 15,000 July 1 - 31, 1996
$18.38/bbl 15,000 Aug 1 - 31, 1996
$18.18/bbl 15,000 Sept 1 - 30, 1996
$18.02/bbl 14,000 Oct 1 - 31, 1996
$17.87/bbl 14,000 Nov 1 - 30, 1996
$17.73/bbl 14,000 Dec 1 - 31, 1996
</TABLE>
<PAGE> 2
8. Period End Dates: 01-Jul-96
01-Aug-96
01-Sep-96
01-Oct-96
01-Nov-96
01-Dec-96
30-Dec-96
9. Quantity Per Settlement Period: See schedule A
10. Index Price:
"Index Price", with respect to a Settlement Period, means such amount
in Dollars as is the arithmetic average (rounded to the second decimal
point) of the closing price on the New York Mercantile Exchange
("NYMEX") of the crude oil futures contract on each day in such
Settlement Period for which such price is listed in the "Settle" column
in the "Crude Oil, Light Sweet" section under the heading "Commodity
Futures Prices" in The Wall Street Journal for the nearest contract
traded on that day; provided however, that if any such price is not
reported in The Wall Street Journal and is not otherwise obtainable
through the NYMEX the price for such day shall be the mean of the first
month "WTI" prices reported in Platt's Oilgram Price Report in the
column "Spot Price Crude Assessments" under the heading "U.S." for that
day; provided further that if no such Platt's Oilgram price is
available, Chase shall determine the prices for each day for which such
Platt's Oilgram price would otherwise have been used by such means as
are available to determine such prices for the West Texas crude oil
market.
11. Transaction Fee: N/A
Confirmed by: The Chase Manhattan Bank, N.A.
HS Resources, Inc.
/s/ IGNACIO MACHADO
-----------------------------
By: Ignacio Machado
Second Vice President
By: /s/ JAMES E. DUFFY
---------------------
Name: James E. Duffy Fax: (212) 552-4910
Title: Vice President Phone: (212) 552-5146
<PAGE> 1
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT,
ASSIGNMENT, OPTION, MANAGEMENT AGREEMENT,
GAS PURCHASE AGREEMENT AND LIMITED POWER OF ATTORNEY
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT, ASSIGNMENT,
OPTION, MANAGEMENT AGREEMENT, GAS PURCHASE AGREEMENT AND LIMITED POWER OF
ATTORNEY (this "First Amendment") is entered into this 25th day of April, 1996,
but effective as of May 1, 1996 (the "Effective Date"), by and between HS
RESOURCES, INC., a Delaware corporation having an address of 1999 Broadway,
Suite 3600, Denver, Colorado 80202 ("Seller") and WATTENBERG GAS INVESTMENTS,
LLC, a Delaware limited liability company having an address of 82 Devonshire
Street, R22C, Boston, Massachusetts 02109 ("Buyer").
Recitals
A. Seller and Buyer entered into that certain Purchase and Sale
Agreement dated December 1, 1995, whereby Buyer purchased from Seller certain
oil and gas leases, mineral interests and overriding royalty interests, limited
to certain formations in certain wellbores located in Adams, Weld and Yuma
Counties in the State of Colorado (referred to herein as the "Agreement"). Any
capitalized terms herein shall have the meaning given them in the Agreement,
unless the context indicates otherwise.
B. Pursuant to the Agreement, Seller and Buyer entered into (i)
the Wellbore Assignment of Oil and Gas Leases with Reservation of Production
Payment dated effective December 1, 1995 and recorded December 20, 1995 at
Reception No. 132527 in the real property records of Adams County, Colorado,
December 20, 1995 at Reception No. 2468472 in the real property records of Weld
County, Colorado, and December 21, 1995 at Reception No. 479553 in the real
property records of Yuma County, Colorado (collectively, the "Original
Assignment"); (ii) the Option to Purchase Oil and Gas Interests dated effective
December 1, 1995 and recorded December 20, 1995 at Reception No. 132528 in the
real property records of Adams County, Colorado, December 20, 1995 at Reception
No. 2468473 in the real property records of Weld County, Colorado, and December
21, 1995 at Reception No. 479554 in the real property records of Yuma County,
Colorado (collectively, the "Original Option"); (iii) the Management Agreement
dated effective December 1, 1995, a memorandum of which was recorded December
20, 1995 at Reception No. 132529 in the real property records of Adams County,
Colorado, December 20, 1995 at Reception No. 2468474 in the real property
records of Weld County, Colorado, and December 21, 1995 at Reception No. 479555
in the real property records of Yuma County, Colorado (collectively, the
"Management Agreement"); (iv) that unrecorded Gas Purchase Agreement dated
December 14, 1995, effective
<PAGE> 2
December 1, 1995 between Buyer and Seller (the "Gas Purchase Agreement"); and
(v) that unrecorded Limited Power of Attorney dated December 14, 1995,
effective December 1, 1995 from Buyer to David G. Stolfa (the "Limited Power of
Attorney").
C. Pursuant to Section 9.1 of the Agreement, Buyer received a Tax
Opinion from Arthur Andersen LLP ("AA") with respect to the tax treatment of
the transactions contemplated in the Agreement, including, among other matters,
certain tax consequences of a Conveyance and the resulting Recompletion
Production Payment and Recompletion Note based upon certain assumptions and
representations. Pursuant to Section 8.1(b) of the Agreement, the Tax Opinion
was to be updated to address tax consequences of any Conveyance, and to take
into account interim factual and legal developments. The rescission rights of
Buyer under Section 9.2 of the Agreement have lapsed.
D. Seller and Buyer desire to (i) modify the Credit Payment
Amount commitments of Buyer with respect to Conveyances, (ii) reconvey
sidetrack wellbore drilling rights to Seller, (iii) release Buyer from certain
obligations with respect to sidetrack wellbores, and (iv) adopt correlative
amendments to the Agreement, the Original Assignment, the Original Option and
the Management Agreement.
E. Seller has identified certain additional mineral, oil and gas
leases and overriding royalty interests recently acquired from Freedom Energy,
Inc., a Colorado corporation (as identified on Exhibit A attached hereto, the
"Freedom Leases") with respect to certain tax credit-qualified wells (as
identified on Exhibit B attached hereto, the "Freedom Wells"). Such tax
credit-qualified mineral, leasehold and overriding royalty interests are
referred to herein as the "Freedom Assets." Seller desires to sell and Buyer
desires to purchase the Freedom Assets in accordance with the terms and
conditions of the Agreement, as amended by this First Amendment.
F. Seller and Buyer desire to amend the Agreement, the Management
Agreement, the Gas Purchase Agreement and the Limited Power of Attorney to
include the Freedom Assets, and to enter into a separate assignment and option
(collectively, the "Freedom Documents") with respect to the Freedom Assets.
G. Seller and Buyer agree to amend the Agreement, the Original
Assignment, the Original Option, the Management Agreement, the Gas Purchase
Agreement and the Limited Power of Attorney, and to enter into the Freedom
Documents, all in accordance with the provisions set forth below.
NOW THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the sufficiency and adequacy of which are hereby acknowledged,
Seller and Buyer agree as follows:
2
<PAGE> 3
Agreement
1. Exhibit A Supplement for Freedom Leases. The Exhibit A
attached to the Agreement, the Management Agreement, the Gas Purchase Agreement
and the Limited Power of Attorney is hereby supplemented with the Exhibit A
attached to this First Amendment. Except with respect to Sections 7.8, 7.9,
7.13 and 7.19 of the Agreement, references in the Agreement, the Management
Agreement, the Gas Purchase Agreement and in the Limited Power of Attorney to
Lease(s) shall include the Freedom Leases, and the provisions of those
documents, as amended by this First Amendment, which apply to Leases shall also
apply to Freedom Leases.
2. Exhibit B Supplement for Freedom Wells. The Exhibit B
attached to the Agreement, the Management Agreement, the Gas Purchase Agreement
and the Limited Power of Attorney is hereby supplemented with the Exhibit B
attached to this First Amendment. Except with respect to Sections 7.6, 7.9,
7.11, 7.12, 7.15 and 7.24 of the Agreement, references in the Agreement, the
Management Agreement, the Gas Purchase Agreement and in the Limited Power of
Attorney to Well(s) shall include the Freedom Wells, and the provisions of
those documents, as amended by this First Amendment, which apply to Wells shall
also apply to Freedom Wells.
3. Supplement to Assets and Tax Credits. References in the
Agreement and in the Management Agreement to Assets shall include the Freedom
Assets described below in Section 9, except with respect to Sections 1, 2, 3,
4, 7.10, 7.14, 7.19, 9.1, 9.2, 9.3, 11 and 12 of the Agreement, and except as
amended by this First Amendment; provided that any references to "Effective
Date" in the effective provisions of the Agreement with respect to the Freedom
Assets shall mean the Effective Date of this First Amendment. References in
the Agreement and in the Management Agreement to Tax Credits shall include the
Freedom Tax Credits described below in Section 11.k.(1)(b).
4. Freedom Purchase Price. The purchase price for the Freedom
Assets shall be $340,000 (the "Freedom Purchase Price"). Upon Closing of this
First Amendment, Buyer shall pay to Seller and Seller shall acknowledge receipt
by wire transfer of immediately available funds an amount equal to the Freedom
Purchase Price.
5. Adjustment of Credit Payment Amount. The definition of Credit
Payment Amount in Section 1.1 of the Original Assignment is hereby amended.
The reference to "$15,000,000" shall be deleted and replaced with "$9,000,000".
Correspondingly, the reference in Paragraph 1.a.(ix) of the Original Option is
hereby amended. The reference to "$15,000,000" shall be deleted and replaced
with "$9,000,000".
6. Elimination of Sidetrack Wellbore Obligations. In
consideration of the Reconveyance described below in Section 7.a.
3
<PAGE> 4
and other agreements set forth herein, Section 8 and Exhibit X of the Agreement
are hereby deleted in their entirety. All references to any sidetrack
wellbore, Sidetrack Wellbore Proposal, Conveyance, Actual Additional
Hydrocarbons, Recompletion Production Payment, Recompletion Note, Recompletion
Note Payment and Recompletion Cash Payment throughout the Agreement, the
Original Assignment, the Original Option and the Management Agreement shall be
deleted and the language of each respective document shall be modified to
accommodate such deletions.
7. Sidetrack Wellbore Rights.
a. Reconveyance. Buyer shall convey to Seller the right
to drill sidetrack wellbores from the Wells to new reserves, as
authorized by appropriate federal, state and local governmental
agencies, and the right to all production from such sidetrack
wellbores pursuant to a conveyance in a form substantially similar to
the form of Conveyance of Drilling Rights attached hereto as Exhibit P
(the "Reconveyance"). Seller shall be responsible for all costs and
liabilities associated with drilling, completion, operation and
marketing conducted pursuant to the Reconveyance.
b. Allocation of Commingled Production and Costs.
Section 13.6 of the Agreement is deleted in its entirety and replaced
with the following provisions of this Section 7.b.
Seller may have interests in the lands covered by the Leases that are
not part of the Assets ("Seller's Interests"), which are producing
hydrocarbons into a Well and such hydrocarbons are commingled with the
hydrocarbons produced from the Assets. Likewise, hydrocarbons from
sidetrack wellbores may be commingled with hydrocarbon production from
the reserves identified in the Reserve Report or the Freedom Reserve
Report. Seller shall use reasonable efforts to ensure that
hydrocarbon production from the Wells is allocated between Seller's
Interests and the Assets and between hydrocarbons produced from
sidetrack wellbores and the reserves identified in the Reserve Report
or Freedom Reserve Report, respectively, on a reasonable basis,
consistent with industry standards and in accordance with procedures,
if any, that have been approved by appropriate state and federal
agencies. Costs and expenses which are attributable to a Well which
also produce hydrocarbons attributable to Seller's Interests shall be
allocated between Seller' Interests and the Assets in accordance with
the allocation between hydrocarbon production from the Seller's
Interests and hydrocarbon production from the Assets; provided that
costs and expenses directly attributable to Seller's Interests will be
allocated to and debited against the
4
<PAGE> 5
Seller, and costs and expenses directly attributable to the reserves
identified in the Reserve Report or Freedom Reserve Report will be
allocated to and debited against the Net Profits Account under the
Original Assignment or Freedom Assignment, respectively.
c. Seller to Serve as Buyer's Representative. The
definition of Services in Section 2.1 of the Management Agreement, and
as contemplated in the Limited Power of Attorney, is amended to
authorize and empower Seller (as Manager under the Management
Agreement) to be the representative of Buyer (as the Company under the
Management Agreement) as to all hearings, proceedings, filings,
permits, bonds, licenses or such other similar matters as they relate
to the drilling of sidetrack wellbores from the Wells (including the
Freedom Wells) and which relate to any governmental,
quasi-governmental or regulatory body or agency (other than the
Internal Revenue Service), and to execute all applications, permits,
orders, consents, waivers and agreements, as such relate to the Wells
with respect to such body or agency. Should a conflict arise between
the interests of Seller and Buyer regarding the foregoing matters,
Seller shall advise Buyer of (i) any such conflict, and (ii) Buyer's
right to represent itself with respect to such matters.
8. Purchase and Sale of Freedom Assets. Seller agrees to convey
the Freedom Assets to Buyer and Buyer agrees to purchase the Freedom Assets
from Seller, all pursuant to the terms and conditions of this First Amendment.
Seller will convey the Freedom Assets subject to (i) a production payment (the
"Freedom Production Payment"), a reversionary interest (the "Freedom Reversion
Interest") and other reservations and obligations as specifically set forth in
the Wellbore Assignment of Oil and Gas Leases With Reservation of Production
Payment in a form substantially similar to Exhibit C attached hereto (the
"Freedom Assignment"), and (ii) the Option To Purchase Oil and Gas Interests to
be granted to Seller at Closing in a form substantially similar to Exhibit D
attached hereto (the "Freedom Option").
9. The Freedom Assets. The "Freedom Assets" shall be all of the
following:
a. Leases, Mineral Interests, Overrides and Wells.
Seller's right, title and interest in and to the oil and gas leases
and mineral interests described in Exhibit A attached hereto,
including any and all overriding royalty interests owned by Seller in
such leases, but insofar and only insofar as said leases and mineral
interests cover the right to produce the wells described in Exhibit B
attached hereto from the intervals identified in Exhibit B in such
wells as of the Effective Date (the above described interest in
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such leases and mineral interests being herein called the "Freedom
Leases" and the above described interest in such wells being herein
called the "Freedom Wells"), and subject to any restrictions,
exceptions, reservations, conditions, limitations, burdens, contracts,
agreements and other matters applicable to such Freedom Leases and
Freedom Wells;
b. Incidental Rights. All of Seller's right, title and
interest in and to the following insofar and only insofar as same are
attributable to the Freedom Leases and the Freedom Wells:
(1) Unitization and Pooling
Agreements. All presently existing and valid oil,
gas or mineral unitization, pooling, operating and
communitization agreements, declarations and orders
affecting the Freedom Leases and Freedom Wells, and
in and to the properties covered and the units
created thereby;
(2) Personal Property. The personal
property and fixtures that are appurtenant to the
Freedom Wells, including all wells, casing, tubing,
pumps, separators, tanks, lines and other personal
property and oil field equipment appurtenant to such
Freedom Wells;
(3) Agreements. All presently
existing and valid oil and gas sales, purchase,
gathering and processing contracts and operating
agreements, joint venture agreements, partnership
agreements, rights-of-way, easements, permits,
surface leases and other contracts, agreements and
instruments, but specifically excluding any
management agreements.
Seller shall remain co-owner of any "Agreements," "Personal
Property" and "Unitization and Pooling Agreements" to the
extent they pertain to any property or formation owned by
Seller that is not exclusively part of the Freedom Wells.
10. Buyer's Representations and Warranties. The
representations and warranties of Buyer given in the Agreement shall be true
and correct with respect to the Freedom Assets as of the date of this First
Amendment.
11. Seller's Representations and Warranties. Except as
expressly provided in this Section 11, the representations and warranties of
Seller given in the Agreement shall be true and correct with respect to the
Freedom Assets as of the date of this First Amendment.
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a. Freedom Reserve Report. The term "Freedom
Reserve Report" shall mean the reserve report prepared by
Seller and dated May 1, 1996, which is based on reserves as of
December 31, 1995, as adjusted by actual production from
January 1, 1996 through May 1, 1996, and attached hereto as
Exhibit E. Only the Freedom Wells were evaluated in the
Freedom Reserve Report. To Seller's best knowledge, the
average price for sales of hydrocarbons (based on contract
prices for existing effective contracts and estimates of
regional spot prices adjusted for regional transportation
costs), historical costs of operations, production volumes,
and payout data used by Seller in the preparation of the
Freedom Reserve Report were, on the dates so used, accurate in
all material respects.
b. Liens. The representation of Seller with
respect to Encumbrances and Permitted Encumbrances in Section
7.8 of the Agreement shall apply to the Freedom Assets, except
that any references to WI and NRI with respect to the Freedom
Assets shall be to the WIs and NRIs set forth on Exhibit B
attached hereto.
c. Title. Seller has Defensible Title to the
Freedom Leases and Freedom Wells. The term "Defensible Title"
means such title of Seller in the Freedom Leases that, subject
to and except for the Permitted Encumbrances, entitles Seller
to receive an interest in production from the Freedom Wells
not less than the respective NRIs in the Wells as set forth on
Exhibit B, and entitles Seller to own the respective WIs in
the Freedom Wells as set forth on Exhibit B under applicable
state law and for federal income tax purposes. Any Freedom
Well or Freedom Lease for which Seller has less than
Defensible Title as of the date of this Agreement shall be
called a "Defective Interest." Buyer's exclusive remedy for
Seller's breach of this representation and warranty is set
forth in Section 13.3 of the Agreement.
d. Preferential Purchase Rights and Consents.
To Seller's best knowledge, except as set forth in Exhibit F
attached hereto, there do not exist any preferential rights to
purchase all or any portion of the Freedom Assets. To
Seller's best knowledge, except for consents from its lender
banks, Governmental Consents and other matters as set forth in
Exhibit F, there are no consents or waivers necessary to
convey any material portion of the Freedom Assets pursuant to
this First Amendment. Buyer's exclusive remedy for Seller's
breach of this representation and warranty (other than for
consents from the lender banks) is set forth in Section 13.4
of the Agreement.
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<PAGE> 8
e. No Prepayments. To Seller's best knowledge,
except as set forth in Exhibit G attached hereto, Seller is
not obligated, by virtue of a prepayment arrangement, a "take
or pay" arrangement, a production payment, hedging or any
other arrangement, to deliver any material portion of
hydrocarbons produced from the Freedom Wells at some future
time without then or thereafter receiving full payment
therefor.
f. Gas Balancing. To Seller's best knowledge,
except as set forth in Exhibit H attached hereto, no material
portion of hydrocarbons produced from the Freedom Wells is
subject to a gas imbalance or other arrangement requiring
delivery of hydrocarbons after the Effective Date without
receiving full payment therefor.
g. Operations in Progress. Except for
operations disclosed on Exhibit I attached hereto and normal
daily operating expenses, as of the date of this First
Amendment there are no operations in progress with respect to
the Freedom Assets which are reasonably expected to exceed
$35,000 in cost net to Seller's interest and which shall be
payable in whole or in part on or after the Effective Date.
h. Hydrocarbon Sales Contracts. Except as
specifically indicated in Exhibit J attached hereto and for
calls on production, options to purchase or similar rights
with respect to production from the Freedom Wells, no material
portion of the hydrocarbons produced from the Freedom Wells is
subject to a sales contract or other agreement relating to the
production, gathering, transporting, processing, treating or
marketing of hydrocarbons except those which can be terminated
by Seller upon not more than 3 months notice.
i. Legal Proceedings. Except as set forth on
Exhibit K attached hereto, no suit, action or other proceeding
is pending against Seller or, to Seller's best knowledge,
threatened in writing against Seller before any court,
governmental agency, arbitrator or other panel that relates to
the Freedom Assets or the transaction contemplated by this
First Amendment that might (i) impair Seller's ability to
consummate the transaction contemplated by this First
Amendment or (ii) cause the impairment or loss of Seller's
title to any material portion of the Freedom Assets or the
value thereof or (iii) hinder or impede the operation or
enjoyment of the Freedom Leases in any material respect
insofar as they relate to the Freedom Assets.
j. Tax Partnerships. The representation of
Seller with respect to tax partnerships in Section 7.23
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<PAGE> 9
of the Agreement shall apply to the Freedom Assets, except as
to those matters set forth in Exhibit L attached hereto. In
addition to all other remedies available to Buyer, Seller
agrees to indemnify Buyer for all costs, losses, damages,
penalties or expenses incurred by Buyer as a result of any of
the Assets having been contributed to or being currently owned
by a tax partnership, and Buyer may elect, with a
proportionate rebate in the Freedom Purchase Price set forth
in Section 4. above, in accordance with the procedures of
Section 13.3 and the provisions of Section 13.4 of the
Agreement, to reassign such Freedom Assets to Seller.
k. Other Tax Matters.
(1) NGPA Determination.
(a) Applications. Except for the
Freedom Wells listed on Exhibit M attached
hereto, Seller or its predecessor in
interest has filed or caused to be filed
with the applicable state and federal
agencies "Applications" for well
determination(s) for each Freedom Well
under the NGPA and the rules and
regulations of the FERC under the NGPA
Regulations requesting a determination that
all or a quantifiable portion of the gas
produced from a particular Freedom Well is
"natural gas produced from designated tight
formations" as defined in 18 C.F.R. Section
274.205(e). Each such application has
been approved by the indicated state and
federal agency and by the FERC and has been
finally approved under and in accordance
with Section 503 of the NGPA. Such
applications comply with the requirements
of the NGPA and the NGPA Regulations and do
not (1) contain any untrue statement of
material fact or (2) omit any statement of
material fact necessary to make the
statements therein not misleading. No
further applications are required under the
NGPA and the NGPA Regulations to allow the
legal sale of all gas produced from the
Freedom Wells at a price equal to the price
for such gas currently being received.
(b) Freedom Wells For Which
Applications Were Not Filed. With respect
to the Freedom Wells listed on Exhibit M,
Seller, its predecessor in interest, or the
operator of such Freedom Wells has not to
Seller's knowledge filed or caused to be
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<PAGE> 10
filed with the applicable state and federal
agencies "Applications" for well
determinations under the NGPA and the rules
and regulations of the FERC. With respect
to the Freedom Wells listed on Exhibit M,
all such Freedom Wells were drilled (or
recompleted in accordance with private
letter rulings issued by the IRS to third
parties, or will be recompleted in an
uphole formation in accordance with
Situation 1 of Revenue Ruling 93-54) into a
"qualifying formation" (tight formation or
other qualifying formation) within the time
frames set forth in subsection (2) below,
and the hydrocarbons produced and sold from
such Freedom Wells qualify for the tax
credit defined in Section 29
of the Code (the "Freedom Tax Credits").
(c) Freedom Wells Where Commingling
With Non-Qualified Production Is Conducted.
For Freedom Wells, if any, where production
from a qualifying formation and production
from a non-qualifying formation are
commingled, the production has been
allocated to each producing formation on a
reasonable basis, consistent with industry
standards and in accordance with
procedures, if any, that have been approved
by appropriate state and federal agencies.
(2) Freedom Wells. Each Freedom Well
has been timely drilled under Sections 29(c)(2)(B)
and 29(f)(1)(A) of the Code, or administrative
interpretations thereof.
(3) No Qualified Production prior to
January 1, 1980. Prior to January 1, 1980, there was
no production of oil or gas from, nor were any wells
drilled or completed on, the "property" (within the
meaning of Section 29 of the Code) on which any
Freedom Well is located nor was any portion of any
such "property" included within a unit from which oil
or gas was produced or in which any wells were
drilled or completed prior to such date.
(4) No Enhanced Oil Recovery Credit. No
oil or gas produced from the Freedom Wells qualifies
or has qualified for (i) the enhanced oil recovery
credit or any other credit under Section 43 of the
Code and none has been claimed or taken on such oil
or gas, or (ii) the credit allowed under Section 38
of the Code by reason of the energy
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<PAGE> 11
percentage with respect to property used in the
project.
(5) No Government Financing. No portion
of any drilling, equipping, seismic or other
development costs of the Freedom Assets paid by
Seller or its predecessors was financed by any state,
local or federal agency, directly or indirectly,
including by way of grant, loan, expenditure or loan
guaranty.
12. Closing. The consummation of the sale and purchase of the
Freedom Assets (the "Closing") shall occur, either in person or by facsimile,
at the offices of Buyer on or before April 25, 1996 (the "Closing Date")
beginning at 10:00 a.m. or at such other time and place as the parties may
agree to in writing. At 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 (except where the documents involved indicate
otherwise):
a. Lender Consents. Seller shall deliver to
Buyer written consents from Seller's lender banks and other
lending institutions to which Seller is obligated under the
Credit Agreement dated July 15, 1994, as amended September 1,
1995, for Seller to consummate the transactions contemplated
under this First Amendment, without violating the terms of the
Credit Agreement.
b. Freedom Assignment, Freedom Option. Seller
and Buyer shall execute and deliver the Freedom Assignment and
the Freedom Option. In addition, Seller shall prepare and
Seller and Buyer shall execute such other conveyances on
official forms and related documentation necessary to transfer
the Freedom Assets to Buyer in accordance with requirements of
governmental regulations; provided, however, that any such
separate or additional conveyances required pursuant to this
Section 12.b. or pursuant to Section 16.1 of the Agreement
shall evidence the conveyance and assignment of the Freedom
Assets made or intended to be made in the Freedom Assignment,
(ii) shall not modify or be deemed to modify any of the terms,
reservations, covenants and conditions set forth in the
Freedom Assignment, and (iii) shall be deemed to contain all
of the terms, reservations and provisions of the Freedom
Assignment, as though the same were set forth at length in
such separate or additional conveyance.
c. Reconveyance. Buyer shall execute and
deliver the Reconveyance to Seller.
d. Payment of Freedom Purchase Price. Buyer
shall deliver the Freedom Purchase Price contemplated
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<PAGE> 12
in Section 4. above by wire transfer to Seller's account in
accordance with written instructions supplied by Seller at
least 2 days prior to Closing.
e. Update of Tax Opinion. Buyer at its sole
cost, shall provide Seller a copy of a tax opinion or letter
from AA, or another mutually acceptable national accounting
firm, updating the Tax Opinion described in Section 9.1 of the
Agreement and addressing the tax consequences of the
transaction contemplated by this First Amendment.
f. Williamson Confirmation. Williamson
Petroleum Consultants, Inc., using the same cost and pricing
assumptions as used in the Freedom Reserve Report, shall
confirm to Buyer in writing that Seller's estimates of the
amount of reserves and estimated annual production rates with
respect to the Freedom Assets are, in the aggregate,
reasonable.
g. Notice of Preferential Rights and Consents.
Seller shall deliver to Buyer a copy of the notices sent to
third parties regarding preferential rights to purchase and
consents affecting the Freedom Assets with respect to the
transactions contemplated by this First Amendment.
h. Evidence of Insurance. Seller shall provide
Buyer with Certificates of Insurance from Seller's insurers or
other evidence that Buyer has been named an additional insured
on Seller's policies affecting the Freedom Assets.
i. Non-Foreign Ownership Disclosure. Seller
shall deliver to Buyer the State of Colorado, Department of
Revenue Form DR 1083, substantially in the form of Exhibit N,
stating there is no obligation for a Colorado withholding tax
under C.R.S. Section 39-22-604.5.
j. Ratification of Obligations. Buyer shall
cause its members (Fontenelle, Inc., Bald Prairie, Inc. and
SSB Investments, Inc.), FMR Corp. and State Street Boston
Corporation to execute and deliver to Seller a ratification of
their respective obligations under the Contribution Agreements
and Guaranty Agreements. The ratification shall be
substantially in the form of the Ratification of Obligations
attached hereto as Exhibit O.
k. Consent to Amendments of LLC Agreement.
Seller shall deliver to Buyer, Seller's consent to the
amendments to Sections 2.8 and 3.2(a) of Buyer's Limited
Liability Company Operating Agreement, amended and restated as
of April 25, 1996.
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l. Additional Instruments. Seller and Buyer
shall execute, acknowledge and deliver to each other such
additional instruments as are reasonable and customary to
accomplish the purposes of this First Amendment.
13. Miscellaneous.
a. Tax Status. Seller and Buyer intend that,
for tax purposes only, the Freedom Production Payment reserved
by Seller in the Freedom Assignment will be treated as a
mortgage loan and not as an "economic interest" in the Freedom
Assets. Buyer shall have no recourse against Seller in the
event that such payments are not so treated until the
commencement of a Tax Audit, in which event the provisions of
Section 9.4 of the Agreement shall control.
b. Assignment. The provisions of Section 16.7
of the Agreement are deleted in their entirety and replaced
with the following provisions:
Neither Buyer nor Seller may assign its rights or
delegate its duties or obligations under the terms of
this Agreement without the prior written consent of
the other party, provided that either Buyer or Seller
may assign its rights, but not its obligations under
this Agreement, to any party (including any
affiliated or nonaffiliated party) as long as such
assignment does not relieve the assigning party of
its obligations to the other party hereto, and
provided further that Buyer may not cause or permit
an assignment, transfer, sale, alienation or other
disposition of all or any portion of the Assets which
would result in the transferred Assets becoming "plan
assets" under the Employee Retirement Income Security
Act of 1974, as amended.
c. Definition of Credit Payment Amount. The
definition of Credit Payment Amount under Section 1.1 of the
Original Assignment is hereby amended to delete the phrase
"The Credit Payment Amount shall be determined without regard
to whether" and to replace it with the phrase "The Credit
Payment Amount shall be determined assuming that". The phrase
"or (ii) Grantor is treated as owning an" shall be deleted and
replaced with the phrase "and (ii) Grantee is treated as
owning the".
d. Definition of Gross Proceeds. The definition
of Gross Proceeds under Section 4.2(a)(1) of the Original
Assignment is hereby amended to delete the word "including"
under clause (ii) and to replace it
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<PAGE> 14
with the word "excluding." Any such amount so excluded shall
be considered Other Income under Section 4.2(b).
e. Option Penalty Provisions. The provisions of
Paragraph 1.a. of the Original Option are hereby amended to
provide that the 15% threshold shall apply to the reserves of
the Subject Interests attributable to all of the Assets,
including the Freedom Assets. The penalty provisions under
Paragraph 1.a., clauses (1) and (2) may be effected by Special
Purchases under the Option or the Original Option, in which
case the penalty provisions of the Option and the Original
Option shall apply to the assets purchased under the Option or
the Original Option, respectively.
f. Environmental Indemnification Regarding
Freedom Assets. Section 5.2 of the Management Agreement is
hereby amended to add the following provisions:
Manager (Seller under this First Amendment) shall defend,
indemnify and hold harmless the Company (Buyer under this
First Amendment) and its members; officers; partners;
directors; employees; agents; administrators and
representatives; including the officers, employees, agents,
administrators and representatives of such members; from and
against all losses which arise directly or indirectly from or
in connection with the Freedom Assets involving environmental
matters as for all times prior to May 1, 1996. Manager shall
be responsible for and liable for all costs, expenses,
liabilities and obligations accruing or relating to the
owning, operating, or maintaining of the Freedom Assets or the
producing, transporting and marketing of hydrocarbons from the
Freedom Assets relating to periods before May 1, 1996.
g. Survival of Certain Management Agreement
Provisions. The provisions of Section 2.2(b) and of Article 5
of the Management Agreement shall survive the termination of
the Management Agreement for any reason with respect to
liabilities or obligations under such provisions which accrue
or arise during the period of time that the Management
Agreement, including any amendments, replacements or renewals
thereof, is valid and in effect.
h. Agreement in Full Force and Effect. Except
as expressly amended, replaced or revised herein, the
Agreement, Original Assignment, Original Option, Management
Agreement, Gas Purchase Agreement and Limited Power of
Attorney shall remain in full force and effect, and the rights
and interests of the parties thereunder shall continue
unaltered.
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<PAGE> 15
i. Memorandum of First Amendment. In order to
put third parties on notice as to the provisions of this First
Amendment which amend the terms of documents which are of
public record, the parties hereto will and have executed a
Memorandum of First Amendment in the form set forth in Exhibit
Q attached hereto (the "Memorandum"). The parties shall
execute and record such counterparts of the Memorandum as are
necessary to carry out the purposes of this First Amendment.
j. Counterparts. This First Amendment may be
executed in one or more counterparts, all of which shall be
considered one and the same instrument, and shall become
effective when one or more counterparts have been signed by
each party and delivered to the other party.
IN WITNESS WHEREOF, the parties have executed this First Amendment
effective as of May 1, 1996.
SELLER: BUYER:
HS RESOURCES, INC. WATTENBERG GAS INVESTMENTS, LLC
By: Fontenelle, Inc., Manager
By: By:
----------------------------- ----------------------------
Name: Annette Montoya Name: Gary L. Greenstein
Title: Vice President Title: Vice President
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<PAGE> 16
EXHIBITS
Exhibit A Leases (Weld County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Freedom Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Non-Foreign Ownership Disclosure
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Conveyance of Drilling Rights
Exhibit Q Form of Memorandum of First Amendment
<PAGE> 17
EXHIBIT C
WELLBORE ASSIGNMENT OF OIL AND GAS LEASES
WITH RESERVATION OF PRODUCTION PAYMENT
THIS WELLBORE ASSIGNMENT OF OIL AND GAS LEASES WITH
RESERVATION OF PRODUCTION PAYMENT (this "Assignment") is made effective as of
May 1, 1996 (the "Effective Date") by and between HS Resources, Inc., a
Delaware corporation, 1999 Broadway, Suite 3600, Denver, Colorado 80202 (herein
called "Grantor"), and Wattenberg Gas Investments, LLC, a Delaware limited
liability company, 82 Devonshire Street, R22C, Boston, Massachusetts 02109
(herein called "Grantee").
ARTICLE 1
CERTAIN DEFINITIONS AND REFERENCES
1.1 CERTAIN DEFINED TERMS. When used in this Assignment, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Affiliate" shall mean (a) any person directly or indirectly
owning, controlling or holding with power to vote 50% or more of the
outstanding voting securities of Grantee, (b) any person 50% or more
of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by Grantee, (c) any
person directly or indirectly controlling, controlled by or under
common control with Grantee, and (d) any officer, director or partner
or member of Grantee or any person described in clause (c) of this
definition.
"Assignment" is defined in the first paragraph above.
"Business Day" shall mean a day on which commercial banks are
open for business in both the Commonwealth of Massachusetts and the
State of Colorado.
"Credit Payment Amount" shall mean, for any Payment Period, an
amount equal to $0.70 of each dollar of credits available to Grantee
under Section 29 of the Internal Revenue Code of 1986, as amended
from time to time ("IRC"), as a result of the sale of Subject
Hydrocarbons by or on behalf of the Grantee, to the extent that such
Subject Hydrocarbons (i) constitute "qualified fuels" within the
meaning of IRC Section 29(c), (ii) meet the requirements of IRC
Sections 29(d)(1), 29(d)(4) and 29(f), during (x) such Payment Period
and (y) any earlier Payment Period to the extent the dollar amount of
credits attributable thereto was not taken into account in a Credit
Payment Amount for a previous Payment Period, and (iii) is produced
from the Wells. For purposes of the
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preceding sentence, credits available to Grantee under IRC Section 29
shall be determined after taking into account any phase-out of the
credit under IRC Section 29(b)(1) and any applicable inflation
adjustment under IRC Section 29(b)(2), but shall be determined
without regard to limitations on Grantee's use of the credit imposed
by IRC Section 29(b)(6) and without regard to whether Grantee or its
members actually utilize such credits. The Credit Payment Amount for
any given Payment Period shall initially be based on estimated Subject
Hydrocarbon production and sales data available at the time of the
calculation of such amount and later corrected when actual data is
available. The Credit Payment Amount shall be determined assuming
that (i) the Production Payment is treated as a production payment for
federal income tax purposes, and (ii) Grantee is treated as owning the
economic interest in minerals in place in the Subject Interests.
Credit Payment Amounts shall be calculated and, unless otherwise
provided, will be due with respect to gas produced and sold from May
1, 1996 until the earlier of (x) the aggregate of all Credit Payment
Amounts paid pursuant to the Purchase Agreement equals $9,000,000, (y)
December 31, 2002, or (z) the first day on which tax credits under IRC
Section 29 are no longer permitted for gas attributable to the Subject
Interests and produced and sold from the Wells. The Credit Payment
Amount shall include payments for credits attributable to natural gas
liquids produced from the Subject Hydrocarbons and for credits
attributable to Wells that would be considered timely drilled under
the principle of Private Letter Ruling 9025002, to the extent provided
in Section 4.6. If for any reason the credits under IRC Section 29
are repealed by Congressional statute or resulting regulation, no
Credit Payment Amount shall be due with respect to Subject
Hydrocarbons subject to such repeal. If for any reason the amount of
credits under IRC Section 29 contemplated under the Purchase
Agreement are reduced by Congressional statute or resulting
regulation, the Credit Payment Amounts due under this Assignment shall
be reduced commensurate with such reduction in credits under IRC
Section 29.
"Effective Date" is defined in the first paragraph.
"Full Production Date" shall mean the date on which the total
volume of gas attributable to the Subject Hydrocarbons produced, saved
and sold from and after the Effective Date equals 7,101,394 MCF
(wellhead gas, net to Grantee); provided that such volume shall be
decreased by an amount, if any, equal to the aggregate volume of
reserves allocated to properties on which Grantor has exercised the
Option.
"Gas Purchase Agreement" means the Gas Purchase Agreement
dated effective December 1, 1995, as amended, between Grantee and
Grantor for the purchase by Grantor of gas produced from the Subject
Hydrocarbons defined herein.
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<PAGE> 19
"Grantee" shall mean Grantee as defined in the first paragraph
of this Assignment, and its successors and assigns; and, unless the
context in which used shall otherwise require, such term shall mean
any successor-owner at the time in question of any or all of the
Subject Interests.
"Grantor" shall mean Grantor as defined in the first paragraph
and its successors and assigns; and, unless the context in which used
shall otherwise require, such term shall mean any successor-owner at
the time in question of any or all of the Production Payment.
"Gross Proceeds" shall have the meaning assigned to it in
Section 4.2(a).
"Leases" is defined in Section 2.1(a).
"Management Agreement" means the Management Agreement between
Grantor and Grantee dated effective December 1, 1995, as amended.
"Measurement Amount" is defined in Section 4.5.
"Net Profits" for any Payment Period shall mean the net
balance, positive or negative, resulting after application of the
credits and debits as provided in Sections 4.2 and 4.3 for such
period.
"Net Profits Account" shall have the meaning assigned to it in
Section 4.1.
"Non-Affiliate" shall mean any Person who is not an Affiliate.
"Option" shall mean that Option to Purchase Oil and Gas
Interests between Grantee and Grantor dated effective May 1, 1996.
"Other Income" is defined in Section 4.2(b).
"Payment Period" shall mean a calendar quarter, provided that
the first Payment Period shall mean the period from the Effective Date
until the end of the calendar quarter during which the Effective Date
occurs, and the last Payment Period shall mean the portion of the
calendar quarter during which the Termination Date occurs from the
beginning of such calendar quarter until and including the Termination
Date.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation or other legal
entity.
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<PAGE> 20
"Production Payment" is defined in Section 3.1.
"Production Payment Period" shall mean the period from the
Effective Date until and including the Termination Date.
"Production Sales Contracts" shall mean all contracts,
agreements and arrangements for the sale or disposition of Subject
Hydrocarbons that may be produced from or attributable to the Subject
Interests, whether presently existing or hereafter created.
"Purchase Agreement" means the Purchase and Sale Agreement
between Grantor and Grantee dated December 1, 1995, as amended by that
First Amendment to Purchase and Sale Agreement, Assignment, Option,
Management Agreement, Gas Purchase Agreement and Limited Power of
Attorney dated April 25, 1996.
"Reversion Interest" is defined in Section 3.3.
"Subject Hydrocarbons" shall mean that portion of the oil, gas
and other minerals in and under and that may be produced, from and
after the Effective Date, from or attributable to the Subject
Interests and after deducting the appropriate share of all royalties
and any overriding royalties (other than those overriding royalties
conveyed herein), production payments (except the Production Payment)
and other similar charges burdening the Subject Interests on the
Effective Date or additional burdens created by Grantor as the Manager
under the Management Agreement. There shall not be included in the
Subject Hydrocarbons any oil, gas or other minerals unavoidably lost
in production or used by Grantee in conformity with good oil field
practices for production operations (including without limitation,
fuel, secondary or tertiary recovery) conducted solely for the purpose
of producing Subject Hydrocarbons from the Subject Interests, but only
so long as such Subject Hydrocarbons are so used.
"Subject Interests" is defined in Section 2.1.
"Termination Date" shall mean the day on which the total
volume of gas attributable to Subject Hydrocarbons produced, saved and
sold from and after the Effective Date equals 5,410,803 MCF (wellhead
gas, net to Grantee); provided that such volume shall be decreased by
an amount, if any, equal to the aggregate volume of Subject
Hydrocarbons on which Grantor has exercised the Option, multiplied by
the ratio of 5,410,803 to 7,101,394.
"Wells" is defined in Section 2.1(a).
1.2 REFERENCES AND TITLES. All references in this Assignment to
articles, sections, subsections and other
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subdivisions refer to corresponding articles, sections, subsections and other
subdivisions of this Assignment unless expressly provided otherwise. Titles
appearing at the beginning of any of such subdivisions are for convenience only
and shall not constitute part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Assignment", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Assignment (and reservation of Production
Payment) as a whole and not to any particular subdivision unless expressly so
limited. Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. All references in this
Assignment to Exhibits or Schedules refer to exhibits or schedules to this
Assignment unless expressly provided otherwise, and all such Exhibits or
Schedules are hereby incorporated herein by reference and made a part hereof
for all purposes.
ARTICLE 2
ASSIGNMENT
2.1 For and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, TRANSFER,
ASSIGN, and CONVEY unto Grantee, its successors and assigns, all of the
following (the "Subject Interests"):
(a) The right, title and interest of Grantor in and to
the oil and gas leases and mineral interests described in Exhibit A
(attached hereto and made a part hereof for all purposes) insofar and
only insofar as said leases and mineral interests cover the right to
produce from the wellbores of the wells described in Exhibit B
(attached hereto and made a part hereof for all purposes) from the
intervals in such wells identified in Exhibit B as of the Effective
Date (the above described interest in such leases and mineral
interests being herein called the "Leases" and the above described
interest in such wells being herein called the "Wells"), subject to
any restrictions, exceptions, reservations, conditions, limitations,
burdens, contracts, agreements and other matters applicable to the
Leases and the Wells, and excluding such portion of the Leases and the
Wells which are not conveyed to Grantee because of Defective Interests
or which were determined to be Excluded Assets (as such terms are
defined in the Purchase Agreement);
(b) The right, title and interest of Grantor in and to
overriding royalty interests in the Leases insofar and only insofar as
the Leases cover the wellbores associated with the Wells from the
producing intervals identified in Exhibit B;
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(c) To the extent affected, the right, title and interest
of Grantor in and to, or derived from, the following insofar and only
insofar as same are attributable to the Leases and the Wells:
(i) The presently existing and valid oil,
gas or mineral unitization, pooling, operating and communitization
agreements, declarations and orders affecting the Leases and Wells,
and in and to the properties covered and the units created thereby;
(ii) The personal property and fixtures that
are appurtenant to the Wells, including all wells, casing, tubing,
pumps, separators, tanks, lines and other personal property and oil
field equipment appurtenant to such Wells; provided, however, that
Grantor shall remain co-owner of any personal property appurtenant to
any property owned by Grantor that is not exclusively part of the
Wells;
(iii) The presently existing and valid gas
sales, purchase, gathering and processing contracts and operating
agreements, joint venture agreements, partnership agreements, rights
of way, easements, permits and surface leases and other contracts,
agreements and instruments (but specifically excluding any management
agreements), only in relevant part to the extent and insofar as the
same are appurtenant to the Leases, Wells and the units referred to in
(c)(i) above; provided, however, that Grantor shall remain co-owner of
any agreements, including unitization and pooling agreements, if they
pertain to any property owned by Grantor that is not exclusively part
of the Leases or Wells;
reserving to Grantor, however, the Production Payment, the Reversion Interest
and the other rights reserved herein, all as provided in Article 3 below; to
have and to hold the Subject Interests forever.
ARTICLE 3
RESERVATIONS
3.1 PRODUCTION PAYMENT. Grantor reserves unto itself, and its
successors and assigns, from this Assignment a production payment payable out
of and only from Subject Hydrocarbons equal to 100% of the Net Profits derived
from the Subject Hydrocarbons; such production payment to be effective during
the Production Payment Period and such payment, in any Payment Period, not to
exceed the Gross Proceeds during such Payment Period, (the "Production
Payment"); and subject to the terms and conditions contained herein.
3.2 SURFACE AND OTHER USE. Grantor reserves unto itself, and its
successors and assigns, from this Assignment the right to use as much of the
surface of the acreage covered by the Leases
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as well as the wellbores conveyed hereunder as may be necessary in the conduct
of operations in those zones, formations and depths not assigned to Grantee
herein and on other property owned or leased by Grantor. Grantor further
reserves the right to drill through the depths, zones and formations herein
assigned to Grantee in conducting any operations in the depths, zones and
formations not assigned herein or on other property owned or leased by Grantor,
and also the right to drill, produce, operate and maintain infill wells as
permitted by regulatory agencies having jurisdiction over such matters.
Grantor reserves the right to jointly use any easements and rights-of-way for
its operations on the land covered hereby or on other lands in the area.
3.3 REVERSION INTEREST AFTER FULL PRODUCTION DATE. Grantor
reserves unto itself, and its successors and assigns, an undivided 75% interest
in and to the Subject Interests from and after the Full Production Date (the
"Reversion Interest"); provided, however, that this reservation will not take
effect if the estimated net cash flow from operations and production of the
Subject Hydrocarbons remaining after the Full Production Date, when taken as a
whole, is not reasonably expected by Grantor in good faith to exceed the
estimated cost to plug and abandon the Wells. If the Full Production Date is
reached and this reversion becomes effective, Grantor and Grantee agree to
enter into a mutually acceptable Joint Operating Agreement to govern operation
of the Subject Interests after the Full Production Date, in form and substance
similar to the Model Form Operating Agreement typically used by Grantor at the
Full Production Date, naming Grantor as Operator. For the purposes of this
Section 3.3, net cash flow from operations and production means the excess of
revenue from production of Subject Hydrocarbons over the operating expenses
incurred, and additional capital costs required, to produce such Subject
Hydrocarbons, including COPAS expenses incurred from third party operation of
the Subject Interests.
3.4 SIDETRACK WELLBORE DRILLING RIGHTS. Grantor reserves unto
itself, and its successors and assigns, the right to drill sidetrack wellbores
and to produce oil, gas and other hydrocarbons from completions in such
sidetrack wellbores from the Wells with respect to the Leases, insofar and only
insofar as (i) such drilling operations are in accordance with local, state and
federal governmental authorities having jurisdiction over such operations, or
(ii) such drilling operations are conducted primarily to exploit oil and gas
reserves which cannot be economically or efficiently produced from the
wellbores of the Wells conveyed hereunder (the "Drilling Rights").
This reservation includes a corresponding right, title, interest and
estate in and to the property and rights incident to the Drilling Rights and
the lands covered thereby or unitized therewith, including, without limitation:
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(1) A corresponding right to the presently existing oil, gas or
mineral unitization, pooling and communitization agreements,
declarations and orders relating to the Leases and the units
associated therewith (including, without limitation, all units formed
under orders, regulations, rules or other official acts of any
federal, state or other governmental agency having jurisdiction),
which relate to any of the Leases.
(2) A corresponding right to the presently existing oil and gas,
sales, purchase, exchange and processing contracts, casinghead gas
contracts, operating agreements, joint venture agreements, area of
mutual interest agreements, farmout and farmin agreements and all
other contracts, agreements and instruments which relate to any of the
Leases or Wells and to the production of oil, gas and other minerals
from or attributable to the Leases or Wells, but only insofar as such
contracts, agreements and instruments relate to the rights conveyed
herein.
(3) A corresponding right to all personal property, improvements,
lease and well equipment, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or useful or held for future use
in connection with the exploration, development or operation or
maintenance of the Leases or Wells, or any unit or units or operation
or maintenance of the Leases or Wells, or any unit or units in which
part or parts of the Leases or Wells may be included.
(4) A corresponding right, title, interest and estate, whether
real, personal or mixed, of every nature and description in and to the
lands described on Exhibit A, whether such right, title, claim or
interest be under and by virtue of an oil, gas and mineral lease, an
operating agreement, a unitization, pooling or communitization
agreement, declaration or order, a division order, a transfer order or
any type of contract, conveyance or instrument, or under and by virtue
of any type of claim or title, legal or equitable recorded or
unrecorded, and even though Grantor's interests therein be incorrectly
described in or a description of such interest be omitted from the
exhibit thereto.
(5) A corresponding and concurrent right of ingress and egress to
and from the lands covered by the Leases for the purpose of exploring
for, drilling for, producing and marketing the hydrocarbons owned by
each of them at their respective depths and locations under the terms
of the Leases. Further, each party shall own and hold proportionally
any and all rights granted in the Leases or otherwise relating thereto
pursuant to any agreements, surface leases, permits, rights-of-way,
pooling declarations, licenses, governmental regulations or other
grant or instrument as incident to and for the purpose of
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exploring for, drilling for and producing the minerals owned by them
in their respective depths and locations including the right to drill
pursuant to this Assignment, lay and maintain pipelines and
waterlines, dig pits, erect structures and to perform any and all
other operations incident to the rights and interests therein.
Grantor shall not be entitled to exercise the Drilling Rights as to
any well if such exercise would likely result in a termination of production
from the associated Well for a period exceeding 90 days. Grantor shall
promptly give Grantee reasonable notice concerning such exercise, provided that
such notice may be given either before or after the commencement of the
drilling of a sidetrack wellbore in a Well. All exercises of the Drilling
Rights must be conducted in accordance with the provisions of the Sidetrack
Wellbore Terms attached hereto as Schedule 1.
ARTICLE 4
PRODUCTION PAYMENT ACCOUNTING AND PAYMENT
4.1 ESTABLISHMENT OF NET PROFITS ACCOUNT. Grantee shall establish
and maintain a Net Profits Account (herein called the "Net Profits Account") in
accordance with the various provisions of this Assignment and at all times
during the Production Payment Period shall keep true and correct books and
records with respect thereto. Such books and records shall be open for
inspection, copying and audit by Grantor and its accountants and
representatives.
4.2 CREDITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Credit Payment Amounts, Gross Proceeds and Other Income.
(a) "Gross Proceeds" shall mean, on an accrual accounting
basis, all consideration received, directly or indirectly, for sales
of Subject Hydrocarbons, subject to the following:
(1) If a controversy exists (whether by reason of
any statute, order, decree, rule, regulation, contract, or
otherwise) as to the correct or lawful sales price of any
Subject Hydrocarbons, then at Grantor's sole election, Grantor
may choose to treat amounts received by Grantee and affected
by such controversy (i) as Gross Proceeds received by Grantee,
or (ii) not as Gross Proceeds received by Grantee and require
Grantee to promptly deposit such amounts with an escrow agent
pending settlement of such controversy, provided that all
amounts, excluding any interest or other income, thereafter
paid to Grantee by such escrow agent out of or on account of
such escrow shall be considered to be amounts received from
the sale of Subject Hydrocarbons.
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Amounts received by Grantee and not deposited with an escrow
agent shall be considered to be received for purposes of this
definition of Gross Proceeds;
(2) Gross Proceeds relating to any non-consent
operations conducted with respect to all or any part of the
Subject Hydrocarbons after the Effective Date shall be subject
to Section 5.8;
(3) Gross Proceeds shall not include any amount
which Grantee shall receive as a bonus for any lease or
payments made to Grantor in connection with adjustment of the
cost of any Well and leasehold equipment upon unitization or
revision of participating areas under federal divided-type
units covering any of the Subject Hydrocarbons;
(4) Cash settlements and cash make-ups received
by Grantee with respect to the Subject Hydrocarbons under gas
balancing or similar agreements shall be considered derived
from the sale of Subject Hydrocarbons; and
(5) The proceeds from (i) all insurance and (ii)
all judgments, claims and settlements, received by Grantee
which are used to remedy, replace or repair losses or damages
actually incurred, to the extent such proceeds relate to the
production of Subject Hydrocarbons; and
(6) Gross Proceeds shall not include Other Income.
(b) "Other Income" shall mean, on an accrual accounting
basis, the following:
(1) The proceeds received by Grantee after the
Effective Date from (i) the sale of any materials, supplies,
equipment and other personal property or fixtures, or any part
thereof or interest therein, used in connection with the
Subject Hydrocarbons, (ii) settlements and judgments from
legal or other claims, (iii) delay rentals, (iv) lease
bonuses, and (v) rentals from reservoir use or storage;
including without limitation all amounts attributable thereto
which are received by Grantee by way of conformance of
investment in personal property and equipment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from
time to time unitized or are affected by the revision of a
participating area in a federal divided-type unit;
(2) The proceeds of all insurance received by
Grantee, other than to remedy or repair losses or
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damages actually incurred, to the extent such proceeds relate
to the production of Subject Hydrocarbons, (i) the cost of
which is charged to the Net Profits Account, directly or
indirectly, and/or (ii) that accrue to Grantee as a
consequence of the loss or damage to any one or more of the
following which occurs after the Effective Date: the Subject
Hydrocarbons, or any part thereof or interest therein, the
interest of Grantee in any materials, supplies, equipment or
other personal property or fixtures used in connection with
any of the Subject Hydrocarbons; except to the extent such
amounts are used to repair or replace the items damaged or
lost giving rise to the receipt of such amounts;
(3) Amounts received by Grantee from a purchaser
of Subject Hydrocarbons (i) as a prepayment of any portion of
the sales price for such Subject Hydrocarbons, (ii) as advance
gas payments or (iii) as payments pursuant to contractual
provisions providing for "take-or-pay" payments (including
amounts awarded by a court or agreed to by the parties in any
settlement of a claim (net of costs and attorneys' fees
incurred in connection therewith) as damages for the failure
or refusal of the purchaser to take Subject Hydrocarbons
pursuant to the contract which contains such provisions) shall
be considered to be received from the sale of Subject
Hydrocarbons; provided that such amounts shall not be
considered received from the sale of Subject Hydrocarbons at a
later date when Subject Hydrocarbons are delivered in respect
of any such payments under "make-up" or similar provisions;
(4) The proceeds of (i) all insurance and (ii)
all judgments, claims and settlements, received by Grantee for
damages to one or more of the following which occurs after the
Effective Date: to the extent such proceeds relate to the
production of Subject Hydrocarbons, or any part thereof or
interest therein; any materials, supplies, equipment or other
personal property or fixtures, or any part thereof or interest
therein, used in connection with any of the Subject
Hydrocarbons; except to the extent such amounts are used to
repair, replace or remedy losses or damages actually incurred,
which gave rise to the receipt of such amounts;
(5) Any interest, penalty or other amounts
received by Grantee which are attributable to the Subject
Hydrocarbons and are not derived from the sale of Subject
Hydrocarbons;
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(6) Any interest earned on funds deposited into
an escrow account in accordance with the provisions of Section
9.4 of the Purchase Agreement; and
(7) All other monies and things of value which
are received by Grantee by virtue of the ownership after the
Effective Date of the Subject Hydrocarbons and the materials,
supplies, equipment and other personal property and fixtures
used in connection with the Subject Hydrocarbons.
4.3 DEBITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be debited (without duplication), on an
accrual accounting basis, with the following amounts:
(a) All direct costs which are attributable to production
of the Subject Hydrocarbons (i) for all direct labor (including fringe
benefits), other services and expenses necessary for developing,
operating, producing, reworking (including recompleting) and
maintaining the Subject Hydrocarbons after the Effective Date, (ii)
for dehydration, compression, separation, gathering, transportation
and marketing of the Subject Hydrocarbons after the Effective Date,
and (iii) for all materials, supplies, equipment and other personal
property and fixtures purchased for use in connection with the Subject
Hydrocarbons after the Effective Date (including without limitation
(A) all amounts paid by Grantee for conformance of investment if the
Subject Hydrocarbons or any part or parts thereof are hereafter from
time to time unitized or if any participating area in a federal
divided-type unit is changed, and (B) the cost of secondary recovery,
pressure maintenance, repressuring, recycling and other operations
conducted for the purpose of enhancing production);
(b) Costs (including without limitation outside legal,
accounting and engineering services) attributable to the Subject
Hydrocarbons of (i) handling, investigating and/or settling
litigation, administrative proceedings and claims (including without
limitation lien claims other than liens for borrowed funds) and (ii)
payment of judgments, penalties and other liabilities (including
interest thereon), paid by Grantee (and not reimbursed under insurance
maintained by Grantee or others) and involving any of the Subject
Hydrocarbons, or incident to the development, operation or maintenance
of the Subject Hydrocarbons after the Effective Date, or requiring the
payment or restitution of any proceeds of Subject Hydrocarbons, or
arising from tax or royalty audits, except that there shall not be
debited to the Net Profits Account any expenses incurred by Grantee in
litigation of any claim or dispute arising hereunder between Grantee
and Grantor or amounts paid by Grantee to Grantor pursuant to a final
order entered by a court of competent
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jurisdiction resolving any such claim or dispute or amounts paid by
Grantee to Grantor in connection with the settlement of any such claim
or dispute;
(c) All taxes (except income, transfer, inheritance,
estate, franchise and like taxes) paid by Grantee with respect to the
ownership of the Subject Hydrocarbons or the extraction of the Subject
Hydrocarbons after the Effective Date, including without limitation
production, severance, and/or excise and other similar taxes assessed
against, and/or measured by, the production of (or the proceeds or
value of production of) Subject Hydrocarbons (without regard to the
period of ownership for which such taxes are assessed), occupation
taxes, sales and use taxes, and ad valorem taxes assessed against or
attributable to the Subject Hydrocarbons or any equipment located on
any of the Subject Interests, as such equipment is required for the
production of Subject Hydrocarbons;
(d) Insurance premiums attributable to the ownership or
operation of the Subject Hydrocarbons paid by Grantee for insurance
actually carried for periods after the Effective Date, or any
equipment located on any of the Subject Interests, as such equipment
is required for the production of Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date;
(e) All amounts attributable to the Subject Hydrocarbons
(to the extent attributable to periods after the Effective Date) and
consisting of (i) rent and other consideration paid for the use or
damage to the surface and (ii) delay rentals, shut-in well payments,
minimum royalties and similar payments paid pursuant to the provisions
of agreements in force and effect before the Effective Date;
(f) Amounts attributable to the Subject Hydrocarbons (to
the extent attributable to periods after the Effective Date) and
charged by the relevant operator as overhead charges specified in
applicable operating agreements (including applicable COPAS charges);
(g) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject
Hydrocarbons any amounts previously included in Gross Proceeds or
Other Income are reclaimed from Grantee or its representative, then
the amounts reclaimed as promptly as practicable following Grantee's
payment thereof;
(h) The Management Fee (as defined in the Management
Agreement) paid to Grantor pursuant to the Management Agreement,
allocable under Section 13.6 of the Purchase Agreement to the Subject
Hydrocarbons;
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(i) If Grantee shall be a party as to any non-consent
operations conducted with respect to all or any of the Subject
Hydrocarbons after the Effective Date, all costs to be debited to the
Net Profits Account with respect thereto shall be governed by Section
5.8;
(j) Except as otherwise provided elsewhere in this
Assignment, all other direct expenditures attributable to the Subject
Hydrocarbons paid by Grantee after the Effective Date for the
necessary or proper development, operation, maintenance and
administration, after the Effective Date, of the Subject Hydrocarbons,
if reasonably incurred; provided, however, that notwithstanding
anything herein provided to the contrary, the Net Profits Account
shall not be debited with any cost or expense which is deducted or
taken into account in determining Gross Proceeds or Other Income,
including, without limitation, the value of any component of Gross
Proceeds or Other Income.
4.4 ACCOUNTING FOR NET PROFITS. All debits to the Net Profits
Account calculated pursuant to Section 4.3 which are attributable to costs and
expenses incurred during a Payment Period, up to and including the last day of
such Payment Period, shall be debited against the Net Profits Account as of the
last day of such period. All credits to the Net Profits Account calculated
pursuant to Section 4.2 which are attributable to the sale of Subject
Hydrocarbons during a Payment Period, shall be credited to the Net Profits
Account as of the last day of such Payment Period.
4.5 MEASUREMENT AMOUNT AND PAYMENT. As of the end of each Payment
Period, Grantee shall calculate an amount (the "Measurement Amount"), equal to
the sum of (a) any Measurement Amount carried forward from a prior Payment
Period and (b) the Net Profits for the then current Payment Period. Not more
than 75 days following a Payment Period, Grantee shall pay Grantor the lesser
of (i) the Measurement Amount for such Payment Period or (ii) Gross Proceeds
for the Payment Period in question. If the Measurement Amount for a Payment
Period is a negative amount, no payment shall be due and payable by Grantee to
Grantor hereunder for such Payment Period, and the negative amount shall be
carried forward for the next and succeeding Payment Periods until such deficit
is wiped out and liquidated. If the Measurement Amount for the Payment Period
is a positive amount and exceeds Gross Proceeds for the Payment Period, the
excess Measurement Amount shall be carried forward to the next Payment Period.
Grantee shall send to Grantor at the same time set for the payment a
statement showing the calculation of the Measurement Amount, the reason for any
nonpayment, the condition of the Net Profits Account as of the close of
business on the last day of the relevant Payment Period and clearly showing
(with sufficient description so that Grantor can identify such items and the
particular Subject Hydrocarbons involved) those items which gave
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rise to debits and credits to the Net Profits Account during such Payment
Period and clearly showing for each Subject Interest the quantities of Subject
Hydrocarbons produced therefrom during the Payment Period covered by such
statement, the volumes of such production sold, the prices at which such
volumes were sold, and the taxes paid with respect to such sales.
Although the books for the Net Profits Account shall be kept on an
accrual basis, for purposes of this Section 4.5, Net Profits will be
tentatively computed and paid in accordance with Grantor's standard billing and
disbursement procedures, which shall be consistent with standard industry
practices, until the Termination Date. Within 90 days following the
Termination Date, the Net Profits Account shall be reconciled to the accrual
method and Grantor and Grantee shall make such payments or refunds to each
other as are necessary to effect such reconciliation.
4.6 OVERPAYMENTS.
(a) If at any time Grantee is determined to have paid
Grantor more than the amount then due with respect to the Production
Payment, Grantor shall be obligated to return any such overpayment
after Grantee notifies Grantor of the amount of such overpayment and
provides Grantor substantiation thereof. Alternatively, Grantee may
offset future Production Payments for the amount of any such
overpayment.
(b) The Credit Payment Amount portion of the Production
Payment shall include payments for credits attributable to natural gas
liquids produced from the Subject Hydrocarbons and for credits
attributable to Wells that would be considered timely drilled under
the principle of Private Letter Ruling 9025002 until Grantee provides
Grantor with (i) a copy of a published or private ruling, court
decision or other authority which supports the position that Section
29 credits are not available for such natural gas liquids, or the
position that Section 29 credits are not available for Wells drilled
under the principle of Private Letter Ruling 9025002 (either, the "IRS
Position"), and (ii) an opinion reasonably satisfactory to Grantor
from a "big-six" accounting firm (or other accounting or law firm
acceptable to both Grantor and Grantee) that, in its view, there is
not "substantial authority" under IRC Section 6662 for the position
that is contrary to the IRS Position.
(c) After Grantee provides Grantor with an authority and
an opinion in accordance with Section 4.6(b), the Credit Payment
Amount shall no longer include payments for credits which are
inconsistent with the IRS Position until Grantor provides Grantee with
(i) a copy of a published or private ruling, court decision or other
authority which is contrary to the IRS Position, and (ii) an opinion
reasonably satisfactory to Grantee from a "big-six" accounting firm
(or
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other accounting or law firm acceptable to both Grantor and Grantee)
that, in its view, there is "substantial authority" under IRC Section
6662 for taking a position that is contrary to the IRS Position.
(d) After Grantor provides Grantee with a copy of an
authority and an opinion in accordance with Section 4.6(c), (i) the
Credit Payment Amount shall thereafter include payments for credits
based upon the position of such opinion (unless and until Grantee
again provides Grantor with a copy of an authority and an opinion in
accordance with Section 4.6(b) with respect to such position), and
(ii) the Credit Payment Amount for the first Payment Period following
the receipt of such opinion shall include an amount equal to the
increase in prior Credit Payment Amounts that would result from
recomputing the prior Credit Payment Amounts in accordance with the
position of such opinion.
(e) If the Internal Revenue Service (the "IRS") asserts
in a Tax Audit that Section 29 credits are not available for portions
of production (the "Disputed Production") from the Subject
Hydrocarbons on the ground that (i) the position of Private Letter
Ruling 9025002 is incorrect and/or (ii) Section 29 credits are not
available for natural gas liquids, then (A) the computation of the
Credit Payment Amount shall continue to rely upon the position of such
private ruling and continue to include credits from the sale of
natural gas liquids subject to Sections 4.6(b) and (c) above; (B)
Expense Amounts attributable to the production from the Subject
Hydrocarbons shall be escrowed and distributed as required by, and in
accordance with, the provisions of Section 9.4 of the Purchase
Agreement (if Grantee has not waived its rights to have such amounts
escrowed pursuant to such Section 9.4); and (C) Grantor shall have the
right to participate, in accordance with the provisions of Section
4.6(g), in challenging the IRS Position that natural gas liquids do
not qualify for Section 29 credits and/or that the Wells in question
were not timely drilled, as applicable.
(f) Should Grantee receive either a 90-day letter or
final partnership administrative adjustment (either, an "Adjustment")
holding that Section 29 credits are not available for Disputed
Production because of one or both of the grounds described in clauses
(i) and (ii) of Section 4.6(e), then Grantor shall pay Grantee within
60 days of the receipt by Grantor of a copy of the Adjustment, an
amount equal to 70% of the amount of all Section 29 credits with
respect to Disputed Production prior to the applicable Escrow
Commencement Date which were disallowed in the Adjustment based upon
the grounds described in clause (i) or (ii) of Section 4.6(e), such
payment not to exceed the Expense Amount previously paid by Grantee
with respect to such Disputed Production. Upon the Conclusion of the
applicable Tax Audit, Grantee shall repay to Grantor any portion of
the
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amount paid pursuant to the preceding sentence that would not have
been payable if the Adjustment had conformed to the determinations
reached in the Conclusion of the Tax Audit. For purposes of this
Section 4.6, the terms "Tax Audit," "Escrow Commencement Date" and
"Conclusion of a Tax Audit" shall have the meanings given to them in
Section 9 of the Purchase Agreement, and the term "Expense Amount"
shall have the meaning given it in Section 2.2(b) of the Management
Agreement.
(g) Grantee agrees to keep Grantor fully and promptly
informed of all administrative and court proceedings with respect to
the position of Private Letter Ruling 9025002 and/or the qualification
of natural gas liquids for Section 29 credits. Upon the commencement
of any such proceeding, Grantor shall have the right to participate,
at its own expense, in challenging the IRS Position that natural gas
liquids do not qualify for Section 29 credits and/or that a Well was
not timely drilled under the principle of Private Letter Ruling
9025002. Grantee shall fully cooperate in any such challenge,
including without limitation the execution of protests, petitions and
complaints if requested by Grantor in the course of such challenge,
and the determination of the nature, method, timing, forum, strategy,
issuances of and response to settlement proposals, counsel and issues
in connection with such challenge shall be at the discretion of
Grantor. Grantor shall indemnify and hold harmless Grantee with
respect to any liability incurred in connection with providing such
cooperation, and shall reimburse Grantee for all costs incurred (as
incurred and in no event less frequently than quarterly) in doing so,
including reimbursement for a reasonable amount of internal overhead,
and reasonable attorneys' and accountants' fees. If, in connection
with requests for cooperation with respect to such a challenge,
Grantee determines that it is likely to incur an expense to a third
party other than its own attorneys and accountants, then, before
incurring the expense, Grantee shall promptly give notice to Grantor.
If Grantor declines to reimburse Grantee for the actual amount to be
expended in complying with such request, then Grantee shall be excused
from complying with such request.
4.7 ACCOUNTING FOR INTEREST EXPENSE. For federal income tax
purposes, interest with respect to payments under the Production Payment shall
be taken into account under the noncontingent bond method of Prop. Treas. Reg.
Section 1.1275-4(b)(2) (or any successor provision of final Treasury
Regulations) in accordance with the projected payment schedule attached as
Schedule 2.
4.8 ALLOCATION OF COSTS AND EXPENSES. Costs and expenses shall be
allocated in accordance with the terms and provisions of the Purchase
Agreement.
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ARTICLE 5
OPERATION OF SUBJECT INTERESTS
5.1 RIGHTS AND DUTIES OF GRANTEE. Grantee (subject to the terms
and provisions of any applicable operating agreements and subject to the other
provisions of this Assignment and the Management Agreement) as between Grantor
and Grantee, has exclusive charge, management and control of all operations to
be conducted on the Subject Interests and may take any and all actions which a
reasonably prudent operator would deem necessary or advisable in the
management, operation and control thereof. Grantee shall promptly (and, unless
the same are being contested in good faith and by appropriate proceedings,
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
developing, operating and maintaining the Subject Interests. Grantee shall be
obligated to operate and maintain the Subject Interests as would a reasonable
and prudent operator under similar circumstances in accordance with good oil
field practices. For the Subject Interests which Grantee does not operate,
Grantee shall take all such action and exercise all such rights and remedies as
are reasonably available to it to cause the operator to so maintain and operate
such Subject Interests. Grantee shall be deemed to have fully discharged all
of its obligations under this Section 5.1, and shall have no liability to
Grantor under this Section 5.1 during any period when the Management Agreement
is in effect and Grantee is in compliance with the Management Agreement.
5.2 SALES OF SUBJECT HYDROCARBONS. Grantee shall have the
obligation to market or cause to be marketed the Subject Hydrocarbons in
accordance with its good faith business judgment and sound oil field practices.
Grantee shall fully discharge its obligations to Grantor under this Section 5.2
during any period when the Gas Purchase Agreement is in effect and Grantee is
not in default thereunder. As to any third parties, all acts of Grantee in
marketing the Subject Hydrocarbons and all Production Sales Contracts executed
by Grantee shall be binding on Grantor and the Production Payment; it being
understood that the right and obligation to market the Subject Hydrocarbons is
at all times vested in Grantee and Grantor does not have any such right or
obligation or any possessory interest in all or part of the Subject
Hydrocarbons, except as may be granted by separate agreement or instrument.
Accordingly, it shall not be necessary for Grantor to join in any new
Production Sales Contracts or any amendments to existing Production Sales
Contracts.
5.3 INSURANCE. Grantee shall obtain or cause to be obtained (and
maintain or cause to be maintained during the economic life of the Subject
Interests) the types of insurance as
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in its reasonable good faith business judgment a reasonable and prudent
operator would carry under similar circumstances. Grantee shall fully
discharge all of its obligations under this Section 5.3, and shall have no
liability to Grantor under this Section 5.3 during any period when the
Management Agreement is in effect and Grantee is in compliance with the
Management Agreement.
5.4 CONTRACTS WITH AFFILIATES. To the extent not provided for in
any applicable operating agreement, Grantee may perform services and furnish
supplies and equipment with respect to the Subject Interests, provided that the
amount of compensation, price or rental that can be charged to the Net Profits
Account therefor must be no less favorable than those available from
Non-Affiliates in the area engaged in the business of rendering comparable
services or selling or leasing comparable equipment and supplies which could
reasonably be made available to the Subject Interests.
5.5 GOVERNMENT REGULATION. All obligations of Grantee hereunder
shall be subject to and limited by all applicable federal, state and local
laws, rules, regulations and orders (including those of any applicable agency,
board, official or commission having jurisdiction).
5.6 ABANDONMENTS. Prior to releasing, surrendering or abandoning
any portion of the Subject Interests, Grantee shall first offer in writing to
reassign such interest to Grantor, with Grantor assuming all liability and
obligations for such interest after such assignment. If Grantor does not
accept the offer to reassign within 60 days from such offer, Grantee shall have
the right without the joinder of Grantor to release, surrender and/or abandon
its interest in the Subject Interests, or any part thereof, or interest therein
even though the effect of such release, surrender or abandonment will be to
release, surrender or abandon the Production Payment the same as though Grantor
had joined therein insofar as the Production Payment covers the Subject
Interests, or any part thereof or interest therein, so released, surrendered or
abandoned by Grantee.
5.7 POOLING AND UNITIZATION.
(a) Certain of the Subject Interests may have been pooled
or unitized for the production of oil, gas and/or minerals prior to
the Effective Date or, after the Effective Date, may be so pooled or
unitized pursuant to Section 5.7(b). Such Subject Interests are and
shall be subject to the terms and provisions of such pooling and
unitization agreements, and the Production Payment in each such
Subject Interest shall apply to (and the term "Subject Hydrocarbons"
shall include) the production from such units which is attributable to
such Subject Interest (and the Net Profits Account shall be computed
giving consideration to such production and costs, expenses, charges
and credits
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attributable to such Subject Interest) under and by virtue of the
applicable pooling and unitization agreements.
(b) Grantee shall have the right and power to unitize,
pool or combine the lands covered by the Subject Interests, or any
portion or portions thereof, with any other land or lease or leases so
as to create one or more unitized areas (or, with respect to unitized
or pooled areas theretofore created, to dissolve the same or to amend
and/or reconfigure the same to include additional acreage or
substances or to exclude acreage or substances). If pursuant to any
law, rule, regulation or order of any governmental body or official,
any of the Subject Interests are pooled or unitized in any manner, the
Production Payment insofar as it affects such Subject Interest shall
also be deemed pooled and unitized, and in any such event the
Production Payment shall apply to (and the term "Subject Hydrocarbons"
shall include) the production which accrues to such Subject Interest
under and by virtue of such pooling and unitization arrangements and
the Net Profits Account shall be computed giving consideration to such
production and costs, expenses, charges and credits attributable to
such Subject Interest under and by virtue of such pooling and
unitization arrangement. Notwithstanding the foregoing provisions of
this Section 5.7(b), Grantee shall have no right or interest in any
well that is not specifically described on Exhibit B or in the
production from any such well.
5.8 NON-CONSENT OPERATIONS.
(a) If Grantee elects (subject to Section 5.1) to be a
non-participating party (whether pursuant to an operating agreement or
other agreement or arrangement, including without limitation,
non-consent rights and obligations imposed by statute or regulatory
agency) with respect to any operation on any Subject Interest or
elects to be an abandoning party with respect to a Well located on any
Subject Interest, the consequence of which election is that Grantee's
interest in such Subject Interest or part thereof is temporarily
(i.e., during a recoupment period) or permanently forfeited to the
parties participating in such operations, or electing not to abandon
such Well, then the costs and proceeds attributable to such forfeited
interest shall not, for the period of such forfeiture (which may be a
continuous and permanent period), be debited or credited to the Net
Profits Account and such forfeited interest shall not, for the period
of such forfeiture, be subject to the Production Payment.
(b) If Grantee elects (subject to Section 5.1) to be a
participating party to such an operation, or elects to be a
non-abandoning party with respect to such a Well, and any other party
or parties have elected not to participate in such operation (or have
elected to abandon such Well) with
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the result that (pursuant to an operating agreement or other agreement
or arrangement, including without limitation, non-consent rights and
obligations imposed by statute and/or regulatory agency) Grantee
becomes entitled to receive, either temporarily (i.e., through a
period of recoupment) or permanently, interests belonging to such
other party or parties, then the costs and proceeds attributable to
such non-participating parties' interests to which Grantee becomes so
obligated and entitled shall be debited and credited to the Net
Profits Account as though such interests were part of the Subject
Interests.
5.9 RENEWALS AND EXTENSIONS OF LEASES. The Production Payment
and the Reversion Interest shall apply to all renewals, extensions and other
similar arrangements (and/or interests therein) of or with respect to any Lease
which is included in the Subject Interests, whether or not such renewals,
extensions or arrangements have heretofore been obtained by Grantor, or
Grantor's predecessors in title, or are hereafter obtained by Grantee as well
as to each new lease covering any minerals covered by one or more of the Leases
if same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
ARTICLE 6
GRANTOR LIABILITY AND EQUIPMENT
6.1 NO PERSONAL LIABILITY OF GRANTOR. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS ASSIGNMENT, GRANTOR SHALL NOT, BY VIRTUE OF THE
PRODUCTION PAYMENT OR REVERSION INTEREST RESERVED IN THIS ASSIGNMENT,
PERSONALLY BE RESPONSIBLE FOR PAYMENT OF ANY PART OF THE COSTS, EXPENSES OR
LIABILITIES INCURRED IN CONNECTION WITH EXPLORING, DEVELOPING, OPERATING,
OWNING AND/OR MAINTAINING THE SUBJECT INTERESTS; PROVIDED, HOWEVER, ALL SUCH
COSTS, EXPENSES AND LIABILITIES SHALL, TO THE EXTENT THE SAME RELATE TO PERIODS
AFTER THE EFFECTIVE DATE, NEVERTHELESS BE CHARGED AGAINST THE NET PROFITS
ACCOUNT AS AND TO THE EXTENT HEREIN PERMITTED.
6.2 OWNERSHIP OF EQUIPMENT. The Production Payment does not
include any right, title or interest in and to any of the personal property,
fixtures, structures or equipment now or hereafter placed on, or used in
connection with, the Subject Interests.
ARTICLE 7
TRANSFERS
7.1 ASSIGNMENTS BY GRANTEE. Upon prior written notice to Grantor,
but under no circumstance requiring Grantor's consent, Grantee shall have the
right to transfer membership shares in the limited liability company which
comprises Grantee. Upon prior
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written notice to Grantor, but under no circumstance requiring Grantor's
consent, Grantee shall have the right to transfer all or any portion of the
Subject Interests; provided, however, that (i) the Subject Interests shall at
all times be subject to this Assignment, the Production Payment, the Reversion
Interest, the Purchase Agreement and the Limited Power of Attorney contemplated
thereunder, the Option, the Gas Purchase Agreement and the Management
Agreement, (ii) if such transfer or transfers result in less than all of the
Subject Interests being transferred to and held by the same Person, Grantee
shall retain the obligation to administer and pay the Production Payment in
accordance with the provisions hereof in the same manner as if the Production
Payment was held by a single Person, and (iii) Grantee may not make an
assignment, transfer, sale, alienation or other disposition of any Subject
Interests which would result in such transferred Subject Interests becoming
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended. An assignment of the Subject Interests by Grantee shall not
release Grantee from any obligation to Grantor under this Assignment, the
Purchase Agreement, the Management Agreement, the Option or the Gas Purchase
Agreement.
7.2 ASSIGNMENTS BY GRANTOR. Upon prior written notice to Grantee,
Grantor shall have the right to transfer, pledge, or mortgage at any time and
from time to time all or any portion of the Production Payment or Reversion
Interest. Any such assignment shall not release Grantor from any obligation to
Grantee under the Purchase Agreement, the Management Agreement or the Gas
Purchase Agreement, except to the extent provided for in such agreements.
7.3 CHANGE IN OWNERSHIP OF PRODUCTION PAYMENT OR REVERSION
INTEREST. No change of ownership or right to receive payment of the Production
Payment or the Reversion Interest, or of any part thereof, however accomplished
shall be binding upon Grantee until notice thereof shall have been furnished by
the person claiming the benefit thereof, and then only with respect to payments
thereafter made. Notice of sale or assignment shall consist of a copy of the
recorded instrument accomplishing the same or if there be no recorded
instrument then a copy of the applicable document accomplishing same; notice of
change of ownership or right to receive payment accomplished in any other
manner (for example by reason of incapacity, death or dissolution) shall
consist of copies of recorded documents and complete proceedings legally
binding and conclusive of the rights of all parties. Until such notice shall
have been furnished to Grantee as provided above, the payment or tender of all
sums payable on the Production Payment and delivery of all notices may be made
in the manner provided herein precisely as if no such change in interest or
ownership or right to receive payment had occurred. The kind of notice herein
provided shall be exclusive, and no other kind, whether actual or constructive,
shall be binding on Grantee.
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ARTICLE 8
MISCELLANEOUS
8.1 GOVERNING LAW. The validity, effect and construction of this
Assignment shall be governed by the law of the State of Colorado, exclusive of
the conflict of laws provisions thereof.
8.2 INTENTIONS OF THE PARTIES. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income
tax purposes, the parties elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A of the IRC, and agree not to take any
position inconsistent with such election. In addition, the parties hereto
intend that the Production Payment reserved hereby by Grantor shall at all
times be treated as an incorporeal (i.e., a non-possessory) interest in real
property or land and as a production payment under Section 636 of the IRC,
payable out of Gross Proceeds (rather than as a working or any other interest).
8.3 NOTICES. All notices and other communications required or
permitted under this Assignment shall be in writing and, unless otherwise
specifically provided, shall be delivered personally, by prepaid telecopy or
similar means (with signed confirmed copy to follow by mail in the manner
provided below), or (except for quarterly statements provided for under Section
4.5 above which may be sent by regular mail) by registered or certified mail,
postage prepaid, or by delivery service for which a receipt is obtained, at the
following addresses for Grantor and Grantee, and shall be deemed delivered on
the date of receipt.
If to Grantor:
HS Resources, Inc.
1 Maritime Plaza, 15th Floor
San Francisco, California 94111
Attn: Chief Financial Officer
Telephone: (415) 433-5795
Fax: (415) 433-5811
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
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If to Grantee:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Either party may specify an alternative address by giving notice to the other
party, in the manner provided in this Section 8.3.
8.4 FURTHER ASSURANCES. Grantor and Grantee agree to execute and
deliver to the other all such other and additional instruments, notices,
division orders, transfer orders and other documents and to do all such other
and further acts and things as may be necessary to more fully and effectively
grant, convey and assign to Grantee and to reserve to Grantor the rights,
titles, interests and estates conveyed to Grantee and reserved by Grantor
hereby or intended to be so conveyed and reserved.
8.5 COUNTERPARTS. This Assignment may be executed in multiple
originals, all of which are identical except that, for the convenience of
recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A and Exhibit B which include descriptions of
properties located in the recording jurisdiction in which the particular
counterpart is being recorded. All of such counterparts together shall
constitute one and the same instrument.
8.6 BINDING EFFECT. All the covenants and agreements of Grantor
and Grantee herein contained shall be deemed to be covenants running with
Grantor's and Grantee's interest in the Subject Interests and the lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be
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binding upon, each of the parties hereto and their respective successors and,
subject to the provisions of this Section 8.6, their assigns. Any sale,
conveyance, assignment, sublease or other transfer of the Subject Interests, or
any interest therein or any part thereof, shall provide that the assignee
assume all of the obligations of the assignor with respect to the interest so
transferred, and unless the non-assigning party otherwise expressly consents in
writing, the assigning party shall also remain liable for the discharge of its
obligations.
8.7 PARTITION. Grantor and Grantee acknowledge that Grantor and
Grantee have no right or interest that would permit either to partition any
portion of the Subject Interests, and Grantor and Grantee waive any such right.
8.8 SPECIFIC PERFORMANCE. In addition to any other remedy which
Grantor may enjoy under this Agreement, at law or in equity, Grantor shall have
the right to seek and enforce the remedy of specific performance by Grantee of
its obligations under this Agreement.
8.9 EFFECTIVE DATE. This Assignment shall become effective for
all purposes as of 7:00 a.m. (at the respective locations of the Subject
Interests) on the Effective Date.
[the remainder of this page is intentionally blank]
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IN WITNESS WHEREOF, the parties have executed this Assignment on this
25th day of April, 1996.
GRANTOR:
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Name: Annette Montoya
- - -------------------------------- Title: Vice President
Name: James M. Piccone
Title: Secretary
GRANTEE:
WATTENBERG GAS INVESTMENTS, LLC,
By its Manager, Fontenelle, Inc.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Gary L. Greenstein
- - -------------------------------- Vice President
Name: Roger D. Tullberg
Title: Assistant Secretary
This Assignment was prepared by:
Mark D. Bingham
Davis, Graham & Stubbs LLP
Suite 4700
370 Seventeenth Street
Denver, Colorado 80201
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<PAGE> 43
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th
day of April, 1996, by Annette Montoya, as Vice President of HS Resources,
Inc., a Delaware corporation, on behalf of the corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th
day of April, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc. in
its capacity as Manager of Wattenberg Gas Investments, LLC, a Delaware limited
liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
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SCHEDULE 1
SIDETRACK WELLBORE TERMS
1. DEFINITIONS:
"Sidetrack Wellbore" as used in this agreement shall mean and
include all down hole operations performed in an existing well (a "Well") in an
attempt to establish production through a sidetrack wellbore from a formation
in which the Well may or may not currently be completed.
2. EXPENSES OF SIDETRACK WELLBORES:
The costs and expenses of all Sidetrack Wellbore operations
shall be borne in accordance with the provisions of Section 13.6 of the
Purchase Agreement.
3. OWNERSHIP OF WELL AND EQUIPMENT:
The wellhead equipment and down hole equipment through the
depth where the Sidetrack Wellbore commences shall be owned equally by the
owners of the Sidetrack Wellbore and the Wellbore. The tubing and equipment
run on or in the tubing string shall be owned by the owners of the Well and/or
Sidetrack Wellbore being served by the tubing. The casing in the Well below
the depth where the Sidetrack Wellbore commences shall be owned by the owners
of the Well. The lease facilities shall be owned by the owners of the Well or
Sidetrack Wellbore being served thereby, and if both the Well and Sidetrack
Wellbore are being served, they shall be owned equally by such owners.
4. OPERATING RIGHTS OF OWNERS:
The rights, duties and obligations of the owners of Wells
containing a Sidetrack Wellbore, as set out in the operating or other
agreements governing the operation of such wellbores, are not changed, altered
or amended by these terms except as specifically provided herein.
(a) Subject to the further provisions hereof, the owners of a
Well and the owners of the associated Sidetrack Wellbore each have the right to
enter the Well. If the owners of a Sidetrack Wellbore desire to drill, operate
and maintain a Sidetrack Wellbore in the Well and such work will necessitate
the shutting in of the existing production in the Well, the owners of the Well
shall be given reasonable notice of such Sidetrack Wellbore and the estimated
number of days required to complete such work. Such notice shall be given
promptly, either before or after Sidetrack Wellbore drilling or rework
operations commence.
(b) Should a blowout, explosion, fire or other sudden
emergency occur during the course of drilling or rework of any
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<PAGE> 45
Sidetrack Wellbore, the owners drilling such Sidetrack Wellbore shall, at their
expense, take such steps as are necessary to deal with the emergency and to
safeguard life and property, and shall, as promptly as possible, report the
emergency and the action taken to the owners of the Well.
(c) Should a blowout, explosion, fire or other sudden
emergency occur at any time other than during the course of drilling or rework
of a Sidetrack Wellbore, the cost of dealing with any such emergency shall be
borne equally by the owners of the Well and the Sidetrack Wellbore.
5. LIABILITIES OF THE OWNERS:
If a Sidetrack Wellbore is drilled in a Well, the liabilities
of the owners of the Well and the Sidetrack Wellbore shall be as follows:
(a) No liability shall be incurred by the owners of the
Sidetrack Wellbore for causing production to cease from the Well during the
time drilling or rework operations are being conducted on the Sidetrack
Wellbore, as long as such operations are conducted with diligence and without
unreasonable delay; provided, however that if the number of days required to
complete Sidetrack Wellbore operations results in a cessation of production
from the Well for a period greater than 90 days, the owners of the Sidetrack
Wellbore shall pay to the owners of the Well an amount equal to the lesser of
(i) the product of $0.15 multiplied by the average daily production rate from
the Well (in MMBTU/day) prior to the cessation of production for each day that
the Well does not produce after such 90-day period, or (ii) an amount equal to
the fair market value of the last 5% of the reserves associated with the Well
as of the date the Well was acquired by the owners of the Well, based on a
reserve evaluation conducted in accordance with the procedures of the
Securities and Exchange Commission and using an annual discount rate of 10%.
Such payment shall be made within 60 days of the date such obligation accrues.
As an alternative to making a payment under (i) or (ii) immediately above, the
owners of the Sidetrack Wellbore may exercise their rights under an appropriate
Option to Purchase Oil and Gas Interests between HS Resources, Inc. and
Wattenberg Gas Investments, LLC.
(b) If the Sidetrack Wellbore drilling or rework operations
are continued for a period which might cause the termination of a lease being
maintained by production from the Well and any such lease terminates because of
the Sidetrack Wellbore operations, the owners of the Sidetrack Wellbore shall
be liable to the owners of the Well for an amount equal to the fair market
value of the last 5% of the reserves associated with the Well as of the date
the Well was acquired by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities and Exchange
Commission and using an annual discount rate of 10%. Such payment shall be
made
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<PAGE> 46
within 60 days of the date such obligation accrues. As an alternative to
making a payment under the foregoing provisions of this Section 5(b), the
owners of the Sidetrack Wellbore may exercise their rights under an appropriate
Option to Purchase Oil and Gas Interests between HS Resources, Inc. and
Wattenberg Gas Investments, LLC.
(c) If the Sidetrack Wellbore drilling operations disturb or
remove the means of separation of the reserves in the Well from the reserves to
be exploited from the Sidetrack Wellbore, or otherwise cause a permanent
cessation or reduction of production from the Well, the Operator shall, before
and after the operation, conduct a test of the Well for the purpose of
determining whether or not the producing capacity of the formation completed in
the Well has been impaired, by employing the procedure set forth as follows:
(1) The producing capacity of the Well shall be
determined by comparing the actual production before and after
the Sidetrack Wellbore drilling operations during the thirty
(30) days in which there was actual production immediately
before and after such operations, with the Well producing
under similar pressure differential and other conditions. If
the producing conditions or equipment size are different, an
appropriate applicable method as jointly agreed to by owners
of the Sidetrack Wellbore and the owners of the Well will be
utilized to determine the effect on deliverabilities which the
Sidetrack Wellbore drilling operations caused.
(2) If the producing capacity of the Well has been
reduced in excess of fifty percent (50%), and there is no
cause for such reduction other than the Sidetrack Wellbore
operations, damages will be deemed to have occurred. If
damage has occurred, the rights and liabilities between the
owners of the Sidetrack Wellbore and the owners of the Well
shall be adjusted in accordance with the following provisions
of this Section 5(c)(2), which adjustments shall constitute
the sole and exclusive remedies of the owners of the Well for
damage to the producing Well(s).
The owners of the Sidetrack Wellbore may, at their sole cost,
risk and expense, attempt to restore the Well to 50% or more
of its former capacity. If the attempt is unsuccessful, or if
no attempt is made, the owners of the Sidetrack Wellbore shall
pay damages to the owners of the Well in an amount equal to
the fair market value of the last 5% of the reserves
associated with the Well as of the date the Well was acquired
by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities
and Exchange Commission and using an annual discount rate
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<PAGE> 47
of 10%. Such payment shall be made within 60 days of the date
such obligation accrues. As an alternative to making a
payment under the foregoing provisions of this Section
5(c)(2), the owners of the Sidetrack Wellbore may exercise
their rights under an appropriate Option to Purchase Oil and
Gas Interests between HS Resources, Inc. and Wattenberg Gas
Investments, LLC.
6. CLASSIFICATION OF PAYMENTS
Any payment under Section 5 above, received by the owners of
the Well(s), shall not be considered as Gross Proceeds or Other Income for
purposes of the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated April 25, 1996 between HS Resources, Inc. and
Wattenberg Gas Investments, LLC.
-4-
<PAGE> 48
SCHEDULE 2
PAYMENT SCHEDULE OF THE PRODUCTION PAYMENT
Date Payment Interest
- - --------------------------------------------------------------------------------
<PAGE> 49
EXHIBIT D
OPTION TO PURCHASE OIL AND GAS INTERESTS
This Option to Purchase Oil and Gas Interests (this "Option")
is granted effective as of May 1, 1996 by Wattenberg Gas Investments, LLC, a
Delaware limited liability company, 82 Devonshire Street, R22C, Boston,
Massachusetts 02109 ("Grantor") to HS Resources, Inc., a Delaware corporation,
1999 Broadway, Suite 3600, Denver, Colorado 80202 ("Grantee").
For $10.00 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Grantor grants and
conveys to Grantee the exclusive and irrevocable option to purchase from time
to time all or any portion of the following (the "Subject Interests") upon the
terms and conditions set forth herein (the "Option"):
A. All of Grantor's right, title and interest
in and to the oil and gas leases and mineral interests
described in Exhibit A, insofar and only insofar as said
leases and mineral interests cover the right to produce the
wells described in Exhibit B from the intervals in such wells
identified in Exhibit B as of the Option Effective Date (the
above described interests in such leases and mineral interests
being herein called the "Leases" and the above described
interest in such wells being herein called the "Wells"),
subject to any restrictions, exceptions, reservations,
conditions, limitations, burdens, contracts, agreements and
other matters applicable to the Leases and the Wells, and
excluding such portion of the Leases and the Wells which were
not conveyed to Grantor because of Defective Interests or
which were determined to be Excluded Assets (as such terms are
defined in the Purchase and Sale Agreement between Grantor and
Grantee dated December 1, 1995, as amended by that First
Amendment to Purchase and Sale Agreement, Assignment, Option,
Management Agreement, Gas Purchase Agreement and Limited Power
of Attorney dated April 25, 1996 (the "Purchase Agreement"),
and such exclusions being referred to herein as the "Reserve
Reductions");
B. The right, title and interest of Grantor in
and to overriding royalty interests in the Leases insofar and
only insofar as the Leases cover the wellbores associated with
the Wells from the producing intervals identified in Exhibit
B;
C. To the extent affected, the right, title and
interest of Grantor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization, pooling,
operating and communitization agreements, declarations and
orders affecting the
D-1
<PAGE> 50
Leases and Wells, and in and to the properties covered and the
units created thereby;
D. To the extent affected, the right, title and
interest of Grantor in and to the personal property and
fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and
other personal property and oil field equipment appurtenant to
such Wells; provided, however, that Grantor shall remain
co-owner of any personal property appurtenant to any property
owned by Grantor that is not exclusively part of the Wells;
E. To the extent affected, the right, title and
interest of Grantor in and to and under, or derived from, the
presently existing and valid gas sales, purchase, gathering
and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way,
easements, permits and surface leases and other contracts,
agreements and instruments (but specifically excluding any
management agreements), only in relevant part to the extent
and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in item C above; provided, however,
that Grantor shall remain co-owner of any agreements,
including unitization and pooling agreements, if they pertain
to any property owned by Grantor that is not exclusively part
of the Leases or Wells.
1. EXERCISE OF THE OPTION. The Option may be exercised
as follows:
a. PRIOR TO JANUARY 1, 2003. From the date
of this Option until January 1, 2003, Grantee has the right to exercise the
Option, without penalty, one or more times to purchase up to a cumulative total
of 15% of the Subject Interests (by volume of the sum of the estimated reserves
for such Subject Interests under the Freedom Reserve Report contemplated under
the Purchase Agreement), less Reserve Reductions, if any (such difference, the
"Total Reserves"). If Grantee exercises the Option to purchase a portion of
the Subject Interests and such portion by itself, or when added to any other
portion of the Subject Interests previously purchased by Grantee pursuant to an
earlier exercise of the Option, exceeds 15% of the Subject Interests by volume
of the Total Reserves then, in addition to the Option Price, Grantee shall pay
to Grantor a penalty payment as set forth below, subject to certain exceptions.
At the time Grantee exercises the Option and for the first time a cumulative
total of more than 15% of the Subject Interests have been or are to be
repurchased, then the penalty payment shall be determined based on the
cumulative total of the Subject Interests purchased. If Grantee exercises the
Option again for an additional incremental group of Subject Interests, then the
penalty payment
D-2
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shall be determined based on the incremental Subject Interests purchased. The
foregoing 15% threshold shall be applicable in the aggregate to (i) the Subject
Interests under this Option and (ii) the "Subject Interests" under the Option
to Purchase Oil and Gas Interests dated effective December 1, 1995 and recorded
December 20, 1995 at Reception No. 132528 in the real property records of Adams
County, Colorado, December 20, 1995 at Reception No. 2468473 in the real
property records of Weld County, Colorado, and December 21, 1995 at Reception
No. 479554 in the real property records of Yuma County, Colorado (the "Original
Option"). The penalty provisions under clauses (1) and (2) below may be
effected by Special Purchases under this Option or the Original Option, in
which case the penalty provisions of this Option or the Original Option shall
apply to the Subject Interests purchased under this Option or the Original
Option, respectively.
(1) Penalty Payment Before 2000.
If the Option Effective Date is on or before December 31,
1999, Grantee shall pay to Grantor an amount equal to the
product obtained by multiplying $200,000 by a fraction, the
numerator of which is the sum of the volume of estimated
reserves for the Subject Interests (as set forth in the
Reserve Report, less applicable Reserve Reductions) which
Grantee desires to purchase and the denominator of which is
the volume of Total Reserves (the "Reserve Fraction").
(2) Penalty Payment, 2000 through
2002. If the Option Effective Date is between January 1, 2000
and December 31, 2002, Grantee shall pay to Grantor an amount
equal to the product obtained by multiplying $150,000 by the
applicable Reserve Fraction.
The foregoing penalty payment amounts shall not be payable if Grantee exercises
the Option on or before December 31, 2002 in its entirety with respect to
paragraphs (i) through (vii) below, or in part with respect to paragraphs (vi)
through (vii) below, in each case which it may do from time to time, because:
(i) Credit Payment Amounts (as defined in the
Wellbore Assignment of Oil and Gas Leases
with Reservation of Production Payment dated
effective May 1, 1996 between Grantor and
Grantee (the "Assignment")) are no longer
paid or credited to Grantee;
(ii) a Tax Audit (as defined in the Purchase
Agreement) has commenced and Grantor has not
waived its right to an escrow pursuant to
Section 9.4 of the Purchase Agreement;
D-3
<PAGE> 52
(iii) the Management Agreement dated effective
December 1, 1995 between Grantor and
Grantee, or any successor agreement (the
"Management Agreement") is terminated (other
than by or on account of a breach thereof by
Grantee), is held invalid or void, or
Grantor or its successors or assigns fails
to perform thereunder;
(iv) Grantor breaches the Purchase Agreement or
any agreement contemplated thereunder (other
than any obligation of Grantor to pay
Expense Amounts in excess of Credit Payment
Amounts (as such terms are defined in the
Management Agreement)), which breach if
uncured would have a material adverse effect
on Grantee and which has not been cured by
Grantor within 60 days of receipt of a
written notice from Grantee of such breach;
(v) payments remain unsatisfied for a period
exceeding 60 days under one or both of the
Contribution Agreements or one or both of
the Guaranty Agreements contemplated by the
Purchase Agreement;
(vi) Grantor denies approval of certain
operations on the Subject Interests in
accordance with Section 2.1(p) or (q) of the
Management Agreement and Grantee elects to
exercise the Option on the properties
affected by the proposed operations rejected
by Grantor;
(vii) an aggregate of $9,000,000 in Credit Payment
Amounts under the Purchase Agreement has
been credited or paid to Grantee.
Notwithstanding anything herein provided to the contrary, prior to December 31,
1996, Grantee agrees that it will not exercise the Option and purchase the
Subject Interests so that Grantee may enter into a transaction with a third
party under a substantially similar arrangement as the transaction contemplated
by the Purchase Agreement for the primary purpose of monetizing the tax credits
under Section 29 of the Code, attributable to production from the Subject
Interests at a more favorable rate. If Grantee breaches its agreement set
forth in the immediately preceding sentence, Grantee shall be obligated to pay
Grantor all profits received by Grantee from such third party as a result of
the consummation of such transaction with the third party.
b. ON OR AFTER JANUARY 1, 2003 UNTIL
JANUARY 1, 2005. From January 1, 2003 until January 1, 2005, Grantee has the
right to exercise the Option one time to purchase
D-4
<PAGE> 53
the remaining Subject Interests as an entirety without penalty for the
associated Option Price.
c. PARTIAL EXERCISE LIMITED. Grantee may
not exercise the Option to purchase in the aggregate more than 25% of the Total
Reserves unless Grantee exercises the Option as to all of the Subject
Interests; provided, however that this limitation shall not apply to exercises
of the Option contemplated by Paragraphs 1.a.(vi) and (vii) above.
d. MINIMUM PAYMENT. If the Option is
exercised by Grantee, from time to time, on or prior to December 31, 1998,
Grantee shall pay to Grantor a payment equal to (i) $340,000, if the Option is
exercised in full, or (ii) $340,000 multiplied by the Reserve Fraction if the
Option is exercised in part, which amount shall apply to, and be a direct
off-set of, the Option Price for all purchased Subject Interests. In no event
shall the aggregate of payments under the immediately preceding sentence ever
exceed $340,000. The penalties set forth in Paragraph 1.a. are in addition to
the minimum payment set forth in the immediately preceding sentence.
2. OPTION TERM. The Option shall terminate on January
1, 2005 (the "Option Term").
3. METHOD OF EXERCISE. To exercise the Option within
the Option Term, Grantee must deliver written notice of such exercise,
delivered personally, by prepaid telecopy or similar means (with signed
confirmed copy to follow by mail in the manner provided below), or by
registered or certified mail, postage prepaid, or by delivery service for which
a receipt is obtained, at the addresses set forth below, and shall be deemed
delivered on the date of receipt.
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
D-5
<PAGE> 54
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Grantor may specify an alternative address by giving written notice to Grantee
of such change.
4. OPTION EFFECTIVE DATE. The effective date of a
purchase of all or any portion of the Subject Interests pursuant to the Option
(the "Option Effective Date") shall be the first day of the month following the
date Grantor receives the notice of exercise of the Option specifying the
Subject Interests which Grantee desires to purchase pursuant to such exercise
of the Option.
5. OPTION PRICE. The purchase price (the "Option
Price") for the Subject Interests, or any portion thereof, shall be the
appraised current fair market value of the Subject Interests in question as of
the Option Effective Date. Unless Grantor and Grantee agree otherwise, the
appraised fair market value of the Subject Interests in question shall be the
present value as of the Option Effective Date of the future net revenue
estimated to be received therefrom, determined in accordance with generally
accepted engineering principles in effect at the time, by Williamson Petroleum
Consultants, Inc. or some other nationally recognized petroleum engineering
firm agreed upon by Grantor and Grantee. The price of natural gas used in the
forecast shall be based on an unescalated average gas price for the most recent
12-month period, as quoted in the first monthly publication of Inside FERC's
Gas Market Report for the Colorado Interstate Gas Co. ("CIG") Index (or a
mutually agreeable substitute index if such index is no longer published), less
an unescalated average gathering and transportation cost from wellhead to the
CIG mainline for the most recent 12-month period, multiplied by a factor of
1250 BTU/SCF; the price of hydrocarbon liquids used in the forecast shall be
based on the unescalated actual price received on the Subject Interests during
the most recent 12-month period; and the costs used in the forecast shall be
the unescalated average of the monthly costs attributable to the Subject
Interests in question during the most recent 12-month period preceding the
Option Effective Date. The discount rate to be applied shall be the 6-month
London Interbank Offered Rate in effect on the date on which the fair market
value determination is made plus 6%.
6. TERMS OF PURCHASE. Upon the closing of the purchase
of all or any portion of the Subject Interests pursuant to an exercise of the
Option, Grantee shall be entitled to receive the proceeds, accounts receivable,
income, revenues,
D-6
<PAGE> 55
monies and other items attributable to the Subject Interests in question from
and after the Option Effective Date in question and same shall be paid over to
Grantee, and Grantee shall be liable to pay the expenses attributable to the
Subject Interests in question from and after the Option Effective Date in
question. Subject to the terms of the Assignment, Grantor shall be entitled to
receive the production from the Subject Interests in question prior to the
Option Effective Date in question and shall be liable to pay the expenses
attributable to the Subject Interests in question prior to the Option Effective
Date in question. Upon the closing of the purchase of all or any portion of
the Subject Interests pursuant to an exercise of the Option, Grantee shall
assume all obligations and liabilities attributable to the ownership or
operation of the Subject Interests in question on and after the Option
Effective Date in question, including the contractual and regulatory
obligations in connection with the Subject Interests in question, and Grantee
shall defend, indemnify and hold harmless Grantor (and its successors, assigns,
members, officers, managers (including the employees, representatives, agents,
successors and assigns of such members), employees, representatives, agents and
consultants) from and against all claims, demands, actions, obligations,
liabilities and expenses (including reasonable attorney, consultant and expert
witness fees) arising from such obligations and liabilities assumed by Grantee
hereunder.
7. PAYMENT AND CLOSING. The closing of a purchase
pursuant to an exercise of the Option shall occur at the offices of Grantee at
9:00 a.m., on a mutually agreed upon business day no later than 30 days from
the date Grantor receives the notice of an exercise of the Option. At the
closing, Grantee shall deliver by wire transfer of immediately available U.S.
funds, to the account designated by Grantor, the Option Price for the Subject
Interests in question, and Grantor shall deliver to Grantee an assignment fully
executed and in recordable form of the Subject Interests in question dated
effective as of the Option Effective Date in question and in form and substance
reasonably satisfactory to Grantee with warranty of title as to all matters
arising by, through or under Grantor, but not otherwise.
8. GOVERNING LAW. The validity, effect and construction
of this Option shall be governed by the law of the State of Colorado, without
reference to its conflict of laws provisions.
9. SPECIFIC PERFORMANCE. In addition to any other
remedy which Grantee may enjoy under this Option, at law or in equity, Grantee
shall have the right to seek and enforce the remedy of specific performance by
Grantor of its obligations under this Option.
10. FURTHER ASSURANCES. Grantor and Grantee agree to
execute and deliver to the other all such other and additional
D-7
<PAGE> 56
instruments, notices, division orders, transfer orders and other documents and
to do all such other and further acts and things as may be necessary to more
fully and effectively grant, convey and assign to Grantee the rights, titles,
interests and estates conveyed to Grantee hereby or intended to be so conveyed.
11. COUNTERPARTS. This Option may be executed in
multiple originals, all of which are identical except that, for the convenience
of recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A which include descriptions of properties located
in the recording jurisdiction in which the particular counterpart is being
recorded. All of such counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Option on
this 25th day of April, 1996.
GRANTOR:
Wattenberg Gas Investments, LLC
By: its Manager, Fontenelle, Inc.
Attest: By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
- - --------------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
GRANTEE:
HS Resources, Inc.
Attest: By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
- - --------------------------------
Name: James M. Piccone
Title: Secretary
D-8
<PAGE> 57
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th
day of April, 1996, by Annette Montoya as Vice President of HS Resources, Inc.,
a Delaware corporation, on behalf of the corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th
day of April, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware Corporation, in its capacity as Manager of Wattenberg Gas Investments,
LLC, a Delaware limited liability company on behalf of the Company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
D-9
<PAGE> 58
EXHIBIT E
FREEDOM RESERVE REPORT
SEE ATTACHED
E-1
<PAGE> 59
EXHIBIT F
PREFERENTIAL RIGHTS AND CONSENTS
NONE
F-1
<PAGE> 60
EXHIBIT G
PREPAYMENTS
NONE
G-1
<PAGE> 61
EXHIBIT H
GAS IMBALANCES
NONE
H-1
<PAGE> 62
EXHIBIT I
OPERATIONS IN PROGRESS
SEE ATTACHED
I-1
<PAGE> 63
EXHIBIT J
HYDROCARBON SALES CONTRACTS
J-1
<PAGE> 64
EXHIBIT K
LEGAL PROCEEDINGS
During 1994, HS Resources, Inc. (the "Company") was named as a
defendant, in addition to three other companies, in an action brought by
certain landowners in Colorado. The action challenges certain mineral
reservations of one of the Company's assignor in its original surface
conveyance involving two small tracts of the Company's minerals.
In February of 1995, the Company was named as one of many
defendants in a suit brought by several royalty owners in Northeast Colorado
seeking royalty payments on certain deductions from gas sales.
While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of either of these matters will have a material impact on
its financial condition or the results of operations.
K-1
<PAGE> 65
EXHIBIT L
TAX PARTNERSHIPS
NONE
L-1
<PAGE> 66
EXHIBIT M
NO NGPA CERTIFICATE FILED
WELL OPERATOR LOCATION
---- -------- --------
VICTOR C29-10 HS Resources, Inc. NWSE 29-T4N-R64W
VICTOR G14-14 HS Resources, Inc. SESW 14-T4N-R64W
M-1
<PAGE> 67
EXHIBIT N
NON-FOREIGN OWNERSHIP DISCLOSURE
SEE ATTACHED FORM - DR 1083
REGARDING
COLORADO REAL PROPERTY WITHHOLDING TAX
N-1
<PAGE> 68
EXHIBIT O
RATIFICATION OF OBLIGATIONS
THIS RATIFICATION OF OBLIGATIONS (this "Ratification") dated
April 25, 1996, but effective May 1, 1996 is entered into by FMR Corp., a
Massachusetts corporation ("FMR"), State Street Boston Corporation, a
Massachusetts corporation ("State Street"), Fontenelle, Inc., a Delaware
corporation and affiliate of FMR ("Fontenelle"), Bald Prairie, Inc., a Delaware
corporation and affiliate of FMR ("Bald Prairie"), and SSB Investments, Inc., a
Massachusetts corporation and affiliate of State Street ("SSBI"). FMR, State
Street, Fontenelle, Bald Prairie and SSBI are collectively referred to herein
as the "Parties," and singularly as a "Party."
Recitals
A. Fontenelle, Bald Prairie and SSBI are members (the
"Members") of Wattenberg Gas Investments, LLC, a Delaware limited liability
company ("WGI"), in accordance with the terms of the Operating Agreement of WGI
dated as of November 8, 1995, and amended and restated as of April 25, 1996
(the "LLC Agreement").
B. Pursuant to Article 3 of the LLC Agreement, the
Members are obligated to make certain capital contributions with respect to
WGI.
C. WGI entered into that certain Purchase and Sale
Agreement dated December 1, 1995 with HS Resources, Inc. (the "Purchase
Agreement"), wherein WGI acquired certain oil and gas interests located in
Colorado (the "Assets").
D. Pursuant to the Purchase Agreement, Fontenelle and
Bald Prairie executed a Contribution Agreement with WGI dated December 14, 1995
(the "FMR Contribution Agreement"), wherein they agreed to contribute funds to
WGI in accordance with the LLC Agreement. FMR entered into a Guaranty
Agreement with WGI dated December 14, 1995 (the "FMR Guaranty") to guarantee
the payment and performance of Fontenelle's and Bald Prairie's obligations
under the FMR Contribution Agreement. Fontenelle and Bald Prairie desire to
amend Section 1 of the FMR Contribution Agreement, as set forth herein, and FMR
acknowledges and accepts such amendment for purposes of the FMR Guaranty.
E. Pursuant to the Purchase Agreement, SSBI executed a
Contribution Agreement with WGI dated December 14, 1995 (the "SS Contribution
Agreement"), wherein it agreed to contribute funds to WGI in accordance with
the LLC Agreement. State Street entered into a Guaranty Agreement with WGI
dated December 14, 1995 (the "SS Guaranty") to guarantee the payment and
performance of SSBI's obligations under the SS Contribution Agreement.
O-1
<PAGE> 69
F. WGI and HS entered into a First Amendment to Purchase
and Sale Agreement, Assignment, Option, Management Agreement, Gas Purchase
Agreement and Limited Power of Attorney dated April 25, 1996 (the "First
Amendment"), wherein HS agreed to sell and WGI agreed to purchase certain oil
and gas interest which HS recently acquired from Freedom Energy, Inc. (the
"Freedom Assets") and to provide for other amendments and modifications to the
Purchase Agreement.
G. The Parties desire to ratify their respective
obligations under the FMR Contribution Agreement, as amended, the FMR Guaranty,
the SS Contribution Agreement and the SS Guaranty which were given with respect
to the Assets under the Purchase Agreement to include the Freedom Assets under
the First Amendment.
NOW THEREFORE, in consideration of the mutual benefits the
Parties will each receive as a result of WGI entering into the First Amendment,
the Parties each respectively agree as follows:
1. Amendment to FMR Contribution Agreement. Fontenelle
and Bald Prairie agree to an amendment, and FMR consents to such amendment, of
Section 1 of the FMR Contribution Agreement to delete the provisions of Section
1 in its entirety and to replace such provisions with the following:
Fontenelle and Bald Prairie hereby unconditionally agree
jointly and severally to contribute to WGI, when and as
required to be contributed, an amount (the "Contribution
Amount") equal to 76% multiplied by the total amount of
capital required to be contributed to WGI by the members of
WGI pursuant to Article 3 of the LLC Agreement.
2. Ratification. The Parties ratify their respective
individual and joint, if any, obligations under the FMR Contribution Agreement,
as amended in Section 1 above, the FMR Guaranty, the SS Contribution Agreement
and the SS Guaranty to include and incorporate the Freedom Assets into and with
the Assets under the Purchase Agreement.
3. No Conditions. Each Party represents as to itself
that (i) there are no conditions precedent to the effectiveness of this
Ratification that have not been satisfied or waived, (ii) this Ratification has
been duly authorized by all necessary corporate action, (iii) this Ratification
is binding upon and enforceable against the Party, and (iv) that the
undersigned officer of the Party has determined that this Ratification may
reasonably be expected to benefit, directly or indirectly, the Party.
4. Counterparts. This Ratification may be executed in
one or more counterparts, all of which shall be considered one
O-2
<PAGE> 70
and the same instrument, and shall become effective when one or more
counterparts have been signed by each Party.
IN WITNESS WHEREOF, the Parties have caused this Ratification
to be duly executed and delivered by their respective duly authorized
representatives as of the date first written above.
FMR CORP. STATE STREET BOSTON CORPORATION
By: By:
---------------------------- -----------------------------
Name: Gary L. Greenstein Name: William M. Reghitto
Title: Vice President Title: Vice President
FONTENELLE, INC. SSB INVESTMENTS, INC.
By: By:
---------------------------- -----------------------------
Name: Gary L. Greenstein Name: Susan A. Feig
Title: Vice President Title: Vice President
BALD PRAIRIE, INC.
By:
----------------------------
Name: Gary L. Greenstein
Title: Vice President
O-3
<PAGE> 71
EXHIBIT P
CONVEYANCE OF DRILLING RIGHTS
THIS CONVEYANCE OF DRILLING RIGHTS (this "Conveyance") dated
April 25, 1996, but effective May 1, 1996 (the "Effective Date") is from
WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited liability company with
offices at 82 Devonshire Street, R22C, Boston, Massachusetts 02109 (hereinafter
referred to as "Assignor"), to HS RESOURCES, INC., a Delaware corporation with
offices at 1999 Broadway, Suite 3600, Denver, Colorado 80202 (hereinafter
referred to as "Assignee").
Recitals
A. Assignor and Assignee are parties to that Wellbore
Assignment of Oil and Gas Leases with Reservation of Production Payment dated
effective December 1, 1995 and recorded December 20, 1995 at Reception No.
132527 in the real property records of Adams County, Colorado, December 20,
1995 at Reception No. 2468472 in the real property records of Weld County,
Colorado, and December 21, 1995 at Reception No. 479553 in the real property
records of Yuma County, Colorado (collectively, the "Assignment").
B. Assignor and Assignee are parties to that First
Amendment to Purchase and Sale Agreement, Assignment, Option, Management
Agreement, Gas Purchase Agreement and Limited Power of Attorney of even date
herewith (the "First Amendment").
C. The leases subject to the Assignment are defined in
the First Amendment as the "Leases." The Leases are limited to certain
formations in certain wells. The wells subject to the Assignment are defined
in the First Amendment as the "Wells."
D. Pursuant to the Assignment, Assignee assigned to
Assignor all of Assignee's right, title and interest in and to the Leases,
limited to the wellbore of the Wells and to the formations identified in the
Assignment.
E. Pursuant to the First Amendment, Assignor agreed to
convey to Assignee certain drilling rights in the Wells and Leases, as set
forth herein.
FOR AND IN CONSIDERATION of (i) Assignee entering into the
First Amendment and (ii) the mutual agreements, covenants and obligations set
forth herein, Assignor and Assignee agree as follows:
P-1
<PAGE> 72
Conveyance
1. Assignor does hereby BARGAIN, SELL, TRANSFER, SET
OVER, GRANT, ASSIGN, CONVEY and DELIVER unto Assignee the right to drill
sidetrack wellbores and to produce oil, gas and other hydrocarbons from
completions in such sidetrack wellbores from the Wells identified in Exhibit B
attached hereto with respect to the Leases identified in Exhibit A attached
hereto and limited to the formations identified in Exhibit B, insofar and only
insofar as (i) such drilling operations are in accordance with local, state and
federal governmental authorities having jurisdiction over such operations, or
(ii) such drilling operations are conducted primarily to exploit oil and gas
reserves which cannot be economically or efficiently produced from the
wellbores of the Wells conveyed hereunder under the Assignment (the "Drilling
Rights").
This Conveyance includes, to the extent Assignor may lawfully
assign same, Assignor's corresponding right, title, interest and estate in and
to the property and rights incident to the Drilling Rights and the lands
covered thereby or unitized therewith, including, without limitation:
a. A corresponding right to the presently existing oil,
gas or mineral unitization, pooling and communitization
agreements, declarations and orders relating to the Leases and
the units associated therewith (including, without limitation,
all units formed under orders, regulations, rules or other
official acts of any federal, state or other governmental
agency having jurisdiction), which relate to any of the
Leases.
b. A corresponding right to the presently existing oil
and gas, sales, purchase, exchange and processing contracts,
casinghead gas contracts, operating agreements, joint venture
agreements, area of mutual interest agreements, farmout and
farmin agreements and all other contracts, agreements and
instruments which relate to any of the Leases or Wells and to
the production of oil, gas and other minerals from or
attributable to the Leases or Wells, but only insofar as such
contracts, agreements and instruments relate to the rights
conveyed herein.
c. A corresponding right to all personal property,
improvements, lease and well equipment, easements, permits,
licenses, servitudes and rights-of-way situated upon or used
or useful or held for future use in connection with the
exploration, development or operation or maintenance of the
Leases or Wells, or any unit or units or operation or
maintenance of the Leases or Wells, or any unit or units in
which part or parts of the Leases or Wells may be included,
provided this
P-2
<PAGE> 73
Conveyance is subject to the terms and conditions of each
easement, license, permit and servitude, including any
limitation upon the right of assignment.
d. A corresponding right to Assignor's right, title,
interest and estate, whether real, personal or mixed, of every
nature and description in and to the lands described on
Exhibit A, whether such right, title, claim or interest be
under and by virtue of an oil, gas and mineral lease, an
operating agreement, a unitization, pooling or communitization
agreement, declaration or order, a division order, a transfer
order or any type of contract, conveyance or instrument, or
under and by virtue of any type of claim or title, legal or
equitable recorded or unrecorded, and even though Assignor's
interests therein be incorrectly described in or a description
of such interest be omitted from the exhibit thereto.
TO HAVE AND TO HOLD the above-described Drilling Rights,
together with all and singular the rights and privileges appertaining thereto,
unto Assignee and its successors and assigns forever, subject to all existing
burdens on the Leases and the matters set forth below.
Assignor and Assignee shall have concurrent rights of ingress
and egress to and from the lands covered by the Leases for the purpose of
exploring for, drilling for, producing and marketing the hydrocarbons owned by
each of them at their respective depths and locations under the terms of the
Leases. Further, each party shall own and hold proportionally any and all
rights granted in the Leases or otherwise relating thereto pursuant to any
agreements, surface leases, permits, rights-of-way, pooling declarations,
licenses, governmental regulations or other grant or instrument as incident to
and for the purpose of exploring for, drilling for and producing the minerals
owned by them in their respective depths and locations including the right to
drill pursuant to this Conveyance, lay and maintain pipelines and waterlines,
dig pits, erect structures and to perform any and all other operations incident
to the rights and interests therein.
Assignee shall not be entitled to exercise the Drilling Rights
as to any well if such exercise would likely result in a termination of
production from the associated Well for a period exceeding 90 days. Assignee
shall promptly give Assignor reasonable notice concerning such exercise,
provided that such notice may be given either before or after the commencement
of the drilling of a sidetrack wellbore in a Well. All exercises of the
Drilling Rights must be conducted in accordance with the provisions of the
Sidetrack Wellbore Terms attached hereto as Schedule 1.
P-3
<PAGE> 74
It is understood and agreed that this Conveyance is made and
accepted subject to all terms and conditions of the First Amendment, which
shall survive the execution of this Conveyance in accordance with its terms and
which First Amendment is made by reference part hereof for all purposes. In
the event there is any conflict between the terms of this Conveyance and the
First Amendment, the terms of the latter shall prevail.
This Conveyance is made without warranty of title, either
expressed or implied, except that Assignor does hereby bind itself to warrant
and defend title to the described interests unto Assignee against every person
whomsoever may claim the Drilling Rights, or any part thereof, by, through or
under Assignor, but not otherwise.
Assignor and Assignee agree to execute such appropriate
federal or state agency forms to permit Assignee to realize the benefit and
enjoyment of the Drilling Rights. All such additional conveyances shall be
considered counterparts hereof and not additions hereto; all of the terms,
conditions and covenants of this Conveyance and the First Amendment shall be
deemed incorporated into such conveyances.
The provisions hereof shall be covenants running with the land
and shall be binding upon and inure to the benefit of the parties hereto, their
respective successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Conveyance
on this 25th day of April, 1996.
ASSIGNOR:
Wattenberg Gas Investments, LLC
By: its Manager, Fontenelle, Inc.
Attest: By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
- - --------------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
ASSIGNEE:
HS Resources, Inc.
Attest: By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
- - --------------------------------
Name: James M. Piccone
Title: Secretary
P-4
<PAGE> 75
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th
day of April, 1996, by Annette Montoya as Vice President of HS Resources, Inc.,
a Delaware corporation, on behalf of the corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th
day of April, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware Corporation, in its capacity as Manager of Wattenberg Gas Investments,
LLC, a Delaware limited liability company on behalf of the Company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
P-5
<PAGE> 76
SCHEDULE 1
SIDETRACK WELLBORE TERMS
1. DEFINITIONS:
"Sidetrack Wellbore" as used in this agreement shall mean and
include all down hole operations performed in an existing well (a "Well") in an
attempt to establish production through a sidetrack wellbore from a formation
in which the Well may or may not currently be completed.
2. EXPENSES OF SIDETRACK WELLBORES:
The costs and expenses of all Sidetrack Wellbore operations
shall be borne in accordance with the provisions of Section 13.6 of the
Purchase Agreement.
3. OWNERSHIP OF WELL AND EQUIPMENT:
The wellhead equipment and down hole equipment through the
depth where the Sidetrack Wellbore commences shall be owned equally by the
owners of the Sidetrack Wellbore and the Wellbore. The tubing and equipment
run on or in the tubing string shall be owned by the owners of the Well and/or
Sidetrack Wellbore being served by the tubing. The casing in the Well below
the depth where the Sidetrack Wellbore commences shall be owned by the owners
of the Well. The lease facilities shall be owned by the owners of the Well or
Sidetrack Wellbore being served thereby, and if both the Well and Sidetrack
Wellbore are being served, they shall be owned equally by such owners.
4. OPERATING RIGHTS OF OWNERS:
The rights, duties and obligations of the owners of Wells
containing a Sidetrack Wellbore, as set out in the operating or other
agreements governing the operation of such wellbores, are not changed, altered
or amended by these terms except as specifically provided herein.
(a) Subject to the further provisions hereof, the owners of a
Well and the owners of the associated Sidetrack Wellbore each have the right to
enter the Well. If the owners of a Sidetrack Wellbore desire to drill, operate
and maintain a Sidetrack Wellbore in the Well and such work will necessitate
the shutting in of the existing production in the Well, the owners of the Well
shall be given reasonable notice of such Sidetrack Wellbore and the estimated
number of days required to complete such work. Such notice shall be given
promptly, either before or after Sidetrack Wellbore drilling or rework
operations commence.
(b) Should a blowout, explosion, fire or other sudden
emergency occur during the course of drilling or rework of any
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<PAGE> 77
Sidetrack Wellbore, the owners drilling such Sidetrack Wellbore shall, at their
expense, take such steps as are necessary to deal with the emergency and to
safeguard life and property, and shall, as promptly as possible, report the
emergency and the action taken to the owners of the Well.
(c) Should a blowout, explosion, fire or other sudden
emergency occur at any time other than during the course of drilling or rework
of a Sidetrack Wellbore, the cost of dealing with any such emergency shall be
borne equally by the owners of the Well and the Sidetrack Wellbore.
5. LIABILITIES OF THE OWNERS:
If a Sidetrack Wellbore is drilled in a Well, the liabilities
of the owners of the Well and the Sidetrack Wellbore shall be as follows:
(a) No liability shall be incurred by the owners of the
Sidetrack Wellbore for causing production to cease from the Well during the
time drilling or rework operations are being conducted on the Sidetrack
Wellbore, as long as such operations are conducted with diligence and without
unreasonable delay; provided, however that if the number of days required to
complete Sidetrack Wellbore operations results in a cessation of production
from the Well for a period greater than 90 days, the owners of the Sidetrack
Wellbore shall pay to the owners of the Well an amount equal to the lesser of
(i) the product of $0.15 multiplied by the average daily production rate from
the Well (in MMBTU/day) prior to the cessation of production for each day that
the Well does not produce after such 90-day period, or (ii) an amount equal to
the fair market value of the last 5% of the reserves associated with the Well
as of the date the Well was acquired by the owners of the Well, based on a
reserve evaluation conducted in accordance with the procedures of the
Securities and Exchange Commission and using an annual discount rate of 10%.
Such payment shall be made within 60 days of the date such obligation accrues.
As an alternative to making a payment under (i) or (ii) immediately above, the
owners of the Sidetrack Wellbore may exercise their rights under an appropriate
Option to Purchase Oil and Gas Interests between HS Resources, Inc. and
Wattenberg Gas Investments, LLC.
(b) If the Sidetrack Wellbore drilling or rework operations
are continued for a period which might cause the termination of a lease being
maintained by production from the Well and any such lease terminates because of
the Sidetrack Wellbore operations, the owners of the Sidetrack Wellbore shall
be liable to the owners of the Well for an amount equal to the fair market
value of the last 5% of the reserves associated with the Well as of the date
the Well was acquired by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities and Exchange
Commission and using an annual discount rate of 10%. Such payment shall be
made
-2-
<PAGE> 78
within 60 days of the date such obligation accrues. As an alternative to
making a payment under the foregoing provisions of this Section 5(b), the
owners of the Sidetrack Wellbore may exercise their rights under an appropriate
Option to Purchase Oil and Gas Interests between HS Resources, Inc. and
Wattenberg Gas Investments, LLC.
(c) If the Sidetrack Wellbore drilling operations disturb or
remove the means of separation of the reserves in the Well from the reserves to
be exploited from the Sidetrack Wellbore, or otherwise cause a permanent
cessation or reduction of production from the Well, the Operator shall, before
and after the operation, conduct a test of the Well for the purpose of
determining whether or not the producing capacity of the formation completed in
the Well has been impaired, by employing the procedure set forth as follows:
(1) The producing capacity of the Well
shall be determined by comparing the actual production before
and after the Sidetrack Wellbore drilling operations during
the thirty (30) days in which there was actual production
immediately before and after such operations, with the Well
producing under similar pressure differential and other
conditions. If the producing conditions or equipment size are
different, an appropriate applicable method as jointly agreed
to by owners of the Sidetrack Wellbore and the owners of the
Well will be utilized to determine the effect on
deliverabilities which the Sidetrack Wellbore drilling
operations caused.
(2) If the producing capacity of the
Well has been reduced in excess of fifty percent (50%), and
there is no cause for such reduction other than the Sidetrack
Wellbore operations, damages will be deemed to have occurred.
If damage has occurred, the rights and liabilities between the
owners of the Sidetrack Wellbore and the owners of the Well
shall be adjusted in accordance with the following provisions
of this Section 5(c)(2), which adjustments shall constitute
the sole and exclusive remedies of the owners of the Well for
damage to the producing Well(s).
The owners of the Sidetrack Wellbore may, at their sole cost,
risk and expense, attempt to restore the Well to 50% or more
of its former capacity. If the attempt is unsuccessful, or if
no attempt is made, the owners of the Sidetrack Wellbore shall
pay damages to the owners of the Well in an amount equal to
the fair market value of the last 5% of the reserves
associated with the Well as of the date the Well was acquired
by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities
and Exchange Commission and using an annual discount rate
-3-
<PAGE> 79
of 10%. Such payment shall be made within 60 days of the date
such obligation accrues. As an alternative to making a
payment under the foregoing provisions of this Section
5(c)(2), the owners of the Sidetrack Wellbore may exercise
their rights under an appropriate Option to Purchase Oil and
Gas Interests between HS Resources, Inc. and Wattenberg Gas
Investments, LLC.
6. CLASSIFICATION OF PAYMENTS
Any payment under Section 5 above, received by the owners of
the Well(s), shall not be considered as Gross Proceeds or Other Income for
purposes of the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated effective December 1, 1995 between HS Resources, Inc.
and Wattenberg Gas Investments, LLC.
-4-
<PAGE> 80
EXHIBIT Q
MEMORANDUM OF FIRST AMENDMENT
THIS MEMORANDUM OF FIRST AMENDMENT (this "Memorandum") is
entered into this 25th day of April, 1996, but effective as of May 1, 1996 (the
"Effective Date"), by and between HS RESOURCES, INC., a Delaware corporation
having an address of 1999 Broadway, Suite 3600, Denver, Colorado 80202
("Seller") and WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited liability
company having an address of 82 Devonshire Street, R22C, Boston, Massachusetts
02109 ("Buyer"). Seller and Buyer are collectively referred to herein as the
"Parties."
Recitals
A. The Parties entered into that certain Purchase and
Sale Agreement dated December 1, 1995, wherein Buyer purchased from Seller
certain oil and gas leases, mineral interests and overriding royalty interests,
limited to certain formations in certain wellbores located in Adams, Weld and
Yuma Counties in the State of Colorado (referred to herein as the "Agreement").
B. Pursuant to the Agreement, Seller and Buyer entered
into (i) the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated effective December 1, 1995 and recorded December 20,
1995 at Reception No. 132527 in the real property records of Adams County,
Colorado, December 20, 1995 at Reception No. 2468472 in the real property
records of Weld County, Colorado, and December 21, 1995 at Reception No. 479553
in the real property records of Yuma County, Colorado (collectively, the
"Original Assignment"); (ii) the Option to Purchase Oil and Gas Interests dated
effective December 1, 1995 and recorded December 20, 1995 at Reception No.
132528 in the real property records of Adams County, Colorado, December 20,
1995 at Reception No. 2468473 in the real property records of Weld County,
Colorado, and December 21, 1995 at Reception No. 479554 in the real property
records of Yuma County, Colorado (collectively, the "Original Option"); and
(iii) the Management Agreement dated effective December 1, 1995, a memorandum
of which was recorded December 20, 1995 at Reception No. 132529 in the real
property records of Adams County, Colorado, December 20, 1995 at Reception No.
2468474 in the real property records of Weld County, Colorado, and December 21,
1995 at Reception No. 479555 in the real property records of Yuma County,
Colorado (collectively, the "Management Agreement").
C. Seller recently acquired certain additional mineral,
oil and gas leases and overriding royalty interests from Freedom Energy, Inc.,
a Colorado corporation (the "Freedom Leases") and certain wells (the "Freedom
Wells"). Such Freedom Leases and Freedom Wells, limited to certain formations
Q-1
<PAGE> 81
identified in Exhibit B attached hereto, are referred to herein as the "Freedom
Assets."
D. The Parties hereby give notice that they entered into
a First Amendment To Purchase and Sale Agreement, Assignment, Option,
Management Agreement, Gas Purchase Agreement and Limited Power of Attorney
dated April 25, 1996, but effective as of May 1, 1996 (the "First Amendment"),
whereby (i) Seller sold and Buyer purchased the Freedom Assets, and the Parties
amended the Agreement, the Management Agreement, and certain other documents to
include the Freedom Assets.
The operative provisions of the First Amendment are as
follows:
1. Exhibit A Supplement for Freedom Leases. The Exhibit
A attached to the Management Agreement and other documents was supplemented and
replaced with the Exhibit A attached to this Memorandum. References in the
Management Agreement and other documents to Lease(s) were defined to include
the Freedom Leases, and the provisions of those documents which apply to Leases
were made to apply to Freedom Leases to the extent such provisions were
applicable.
2. Exhibit B Supplement for Freedom Wells. The Exhibit
B attached to the Management Agreement and other documents was supplemented and
replaced with the Exhibit B attached to this First Amendment. References in
the Management Agreement and other documents to Well(s) were defined to include
the Freedom Wells, and the provisions of those documents which apply to Wells
were made to apply to Freedom Wells to the extent such provisions were
applicable.
3. Supplement to Assets. References in the Management
Agreement to Assets were defined to include the Freedom Assets; provided that
any references to "Effective Date" in the effective provisions of the
Management Agreement with respect to the Freedom Assets means the Effective
Date of this Memorandum.
4. Adjustment of Credit Payment Amount. The definition
of Credit Payment Amount in Section 1.1 of the Original Assignment was amended.
The reference to "$15,000,000" was deleted and replaced with "$9,000,000".
Correspondingly, the reference in Paragraph 1.a.(ix) of the Original Option was
amended. The reference to "$15,000,000" was deleted and replaced with
"$9,000,000".
5. Elimination of Sidetrack Wellbore Obligations. All
references to any sidetrack wellbore, Sidetrack Wellbore Proposal, Conveyance,
Actual Additional Hydrocarbons, Recompletion Production Payment, Recompletion
Note, Recompletion Note Payment and Recompletion Cash Payment throughout the
Original Assignment, the Original Option and the Management
Q-2
<PAGE> 82
Agreement were deleted and the language of each respective document was
modified to accommodate such deletions.
6. Option Penalty Provisions. The provisions of
Paragraph 1.a. of the Original Option are hereby amended to provide that the
15% threshold shall apply to the reserves of the Subject Interests attributable
to all of the Assets, including the Freedom Assets. The penalty provisions
under Paragraph 1.a., clauses (1) and (2) may be effected by Special Purchases
under the Option or the Original Option, in which case the penalty provisions
shall apply to the assets covered by the Option or Original Option,
respectively.
7. Definition of Credit Payment Amount. The definition
of Credit Payment Amount under Section 1.1 of the Original Assignment is
amended to delete the phrase "The Credit Payment Amount shall be determined
without regard to whether" and to replace it with the phrase "The Credit
Payment Amount shall be determined assuming that". The phrase "or (ii) Grantor
is treated as owning an" is deleted and replaced with the phrase "and (ii)
Grantee is treated as owning the".
8. Definition of Gross Proceeds. The definition of
Gross Proceeds under Section 4.2(a)(1) of the Original Assignment is amended to
delete the word "including" under clause (ii) and to replace it with the word
"excluding." Any such amount so excluded shall be considered Other Income
under Section 4.2(b) of the Original Assignment.
9. Seller to Serve as Buyer's Representative. The
definition of Services in Section 2.1 of the Management Agreement, and as
contemplated in the Limited Power of Attorney, is amended to authorize and
empower Seller (as Manager under the Management Agreement) to be the
representative of Buyer (as the Company under the Management Agreement) as to
all hearings, proceedings, filings, permits, bonds, licenses or such other
similar matters as they relate to the drilling of sidetrack wellbores from the
Wells (including the Freedom Wells) and which relate to any governmental,
quasi-governmental or regulatory body or agency (other than the Internal
Revenue Service), and to execute all applications, permits, orders, consents,
waivers and agreements, as such relate to the Wells with respect to such body
or agency. Should a conflict arise between the interests of Seller and Buyer
regarding the foregoing matters, Seller shall advise Buyer of (i) any such
conflict, and (ii) Buyer's right to represent itself with respect to such
matters.
10. Environmental Indemnification Regarding Freedom
Assets. Section 5.2 of the Management Agreement is amended to add the
following provisions:
Seller shall defend, indemnify and hold harmless Buyer and its
members; officers; partners; directors; employees; agents;
administrators and representatives;
Q-3
<PAGE> 83
including the officers, employees, agents, administrators and
representatives of such members; from and against all losses
which arise directly or indirectly from or in connection with
the Freedom Assets involving environmental matters as for all
times prior to the Effective Date. Seller shall be
responsible for and liable for all costs, expenses,
liabilities and obligations accruing or relating to the
owning, operating, or maintaining of the Freedom Assets or the
producing, transporting and marketing of hydrocarbons from the
Freedom Assets relating to periods before the Effective Date.
11. Survival of Certain Management Agreement Provisions.
The provisions of Section 2.2(b) and of Article 5 of the Management Agreement
shall survive the termination of the Management Agreement for any reason with
respect to liabilities or obligations under such provisions which accrue or
arise during the period of time that the Management Agreement, including any
amendments, replacements or renewals thereof, is valid and in effect.
12. Documents in Full Force and Effect. Except as
expressly amended, replaced or revised in the First Amendment, the Original
Assignment, Original Option, and Management Agreement remain in full force and
effect, and the rights and interests of the parties thereunder continue
unaltered.
13. Counterparts. This Memorandum may be executed in one
or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each Party and delivered to the other Party.
[the remainder of this page is intentionally blank]
Q-4
<PAGE> 84
IN WITNESS WHEREOF, the Parties have executed this Memorandum
as of the date first written above, but effective as of May 1, 1996.
SELLER: BUYER:
HS RESOURCES, INC. WATTENBERG GAS INVESTMENTS, LLC
By: Fontenelle, Inc., Manager
By: By:
------------------------------ -------------------------------
Name: Annette Montoya Name: Gary L. Greenstein
Title: Vice President Title: Vice President
Q-5
<PAGE> 85
Acknowledgements
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th day of
April, 1996 by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
My Commission Expires:
- - --------------------------- -----------------------------------
Notary Public
[seal] Name:
Address:
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 25th day of
April, 1996 by Gary L. Greenstein, as Vice President of Fontenelle, Inc., a
Delaware corporation, in its capacity as Manager of WATTENBERG GAS INVESTMENTS,
LLC, a Delaware limited liability company, on behalf of such company.
Witness my hand and official seal.
My Commission Expires:
- - --------------------------- -----------------------------------
Notary Public
[seal] Name:
Address:
Q-6
<PAGE> 1
================================================================================
PURCHASE AND SALE AGREEMENT
BETWEEN
WATTENBERG RESOURCES LAND, L.L.C.
AND
WATTENBERG GAS INVESTMENTS, LLC
DATED: MAY 21, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 HS Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Leases and Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Incidental Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Credit Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Apportionment of Production, Revenues, Taxes and other Expenses . . . . . . . . . . . . . . . . . . . . . 4
6. Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.5 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.6 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. Seller's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.6 Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.8 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.9 Preferential Purchase Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.10 No Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.11 Gas Balancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.12 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.13 Operations in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.14 Hydrocarbon Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.15 Proceeds of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.17 Bills in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.18 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.21 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.22 Tax Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.23 Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<TABLE>
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8.1 Opinion of Tax Counsel, Right to Request Ruling . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Escrow in the Event of Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Settlements Resulting from a Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Cooperation and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.1 Seller's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.2 Buyer's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.1 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.2 Section 15.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.3 Notice of Preferential Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.4 Release of Mortgages and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.5 Assignment; Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.6 Non-Foreign Ownership Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.7 Ratification of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.8 Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.9 Seller's Manager's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.10 Opinions on Behalf of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.11 Buyer's Manager's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.12 Opinions on Behalf of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.13 Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.14 Performance Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.15 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.16 Consent to Amendments of LLC Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.17 Additional Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12. Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.1 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.2 Sales Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Purchase Price Rebates for Defective Interests . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.4 Purchase Price and Other Rebates for Exercised Preferential Purchase Rights, Failure to
Obtain Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.5 Reconveyance of Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.6 Allocation of Commingled Production and Costs . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.7 Performance of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.8 Overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.9 Review of Aggregate Credit Payment Amount Figure . . . . . . . . . . . . . . . . . . . . . . . . 26
12.10 Representations of Seller and Buyer to Survive Closing . . . . . . . . . . . . . . . . . . . . . 27
13. Apportionment of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.1 Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.2 Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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<TABLE>
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14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.1 Buyer's Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.2 Seller's Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
14.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
14.4 HS Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.6 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.9 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.10 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A Leases (Weld and Adams County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Manager's Certificate
Exhibit Q Forms of Opinions on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
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<PAGE> 6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement"), dated May 21,
1996, is between Wattenberg Resources Land, L.L.C., a Delaware limited
liability company ("Seller" or "WRL") and Wattenberg Gas Investments, LLC, a
Delaware limited liability company ("Buyer" or "WGI").
RECITALS
A. Seller is the owner of certain oil and gas leasehold
interests in Weld and Adams County, Colorado, as more specifically described
below in Section 2 (the "Assets").
B. Seller desires to sell and Buyer desires to purchase
the Assets pursuant to the terms and conditions of this Agreement.
AGREEMENT
IN CONSIDERATION of the Purchase Price set forth below in
Section 4.1, the Credit Payment Amounts set forth below in Section 4.2, the
reservation of the "Production Payment" (defined below) and the grant of the
"Option" (defined below), and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
1. Purchase and Sale. Seller agrees to convey the
Assets to Buyer and Buyer agrees to purchase the Assets from Seller, all
pursuant to the terms and conditions of this Agreement. Seller will convey the
Assets subject to (i) a production payment (the "Production Payment"), a
reversionary interest (the "Reversion Interest") and other reservations and
obligations as specifically set forth in the Wellbore Assignment of Oil and Gas
Leases With Reservation of Production Payment in a form substantially similar
to Exhibit C (the "Assignment"), and (ii) the Option To Purchase Oil and Gas
Interests to be granted to Seller in a form substantially similar to Exhibit D
(the "Option").
1.1 HS Option. Seller entered into that
certain Option Agreement dated March 26, 1996 (the "HS Option") with HS
Resources, Inc., a Delaware corporation ("HS"). Seller and Buyer acknowledge
that if HS exercises its rights under the HS Option, HS will assume the rights
and obligations of the Seller under this Agreement, including without
limitation any obligations of the Seller which may have arisen prior to the
date of such exercise.
2. The Assets. The "Assets" shall be all of the
following:
<PAGE> 7
2.1 Leases and Wells. Seller's right, title
and interest in and to the oil and gas leases and mineral interests described
in Exhibit A, including any and all overriding royalty interests owned by
Seller in such leases, but insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B from the intervals referenced
in Section 7.23 and identified in Exhibit B in such wells as of the Effective
Date (the above described interest in such leases being herein called the
"Leases" and the above described interest in such wells being herein called the
"Wells"), and subject to any restrictions, exceptions, reservations,
conditions, limitations, burdens, contracts, agreements and other matters
applicable to such Leases and Wells.
2.2 Incidental Rights. All of Seller's right,
title and interest in and to the following insofar and only insofar as same are
attributable to the Leases and the Wells:
(a) Unitization and Pooling
Agreements. All presently existing and valid oil, gas or mineral
unitization, pooling, operating and communitization agreements,
declarations and orders affecting the Leases and Wells, and in and to
the properties covered and the units created thereby;
(b) Personal Property. The personal
property and fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and other
personal property and oil field equipment appurtenant to such Wells;
(c) Agreements. All presently
existing and valid oil and gas sales, purchase, production swap,
gathering and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way, easements,
permits, surface leases and other contracts, agreements and
instruments, but specifically excluding any management agreements.
Seller shall remain co-owner of any "Agreements," "Personal Property" and
"Unitization and Pooling Agreements" to the extent they pertain to any property
or formation owned by Seller that is not exclusively part of the Wells.
3. Effective Date. The purchase and sale of the Assets
shall be effective, for all purposes, including allocation of revenue, expenses
and taxes, as of May 15, 1996 at 7:00 a.m. local time at the site of the Assets
(the "Effective Date").
4. Purchase Payments. Buyer shall pay to Seller the
Purchase Price defined in Section 4.1 and the Credit Payment Amounts defined in
Section 4.2
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4.1 Purchase Price. The purchase price for
the Assets shall be $300,000 (the "Purchase Price"). Buyer shall pay the
Purchase Price to Seller in immediately available funds at Closing.
4.2 Credit Payment Amount. "Credit Payment
Amount" shall mean, for any Payment Period (as that term is defined in the
Assignment), an amount equal to $0.70 of each dollar of tax credits (the "Tax
Credit") available to Buyer under Section 29 of the Internal Revenue Code of
1986, as amended from time to time ("IRC"), as a result of the sale of Subject
Hydrocarbons by or on behalf of Buyer, to the extent that such Subject
Hydrocarbons (i) constitute "qualified fuels" within the meaning of IRC Section
29(c), (ii) meet the requirements of IRC Sections 29(d)(1), 29(d)(4) and 29(f),
during (x) such Payment Period and (y) any earlier Payment Period to the extent
the dollar amount of Tax Credits attributable thereto was not taken into account
in a Credit Payment Amount for a previous Payment Period, and (iii) are produced
from the Wells (defined in Section 2.1 above). For purposes of the preceding
sentence, Tax Credits available to Buyer under IRC Section 29 shall be
determined after taking into account any phase- out of Tax Credits under IRC
Section 29(b)(1) and any applicable inflation adjustment under IRC Section
29(b)(2), but shall be determined without regard to limitations on Buyer's or
its affiliate's use of Tax Credits imposed by IRC Section 29(b)(6) and without
regard to whether Buyer or its affiliates actually utilize such Tax Credits.
The Credit Payment Amount for any given Payment Period shall initially be based
on estimated Subject Hydrocarbon production and sales data available at the time
of the calculation of such amount and later corrected when actual data is
available. The Credit Payment Amount shall be determined on the assumption that
(i) the Production Payment is treated as a production payment for federal income
tax purposes, and (ii) Buyer is treated as owning the economic interest in
minerals in place in the Assets. Credit Payment Amounts shall be calculated
and, unless otherwise provided, will be due and payable in accordance with the
last sentence of this Section 4.2 with respect to gas produced and sold from May
15, 1996 until the earlier of (x) the aggregate of all Credit Payment Amounts
paid pursuant to this Agreement equals $1,900,000, (y) December 31, 2002, or (z)
the first day on which Tax Credits are no longer permitted for gas attributable
to the Subject Hydrocarbons and produced and sold from the Wells. The Credit
Payment Amount shall include payments for Tax Credits attributable to natural
gas liquids produced from the Subject Hydrocarbons and for Tax Credits
attributable to Wells that were recompleted between November 5, 1990 and
December 31, 1992, subject to the provisions of Sections 7.23 and 12.8 below. If
for any reason the Tax Credits are repealed by Congressional statute or
resulting regulation, no Credit Payment Amount shall be due with respect to
Subject Hydrocarbons subject to such repeal. If for any reason the amount of
Tax Credits contemplated under this Agreement are reduced by Congressional
statute or resulting regulation, the Credit Payment Amounts due under this
Agreement shall be reduced
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<PAGE> 9
commensurate with such reduction in Tax Credits. For purposes of this Section
4.2, the term "Subject Hydrocarbons" shall have the meaning given it in the
Assignment. Buyer acknowledges that Credit Payment Amounts will be payable
directly to HS pursuant to Section 2.1(n)(iii) of the Management Agreement
dated March 26, 1996 between Seller and HS.
5. Apportionment of Production, Revenues, Taxes and
other Expenses. Buyer shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells on or after the Effective Date, subject to
the Production Payment, Reversion Interest and the Option. Buyer shall pay for
costs and expenses incurred with respect to the Assets on or after the
Effective Date. Seller shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells before the Effective Date, and shall pay
for costs and expenses incurred with respect to the Assets prior to the
Effective Date. Taxes relating to the Assets, including ad valorem, property,
production, severance and other taxes (other than income taxes) shall be
allocated in the same manner as other expenses. Taxes that are measured by or
that relate to production shall be treated as expenses in connection with such
production regardless of the period for which such taxes are assessed.
6. Buyer's Representations and Warranties. Buyer makes
the following representations and warranties as of the date of execution of
this Agreement:
6.1 Existence. Buyer is a limited liability
company, duly organized, validly existing and formed under the laws of the
State of Delaware, and Buyer is duly qualified to carry on its business, and is
duly qualified and in good standing, in each of the states in which the nature
of its business and activities requires it to be so qualified.
6.2 Power and Authority. Buyer has all
requisite power and authority to carry on its business as presently conducted,
to enter into this Agreement and each of the documents contemplated to be
executed by Buyer at Closing, and to perform its obligations under this
Agreement and under such documents. The consummation of the transactions
contemplated by this Agreement and each of the documents contemplated to be
executed by Buyer at Closing will not violate, nor be in conflict with, (i) any
provision of Buyer's organizational or governing documents, (ii) any material
agreement or instrument to which Buyer is a party or is bound, or (iii) any
judgment, decree, order, statute, rule or regulation applicable to Buyer.
6.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Buyer at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action on the
part of Buyer.
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<PAGE> 10
6.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Buyer, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Buyer shall have been duly executed and delivered. This Agreement
does, and such documents and instruments shall, constitute legal, valid and
binding obligations of Buyer enforceable in accordance with their terms,
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application with respect to creditors, (ii)
general principles of equity and (iii) the power of a court to deny enforcement
of remedies generally based upon public policy.
6.5 Securities Laws. Buyer is purchasing the
Assets for Buyer's own account, not for public distribution thereof, and Buyer
shall not sell or transfer all or any part of, or any interest in, the Assets
in violation of the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or the securities laws of any state.
6.6 Brokers' Fees. Buyer has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Seller shall have any
responsibility whatsoever.
7. Seller's Representations and Warranties. Seller
makes the following representations and warranties as of the date of this
Agreement:
7.1 Existence. Seller is a limited liability
company duly organized and validly existing under the laws of the State of
Delaware, and Seller is duly qualified to carry on its business, and is in good
standing in the State of Colorado.
7.2 Power and Authority. Seller has all
requisite authority to carry on its business as presently conducted, to enter
into this Agreement and each of the documents contemplated to be executed by
Seller at Closing, and to perform its obligations under this Agreement and
under such documents. The consummation of the transactions contemplated by
this Agreement and each of the documents contemplated to be executed by Seller
at Closing will not violate, nor be in conflict with, (i) any provision of
Seller's organizational or governing documents, (ii) any material agreement or
instrument to which Seller is a party or is bound, or (iii) any judgment,
decree, order, statute, rule or regulation applicable to Seller; provided that,
the representations and warranties contained in clauses (ii) and (iii) of this
Section 7.2 are subject to (a) consents of or filings with the United States
Department of Interior or the applicable state agencies or authorities in
connection with the assignment of any federal or state leases or any interest
therein to the extent such consents are typically received or filings typically
made subsequent to such assignment ("Governmental Consents"), (b) preferential
rights to purchase
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<PAGE> 11
all or any portion of the Assets and consent to or notices of assignment
necessary to convey all or any portion of the Assets which are not Governmental
Consents, (c) any violation of any maintenance of uniform interest provision in
any applicable operating agreement, and (d) the consent of the banks and other
required actions as set forth in Sections 10.1(d) and 10.2(d).
7.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Seller at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action on the
part of Seller.
7.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Seller, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Seller will be duly executed and delivered. This Agreement does,
and such documents and instruments shall, constitute legal, valid and binding
obligations of Seller enforceable in accordance with their terms, subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
7.5 Brokers' Fees. Seller has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever.
7.6 Reserve Report. The term "Reserve Report"
shall mean the reserve report prepared by Seller and dated as of May 15, 1996,
which is based on reserves as of December 31, 1995, as adjusted by estimated
production from January 1, 1996 through May 15, 1996, and attached hereto as
Exhibit E. To Seller's best knowledge, the average price for sales of
hydrocarbons (based on contract prices for existing effective contracts and
estimates of regional spot prices adjusted for regional transportation costs),
historical costs of operations, production volumes, and payout data used by
Seller in the preparation of the Reserve Report were, on the dates so used,
accurate in all material respects.
7.7 Liens. Except for the burdens and
obligations created by or arising under the Leases and except for Permitted
Encumbrances, the Assets are free and clear of all Encumbrances. As used
herein, the term "Encumbrances" shall mean all royalties, overriding royalties,
production payments, debts, liens, mortgages, security interests, and
encumbrances. As used herein, the term "Permitted Encumbrances" shall mean the
following:
(i) the burdens, encumbrances and
obligations attributable to mortgages and liens held on or
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<PAGE> 12
against the Assets, or any portion thereof, as of the date of this
Agreement by The Chase Manhattan Bank, N.A., for itself and as agent
on behalf of those banks that are or become a party to that certain
Credit Agreement with Seller dated as of March 26, 1996 (as it may be
amended or supplemented from time to time, the "Credit Agreement"),
which mortgages and liens will be released with respect to the Assets
conveyed pursuant to the Assignment on or before the Closing;
(ii) the burdens, encumbrances and
obligations created by or arising under the Wells and other agreements
affecting the Assets, and all royalties, overriding royalties, net
profits interests, carried interests, reversionary interests, back-in
rights and other burdens taken into account in computing the net
revenue interests ("NRI") and working interests ("WI") set forth on
Exhibit B for the Wells;
(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 the Assets if
the same are customarily obtained subsequent to such sale or
conveyance;
(iv) rights of reassignment upon
surrender of the Leases held by predecessors in interest to Seller;
(v) easements, rights-of-way,
servitudes, permits, licenses, surface leases and other rights in
respect of surface use to the extent these do not materially interfere
with operations or production on or from the Assets;
(vi) rights and regulatory powers
reserved to or vested in any municipality or governmental, statutory
or public authority;
(vii) all Material Contracts to the
extent same do not reduce Seller's interest in the production from the
Wells to less than the NRI set forth on Exhibit B, including the
"Production Payment" and "Reversion Interest" reserved in that
Wellbore Assignment of Oil and Gas Interests with Reservations of
Production Payment and Reversion Interest dated March 26, 1996 as
recorded April 10, 1996 at Reception No. 2485154 of the real property
records of Weld County, Colorado;
(viii) any (x) undetermined or
inchoate liens or charges constituting or securing the payment of
expenses which were incurred incidental to maintenance, development,
production or operation of the Assets or for the purpose of
developing, producing or processing oil, gas
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<PAGE> 13
or other hydrocarbons therefrom or therein and (y) materialman's,
mechanics', repairman's, employees', contractors', operators' or other
similar liens, security interests or charges for liquidated amounts
arising in the ordinary course of business incidental to construction,
maintenance, development, production or operation of the Assets or the
production or processing of oil, gas or other hydrocarbons therefrom,
that are not delinquent and that will be paid in the ordinary course
of business or, if delinquent, that are being contested in good faith;
(ix) any liens for taxes not yet
delinquent or, if delinquent, that are being contested in good faith
in the ordinary course of business;
(x) any liens or security interests
created by law or reserved in Leases for royalty, bonus or rental or
for compliance with the terms of the Leases;
(xi) any prohibitions or restrictions
similar to the Maintenance of Uniform Interest Provisions contained in
Article VIII.D. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement and any contribution obligations under provisions similar to
Article VII.B of such Model Form Operating Agreement;
(xii) all preferential rights to
purchase all or any portion of the Assets and consents to or notices
of assignment necessary to convey all or any portion of the Assets
which are not described in item (iii) of this definition of Permitted
Encumbrances;
(xiii) all agreements and obligations
relating to imbalances with respect to the production, transportation
or processing of gas or calls or purchase options on oil or gas
production;
(xiv) all agreements and obligations
relating to gathering, transportation or processing of gas or oil
production;
(xv) all treating, processing, sales
or marketing agreements which have a fee which is based on a
percentage of proceeds or an obligation to transfer certain volumes of
gas or oil production in-kind;
(xvi) all obligations by virtue of a
prepayment, advance payment or similar arrangement under any contract
for the sale of gas production, including by virtue of "take or pay"
or similar provisions, to deliver gas produced from or attributable to
the Wells after the Effective Date without then or thereafter being
entitled to receive full payment therefor;
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(xvii) all liens, charges,
encumbrances, contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting any Asset which
individually or in the aggregate will not interfere materially with
the operation, value or use of such Asset;
(xviii) the burdens, encumbrances and
obligations created by or arising under this Agreement, the
Assignment, Option or Management Agreement.
7.8 Title. Seller has Defensible Title to the
Assets. The term "Defensible Title" means such title of Seller in the Leases
that, subject to and except for the Permitted Encumbrances, entitles Seller to
receive an interest in production from the Wells not less than the respective
NRIs in the Wells as set forth on Exhibit B, and entitles Seller to own the
respective WIs in the Wells as set forth on Exhibit B under applicable state
law and for federal income tax purposes. Any Well or Lease for which Seller
has less than Defensible Title as of the date of this Agreement shall be called
a "Defective Interest." Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3. Buyer and Seller
shall cooperate fully and consult in good faith with each other in the
litigation of any matter identified in this Section 7.8.
If, under a final court determination, Buyer or its members
are not entitled to Tax Credits with respect to any portion of production from
the Assets (the "Disqualified Production"), and it is reasonable to believe
that the structure of Seller's ownership or acquisition of the Assets is
responsible for the loss of Tax Credits with respect to the Disqualified
Production, then Seller shall pay to Buyer the amount of any Credit Payment
Amount paid by Buyer with respect to the Disqualified Production, interest
thereon at the rates applicable to underpayments of federal income tax, and
Buyer's reasonable expenses of contesting the disallowance of the Tax Credits
with respect to the Disqualified Production, including its reasonable
professional fees. Seller shall not be obligated to make such payments to
Buyer if Seller or HS establishes (by a level of proof that would persuade a
mutually acceptable tax partner from a law firm or a "big-six" accounting firm)
that the Tax Credits claimed by Buyer with respect to the Disqualified
Production would not have been sustained without regard to the structure of
Seller's ownership or acquisition of the Assets. Seller's obligation to make
payments pursuant to this paragraph with respect to Disqualified Production
shall be construed in a manner that neither limits nor duplicates any other
indemnification of Buyer by Seller or HS with respect to such Disqualified
Production.
7.9 Preferential Purchase Rights and Consents.
To Seller's best knowledge, except as set forth in Exhibit F, there do not
exist any preferential rights to purchase all or any
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portion of the Assets. To Seller's best knowledge, except for consents from
its lender banks, Governmental Consents and other matters as set forth in
Exhibit F, there are no consents or waivers necessary to convey any material
portion of the Assets pursuant to this Agreement. Buyer's exclusive remedy for
Seller's breach of this representation and warranty (other than for consents
from the lender banks) is set forth in Section 12.4.
7.10 No Prepayments. To Seller's best knowledge,
except as set forth in Exhibit G, Seller is not obligated, by virtue of a
prepayment arrangement, a "take or pay" arrangement, a production payment,
hedging or any other arrangement, to deliver any material portion of
hydrocarbons produced from the Wells at some future time without then or
thereafter receiving full payment therefor.
7.11 Gas Balancing. To Seller's best knowledge,
except as set forth in Exhibit H, no material portion of hydrocarbons produced
from the Wells are subject to a gas imbalance or other arrangement requiring
delivery of hydrocarbons after the Effective Date without receiving full
payment therefor.
7.12 Leases. To Seller's best knowledge, all
royalties, rentals and other payments due by Seller under the Leases have been
properly and timely paid except where the failure to pay same will not have a
material adverse effect on the value of the particular Asset. To Seller's best
knowledge, all Leases are presently in full force and effect. To Seller's best
knowledge, Seller has not received a written notice of material default under
any Lease that could result in cancellation of the Lease. Any Lease which is
not presently in full force and effect, or for which Seller has not paid all
royalties, rentals or other payments due by Seller, or for which Seller is in
material default as of the date of this Agreement shall be treated as a
Defective Interest. Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3.
7.13 Operations in Progress. Except for
operations disclosed on Exhibit I and normal daily operating expenses, as of
the date of this Agreement there are no operations in progress with respect to
the Assets which are reasonably expected to exceed $35,000 in cost net to
Seller's interest and which shall be payable in whole or in part on or after
the Effective Date.
7.14 Hydrocarbon Sales Contracts. Except as
specifically indicated in Exhibit J and for calls on production, options to
purchase or similar rights with respect to production from the Wells, no
material portion of the hydrocarbons produced from the Wells is subject to a
sales contract or other agreement relating to the production, gathering,
transporting, processing, treating or marketing of hydrocarbons except those
which can be terminated by Seller upon not more than three months notice.
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7.15 Proceeds of Production. To Seller's best
knowledge, Seller is currently receiving from all purchasers of production from
the Wells at least the NRI set forth in Exhibit B without suspense or any
indemnity other than the normal division order warranty of title, except where
the failure to receive same would not have a material adverse effect on the
value of the Assets.
7.16 Material Contracts. To Seller's best
knowledge, and subject to the execution of new contracts in the ordinary course
of business if a contract has expired or has been terminated, all contracts
material to the Assets are in full force and effect (the "Material Contracts").
Seller has not received written notices of material default under the Material
Contracts that remain uncured, or that Seller has not made provisions for so
that such event of default will not have a material adverse effect on the
Assets.
7.17 Bills in the Ordinary Course. In the
ordinary course of business and to Seller's best knowledge, Seller is current
on its payments for all costs and expenses pertaining to the Assets, except
where such payments are being contested with good faith or except where the
failure to make such payments would not have a material adverse effect on the
Assets.
7.18 Legal Proceedings. Except as set forth on
Exhibit K, no suit, action or other proceeding is pending against Seller or, to
Seller's best knowledge, threatened in writing against Seller before any court,
governmental agency, arbitrator or other panel that relates to the Assets or
the transaction contemplated by this Agreement that might (i) impair Seller's
ability to consummate the transaction contemplated by this Agreement or (ii)
cause the impairment or loss of Seller's title to any material portion of the
Assets or the value thereof or (iii) hinder or impede the operation or
enjoyment of the Leases in any material respect insofar as they relate to the
Assets.
7.19 Compliance with Laws. To Seller's best
knowledge, all laws, rules, regulations, ordinances and orders (of all
governmental and regulatory bodies having authority over the Assets) material
to the operation of the Assets have been complied with in all material
respects.
7.20 Environmental Matters. To Seller's best
knowledge, no conditions exist on the Assets that would subject Seller or Buyer
to any damages, remedial action, injunctive relief or other liability under any
Environmental Laws, including without limitation, all costs associated directly
or indirectly with cleanup, removal, closure or other response actions;
provided that Seller or Buyer may be subject to such matters which are (i)
routine in the operation of the Assets and (ii) in the aggregate not material
to the value of the Assets as a whole. Seller and its predecessors have
obtained and are in material
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compliance with all material permits, licenses and approvals affecting the
Assets and required under Environmental Laws.
As used herein, the term "Environmental Laws" shall
mean any and all existing laws (common or statutory), rules, regulations,
codes, or ordinances issued or promulgated by any federal, state or local
governmental entity relating to the management and disposal of waste materials,
the protection of public or employee health and safety, the cleanup,
remediation or prevention of pollution, or the protection of the environment.
7.21 Payment of Taxes. To Seller's best
knowledge, all ad valorem, property, production, severance, excise and similar
taxes and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on the Assets
which are currently due and payable have been properly and timely paid, except
to the extent such taxes are being contested in good faith in the ordinary
course of business.
7.22 Tax Partnerships. Except as set forth in
Exhibit L, no portion of the Assets (i) has been contributed to and is
currently owned by a tax partnership; (ii) is subject to any form of agreement
(whether formal or informal, written or oral) deemed by any state or federal
tax statute, rule or regulation to be or to have created a tax partnership; or
(iii) otherwise constitutes "partnership property" (as that term is used
throughout IRC Subchapter K of Chapter 1 of Subtitle A) of a tax partnership.
Seller retains all liability and responsibility, if any, to make all payments
to appropriate parties under the tax partnerships identified on Exhibit L. In
addition to all other remedies available to Buyer, Seller agrees to indemnify
Buyer for all costs, losses, damages, penalties or expenses incurred by Buyer
as a result of any of the Assets having been contributed to or currently owned
by a tax partnership, and Buyer may elect, with a proportionate rebate in the
Purchase Price in accordance with the procedures of Section 12.3 and the
provisions of Section 12.4, to reassign such Assets to Seller. For purposes of
this Section 7.22, a "tax partnership" is any entity, organization or group
deemed to be a partnership within the meaning of IRC Section 761 or any similar
state or federal statute, rule or regulation, and that is not excluded from the
application of the partnership provisions of IRC Subchapter K of Chapter 1 of
Subtitle A and of all similar provisions of state tax statutes or regulations by
reason of elections made, pursuant to IRC Section 761(a) and all such similar
state or federal statutes, rules and regulations, to be excluded from the
application of all such partnership provisions. With respect to any tax
partnership identified on Exhibit L, Seller and Buyer have the power to elect a
basis adjustment under IRC Section 754 in connection with the transaction
contemplated by this Agreement, and the consummation of the transaction
contemplated by this Agreement will not (i) result in a termination of such
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tax partnership, nor (ii) result in the reduction of any Tax Credits
attributable to the Assets.
7.23 Other Tax Matters.
(a) NGPA Determination.
(i) Applications. Except for the
Wells listed on Exhibit M, Seller or its predecessor in interest has
filed or caused to be filed with the applicable state and federal
agencies "Applications" for well determination(s) for each Well under
the Natural Gas Policy Act of 1978, as amended (the "NGPA") and the
rules and regulations of the Federal Energy Regulatory Commission (the
"FERC") under such act (the "NGPA Regulations") requesting a
determination that all or a quantifiable portion of the gas produced
from a particular Well is "natural gas produced from designated tight
formations" as defined in 18 C.F.R. Section 274.205(e). Each such
application has been approved by the indicated state and federal
agency and by the FERC and has been finally approved under and in
accordance with Section 503 of the NGPA. Such applications comply
with the requirements of the NGPA and the NGPA Regulations and do not
(1) contain any untrue statement of material fact or (2) omit any
statement of material fact necessary to make the statements therein
not misleading. No further applications are required under the NGPA
and the NGPA Regulations to allow the legal sale of all gas produced
from the Wells at a price equal to the price for such gas currently
being received.
(ii) Wells For Which Applications
Were Not Filed. With respect to the Wells listed on Exhibit M,
Seller, its predecessor in interest, or the operator of such Wells has
not to Seller's knowledge filed or caused to be filed with the
applicable state and federal agencies "Applications" for well
determinations under the NGPA and the rules and regulations of the
FERC. With respect to the Wells listed on Exhibit M, all such Wells
were (x) drilled (or recompleted in accordance with private letter
rulings issued by the Internal Revenue Service ("IRS") to third
parties, or will be recompleted in an uphole formation in accordance
with Situation 1 of Revenue Ruling 93-54) into a "qualifying
formation" (tight formation or other qualifying formation) within the
time frames set forth in subsection (b) below or (y) drilled within
the time frames set forth in subsection (b) below but no certificate
was obtained from either the state agency or the FERC or both stating
that the Well is qualified and but for the absence of such certificate
the Well is qualified under IRC Section 29, and as to both (x) and
(y) the hydrocarbons produced and sold from such Wells qualify for the
Tax Credit.
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(iii) Wells Where Commingling With
Non-Qualified Production Is Conducted. For Wells, if any, where
production from a qualifying formation and production from a non-
qualifying formation are commingled, the production has been allocated
to each producing formation on a reasonable basis, consistent with
industry standards and in accordance with procedures, if any, that
have been approved by appropriate state and federal agencies.
(b) Wells. Each Well (1) has been
timely drilled under IRC Section 29(f)(1)(A) (drilled after December 31, 1979
but before January 1, 1993), or administrative interpretations thereof, and (2)
has been timely drilled under IRC Section 29(c)(2)(B)(ii) or administrative
interpretations thereof, or was committed to interstate commerce (as defined in
Section 2(18) of the Natural Gas Policy Act of 1978, as in effect on November
5, 1990) as of April 20, 1977.
(c) No Qualified Production prior to
January 1, 1980. Prior to January 1, 1980, there was no production of oil or
gas from, nor were any wells drilled or completed on, the "property" (within
the meaning of IRC Section 29) on which any Well is located nor was any
portion of any such "property" included within a unit from which oil or gas was
produced or in which any wells were drilled or completed prior to such date.
(d) No Enhanced Oil Recovery Credit. No
oil or gas produced from the Wells qualifies or has qualified for (i) the
enhanced oil recovery credit or any other credit under IRC Section 43 and none
has been claimed or taken on such oil or gas, or (ii) the credit allowed under
IRC Section 38 by reason of the energy percentage with respect to property
used in the project.
(e) No Government Financing. No portion
of any drilling, equipping, seismic or other development costs of the Assets
paid by Seller were financed by any state, local or federal agency, directly or
indirectly, including by way of grant, loan, expenditure or loan guaranty.
(f) Seller Status. Seller is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the IRC and the rules and
regulations promulgated thereunder), and Seller shall deliver to Buyer an
affidavit of non-foreign ownership in the form of Exhibit N.
8. Certain Tax Matters.
8.1 Opinion of Tax Counsel, Right to Request
Ruling. At Closing, Buyer at its sole cost, shall provide Seller a copy of the
opinion which Buyer has requested from Arthur Andersen LLP ("AA") regarding the
tax consequences of the transaction contemplated by this Agreement (the "Tax
Opinion");
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provided, however, that the Tax Opinion need not address matters which would
give rise to a payment obligation by Seller to Buyer under the second paragraph
of Section 7.8. Notwithstanding the Tax Opinion, Buyer shall have the right,
but not the obligation, to request a "private letter ruling" from the IRS to
the effect that (i) Buyer's interest in the Assets constitutes an economic
interest in minerals in place, and (ii) the Production Payment will be treated
as a mortgage loan under IRC Section 636 (a "Ruling"). Should Buyer elect to
request a Ruling, Buyer shall have no right to terminate or rescind this
Agreement if the Ruling is not acceptable to Buyer. Seller shall, in good
faith, amend this Agreement and the documents contemplated hereunder in order
that Buyer may obtain a favorable Ruling, if, in Seller's sole and reasonable
discretion, such amendments will not have a material adverse effect on Seller.
8.2 Tax Status. Seller and Buyer intend that,
for tax purposes only, the Production Payment will be treated as a mortgage
loan and not as an "economic interest" in the Assets. Buyer shall have no
recourse against Seller in the event that the Production Payment is not so
treated until the commencement of a Tax Audit, in which event the provisions of
Section 8.3 shall control.
8.3 Escrow in the Event of Tax Audit. Promptly
following the earlier to occur of (1) the date which is 90 days following
receipt by a member of Buyer of a notice from the IRS of the commencement of an
administrative proceeding at the partnership level pursuant to IRC Section
6223(a)(1) (a "Tax Audit"), or (2) the date of issuance by the IRS of either
(i) a notice of proposed adjustment with respect to any audit proceedings or
(ii) a so- called "60 day letter" (such earlier date, the "Escrow Commencement
Date"), Seller and Buyer shall enter into an Escrow Agreement with an escrow
agent, substantially in the form of Exhibit U; provided, however, that Buyer
may waive its rights to enter into such an Escrow Agreement, in which event the
provisions of Sections 8.3(a) through 8.3(e) shall not apply. If Buyer does
not waive its rights to an Escrow Agreement, the Escrow Agreement and the funds
in the "Escrow Account" established pursuant thereto shall be administered in
accordance with the following provisions:
(a) Beginning with the Payment Period
(as that term is defined in the Assignment) in which the Escrow
Commencement Date occurs and continuing for each Payment Period until
the "Conclusion of a Tax Audit" (as that term is defined below, with
such period of time being the "Escrow Period"), Buyer shall deposit
into the Escrow Account the Credit Payment Amount for each Payment
Period (the "Escrow Amount" and the sum of all Escrow Amounts being
the "Escrowed Funds"). The Escrowed Funds shall not include any funds
which were due from Buyer to Seller prior to the Escrow Commencement
Date, but which were not paid to Seller. During the Escrow Period,
Buyer and Seller agree that Gross
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Proceeds plus Other Income (as contemplated in the Assignment) will be
sufficient to perform all of the Services under the Management
Agreement. For tax purposes only, Buyer shall be treated as the owner
of the Escrowed Funds.
(b) A Tax Audit will be deemed to have
concluded upon the earliest to occur of the following events: (i) the
receipt by Buyer of written notice from the IRS that it will not
assert any adjustments with respect to the transactions contemplated
by this Agreement; (ii) Buyer entering into a settlement agreement
with the IRS which resolves the open federal income tax issues in
connection with such transactions; (iii) a judgment of a court of law
or a decision in an administrative proceeding becoming non- appealable
with respect to the federal income tax issues in connection with such
transactions; or (iv) the expiration of the applicable period of
limitations for making assessments with respect to the years under
examination in the Tax Audit if the IRS has made no assessments within
such period with respect to such transactions (such earliest event
being deemed the "Conclusion of a Tax Audit").
(c) At the Conclusion of a Tax Audit,
Buyer and Seller agree to recalculate, pursuant to the provisions of
the second paragraph of this Section 8.3(c), any amounts due Buyer and
Seller pursuant to the terms of this Agreement for the Escrow Period,
taking into account the reduction, if any, in the Credit Payment
Amounts due for each Payment Period during the Escrow Period resulting
from the Tax Audit (including any settlement described in Section
8.4). Buyer shall receive from the Escrowed Funds an amount equal to
70% of the total dollar amount of any reduction in Tax Credits
available to Buyer with respect to hydrocarbon production from the
Wells as a result of the application of the preceding sentence, or
Sections 8.3(d) and (e) as applicable, including interest thereon, for
the periods on or after the Escrow Commencement Date. Seller shall
receive all remaining Escrowed Funds, including interest thereon.
Except for such adjustment, there is no other obligation of Seller to
make any other payment to Buyer with respect to the Tax Audit, subject
to Section 12.8 below.
If, at the Conclusion of a Tax Audit, payments have been made into the
Escrow Account with respect to any Open Period, distributions from the
Escrow Account with respect to the Open Period (whether or not another
Tax Audit has commenced and remains outstanding with respect to such
period) shall, subject to Section 8.3(e), be shared under this Section
8.3(c) in accordance with the principles of any "no-change letter,"
binding settlement or final court decision or administrative
determination with respect to the Tax Audit or, if the statute of
limitations with respect to the Tax Audit expired without an IRS
adjustment having been
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imposed, in accordance with the terms of this Agreement (in either
case, the "Audit Terms"). An "Open Period" shall mean any period not
covered by a Tax Audit if there has been a Conclusion of such Tax
Audit.
Credit Payment Amounts which are credited or paid to Seller other than
from Escrowed Funds with respect to Open Periods shall, subject to the
second paragraph of Section 8.3(e), be computed in accordance with the
Audit Terms.
(d) If a new Tax Audit (the "New Tax Audit")
is commenced with respect to an Open Period before the expiration of
the applicable statute of limitations and after the Conclusion of a
Tax Audit, then a new Escrow Account shall not be established in
accordance with Section 8.3(a) with respect to such New Tax Audit, and
Credit Payment Amounts for the Open Period shall, subject to Section
8.3(e), continue to be computed in accordance with the applicable
Audit Terms.
(e) Upon the Conclusion of a New Tax Audit
with respect to an Open Period, the Credit Payment Amounts with
respect to the Open Period shall be recomputed in accordance with any
no-change letter, binding settlement or final court or administrative
decision resulting from the New Tax Audit.
If the statute of limitations for any Open Period expires without an
IRS adjustment having been imposed for such Open Period, the Credit
Payment Amounts with respect to such Open Period shall be recomputed
in accordance with the terms of this Agreement without regard to the
result of any Tax Audit, provided that such treatment is consistent
with Buyer's federal income tax returns (as amended) for such Open
Period. Buyer shall make reasonable efforts to claim all the Tax
Credits arising from the sale of production from the Assets during
each Open Period.
Promptly following a recomputation of Credit Payment Amounts pursuant
to the first two paragraphs of this Section 8.3(e), Buyer shall pay to
Seller (or Seller shall pay to Buyer) any amount to which Seller (or
Buyer) is entitled under such recomputation.
8.4 Settlements Resulting from a Tax Audit. If
Buyer elects to enter into a negotiated settlement with the IRS of any Tax
Audit adjustments, Buyer shall, in good faith, consult with Seller regarding
the suggested terms of such settlement; provided, however, that Buyer shall be
under no obligation to comply with any suggestion of Seller. Buyer shall
provide to Seller copies of all correspondence or pleadings between Buyer and
the IRS regarding any Tax Audit. Seller shall be entitled to monitor all
hearings and meetings with the IRS associated with such settlement
negotiations. Notwithstanding the foregoing,
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Section 12.8 shall govern Seller's rights to monitor or control whether Tax
Credits are available for natural gas liquids.
9. Covenants.
9.1 Cooperation and Access. Seller shall fully
cooperate with Buyer's post-Closing due diligence efforts, both at Seller's
offices and at the site of the Assets.
9.2 Insurance. At or prior to the Closing,
Seller shall cause Buyer to be named as an additional insured on all insurance
policies Seller has that pertain in any way to the ownership and operation of
the Assets. At Closing, Seller will provide Buyer with Certificates of
Insurance naming Buyer as an additional insured, or other evidence,
satisfactory to Buyer, of compliance with this Section 9.2.
10. Closing Conditions.
10.1 Seller's Closing Conditions. The obligation
of Seller to consummate the transactions contemplated hereby is subject, at the
option of Seller, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Buyer contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Buyer to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Buyer shall have
executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Seller or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Seller resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
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10.2 Buyer's Closing Conditions. The obligation
of Buyer to consummate the transactions contemplated hereby is subject, at the
option of Buyer, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Seller contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Seller to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Seller shall
have executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Buyer or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Buyer resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
(e) Engineering Confirmation.
Williamson Petroleum Consultants, Inc., using the same cost and
pricing assumptions as used in the Reserve Report, shall confirm that
Seller's estimates of the amount of reserves and estimated annual
production rates with respect to the Assets are, in the aggregate,
reasonable.
(f) Tax Opinion. On or before the
Closing Date, Buyer shall have received the Tax Opinion described in
Section 8.1.
11. Closing. The consummation of the transactions
contemplated hereby (the "Closing") shall occur, either in person or by
facsimile, at the offices of Davis, Graham & Stubbs LLP on the date of this
Agreement (the "Closing Date") or at such other time and place as the parties
may agree to in writing. At Closing, the following events shall occur, each
being a condition precedent to the others and each being deemed to have
occurred
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simultaneously with the others (except where the documents involved indicate
otherwise):
11.1 Payment of Purchase Price. Buyer shall
deliver the Purchase Price by wire transfer to Seller's account in accordance
with written instructions supplied by Seller at least three days prior to the
Closing Date.
11.2 Section 15.2 Payment. Seller and Buyer shall
pay to the other, in cash or its equivalent, the amount due pursuant to Section
15.2, if any, as reimbursement for the expenses incurred in connection with
this transaction.
11.3 Notice of Preferential Rights and Consents.
Seller shall deliver to Buyer a copy of the notices sent to and any responses
received from third parties regarding preferential rights to purchase and
consents affecting the Assets with respect to the transactions contemplated by
this Agreement.
11.4 Release of Mortgages and Liens. Seller shall
deliver to Buyer releases of mortgages and other liens held by the banks and
other lending institutions to which Seller is obligated under the Credit
Agreement.
11.5 Assignment; Option. Seller and Buyer shall
execute and deliver the Assignment and the Option. In addition, Seller shall
prepare and Seller and Buyer shall execute such other conveyances on official
forms and related documentation necessary to transfer the Assets to Buyer in
accordance with requirements of governmental regulations; provided, however,
that any such separate or additional conveyances required pursuant to this
Section 11.5 or pursuant to Section 15.1 (i) shall evidence the conveyance and
assignment of the Assets made or intended to be made in the Assignment, (ii)
shall not modify or be deemed to modify any of the terms, reservations,
covenants and conditions set forth in the Assignment, and (iii) shall be deemed
to contain all of the terms, reservations and provisions of the Assignment, as
though the same were set forth at length in such separate or additional
conveyance.
11.6 Non-Foreign Ownership Affidavits. Seller
shall deliver to Buyer the affidavits of non-foreign ownership substantially in
the form of Exhibit N, one stating that Seller is a non-foreign entity for
federal income tax purposes, and the other stating that there is no obligation
for Colorado withholding tax under C.R.S. Section 39-22-604.5.
11.7 Ratification of Obligations. Buyer shall
cause its members (Fontenelle, Inc., Bald Prairie, Inc. and SSB Investments,
Inc.), FMR Corp. and State Street Boston Corporation to execute and deliver to
Seller a ratification of their respective obligations under the Contribution
Agreements and Guaranty Agreements contemplated in that Purchase and Sale
Agreement dated December 1, 1995 between Buyer and HS. The
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ratification shall be substantially in the form of the Ratification of
Obligations attached hereto as Exhibit O.
11.8 Evidence of Insurance. Seller shall provide
Buyer with certificates from Seller's insurers or other evidence that Buyer has
been named an additional insured on Seller's policies affecting the Assets.
11.9 Seller's Manager's Certificate. Seller shall
execute and deliver to Buyer the Manager's Certificate, substantially in the
form attached as Exhibit P.
11.10 Opinions on Behalf of Seller. Seller shall
deliver to Buyer the opinions substantially in the forms set forth in Exhibit
Q.
11.11 Buyer's Manager's Certificate. Buyer shall
execute and deliver to Seller the Manager's Certificate substantially in the
form attached as Exhibit R.
11.12 Opinions on Behalf of Buyer. Buyer shall
deliver to Seller the following opinions, substantially in the respective forms
of opinion set forth in Exhibit S:
(a) Opinion of Morris, Nichols, Arsht &
Tunnell regarding Wattenberg Gas Investments, LLC.
(b) Opinion of counsel for FMR Corp.
(c) Opinion of counsel for State Street
Boston Corporation and SSB Investments, Inc.
(d) Opinion of Davis, Graham & Stubbs
LLP regarding Wattenberg Gas Investments, LLC.
11.13 Management Agreement. Seller and Buyer shall
execute and deliver the Management Agreement (the "Management Agreement") and
Memorandum of Management Agreement and Power of Attorney substantially in the
forms set forth in Exhibit T.
11.14 Performance Power of Attorney. Buyer shall
execute and deliver to Seller 10 counterparts of a Limited Power of Attorney,
substantially in the form of Exhibit V.
11.15 Tax Opinion. Buyer shall deliver to Seller a
copy of the Tax Opinion of AA.
11.16 Consent to Amendments of LLC Agreement.
Seller shall deliver its consent and shall cause HS and its wholly-owned
subsidiary Orion Acquisition, Inc., a Delaware corporation ("Orion"), to
deliver to Buyer their respective consent to the amendments to Sections 2.8 and
3.2(a) of Buyer's
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Limited Liability Company Operating Agreement, amended and restated as of April
25, 1996 and May 21, 1996.
11.17 Additional Instruments. Seller and Buyer
shall execute, acknowledge and deliver to each other such additional
instruments as are reasonable and customary to accomplish the purposes of this
Agreement.
12. Post-Closing Matters.
12.1 Files and Records. Following Closing, Seller
shall retain physical possession of all lease files, land files, division order
files, production marketing files and production records in Seller's possession
relating to the Assets (the "Records"). However, except to the extent that
Buyer's inspection thereof would violate legal constraints or legal
obligations, Buyer shall have the right to inspect the Records in Seller's
offices at any reasonable time. At Buyer's request in writing (which written
request may be delivered by facsimile), to the extent that Seller's delivery
thereof would not violate legal constraints or legal obligations, Seller shall
make copies of the Records or materials in the Records at Seller's expense and
shall deliver said copies to Buyer at Seller's expense, provided that Seller
may charge Buyer the actual costs for such copies and delivery if such costs
exceed $250 per request. If Buyer requires copies of the Records for its own
account, Seller will permit Buyer, at Buyer's own expense, to make copies of
pertinent material contained in the Records to the extent such action would not
violate legal constraints or legal obligations.
12.2 Sales Taxes and Recording Fees. Seller shall
be responsible for making the payment to the proper authorities of all taxes
and fees occasioned by the sale of the Assets, including without limitation,
any transfer fees and sales taxes (which are to be apportioned one-half to
Seller and one-half to Buyer), and any documentary, filing and recording fees
required in connection with the filing and recording of any assignments or
conveyances delivered hereunder in the appropriate county, federal and/or state
records.
12.3 Purchase Price Rebates for Defective
Interests. In addition to the remedy provisions of Section 12.8, Buyer shall
be entitled to the following rebate if Seller does not have Defensible Title to
the Assets. At any time and from time to time if Buyer discovers that Seller
breached the representation and warranty set forth in Section 7.8 or 7.12,
Buyer may give Seller a Notice of Defective Interests, which notice shall
describe the Defective Interest and the basis for the Defective Interest.
Buyer shall be entitled to a rebate in the Purchase Price for a Defective
Interest which shall equal the difference between the Purchase Price and the
product of the Purchase Price multiplied by a fraction, the numerator of which
is the volume of reserves (net to Buyer) allocated to the Wells not affected by
the Defective Interest and the denominator of
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which is the total volume of reserves (net to Buyer) allocated to all of the
Wells in the Reserve Report; provided, however, that if the Defective Interest
does not remain in effect during the entire productive life of the subject
Well, such fact shall be taken into account in determining the amount of the
rebate in the Purchase Price.
The rebate of the Purchase Price calculated above shall be
paid from Seller to Buyer if and only if the aggregate amount to be rebated
with respect to all Defective Interests exceeds a threshold of $35,000, and if
such amount is exceeded, the rebate shall be made for all Defective Interests.
In addition to rebating a portion of the Purchase Price on account of Defective
Interests, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, by multiplying such amount or number,
as the case may be, by a fraction, the numerator of which is the aggregate
volume of reserves associated with the Assets without such Defective Interest
and the denominator of which is the total volume of reserves allocated to all
of the Assets.
12.4 Purchase Price and Other Rebates for
Exercised Preferential Purchase Rights, Failure to Obtain Consents. If the
holder of any preferential purchase right exercises such right and Seller
cannot validly convey the affected Asset to Buyer, or if a required consent
(except for Governmental Consents) to assign is not obtained or deemed obtained
within 45 days following Closing and the affected Asset cannot be validly
conveyed to Buyer, a portion of the Purchase Price shall be rebated for the
value of such affected Asset and such affected Asset shall be excluded from the
Assets conveyed to Buyer pursuant to the terms hereof (collectively the
"Excluded Assets"). The amount of the rebate in the Purchase Price for an
Excluded Asset shall be determined in accordance with the provisions of Section
12.3. In addition to rebating a portion of the Purchase Price on account of
Excluded Assets, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, for the Excluded Assets in accordance
with the provisions of Section 12.3.
12.5 Reconveyance of Excluded Assets. Seller
shall provide to Buyer, within 45 days following Closing, copies of all
responses from third parties regarding the notices sent to such third parties
pursuant to Section 11.3. Upon written request from Seller, Buyer shall
reconvey to Seller all Excluded Assets, free and clear of any burdens, liens
and encumbrances created by, through or under Buyer.
12.6 Allocation of Commingled Production and
Costs. Seller may have interests in the lands covered by the Leases that are
not part of the Assets ("Seller's Interests"), which are producing hydrocarbons
into a Well and such
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hydrocarbons are commingled with the hydrocarbons produced from the Assets.
Seller shall use reasonable efforts to ensure that hydrocarbon production from
the Wells is allocated between Seller's Interests and the Assets on a
reasonable basis, consistent with industry standards and in accordance with
procedures, if any, that have been approved by appropriate state and federal
agencies. Costs and expenses shall be allocated between the Seller's Interests
and the Assets in accordance with the allocation of production between the
Seller's Interests and the Assets; provided that costs and expenses directly
attributable to Seller's Interests shall be allocated to such Seller's
Interests, and costs and expenses directly attributable to the Assets shall be
allocated to and debited against the Net Profits Account under the Assignment.
12.7 Performance of Buyer. Seller shall be
entitled to the remedy of specific performance of Buyer's obligations under
this Agreement in order to be assured of the benefits contemplated under this
Agreement, the Assignment, Option or Management Agreement. Should Buyer fail
to perform any obligation under this Agreement, the Assignment, Option or
Management Agreement, which if unremedied would have a material adverse effect
on Seller, then Seller may give written notice to Buyer of such failure to
perform. If Seller gives such notice and Buyer does not remedy such failure
within 60 days of receipt of such notice, in addition to the remedy of specific
performance, Seller shall have the right to cause the attorney-in-fact of Buyer
identified in the Limited Power of Attorney to execute an Assignment, Bill of
Sale and Conveyance in a form substantially similar to that set forth in
Exhibit X covering any or all of the Assets which are adversely affected by
such failure. Seller and Buyer expressly waive any and all claims against the
attorney-in-fact named in the Limited Power of Attorney and any right to enjoin
such attorney-in-fact.
12.8 Overpayments. For purposes of this Section 12.8, the
term "Payment Period" shall have the meaning given it in the Assignment.
(i) If at any time Buyer is determined to have
paid Seller more than the amount then due with respect to any Credit
Payment Amount as a result of a breach by Seller of its
representations and warranties in Section 7, then as Buyer's exclusive
remedy, Seller shall be obligated to return any such overpayment,
limited to amounts actually paid to Seller by Buyer, after Buyer
notifies Seller of the amount of such overpayment and provides Seller
substantiation thereof. Alternatively, Buyer may elect to offset the
amount of any such overpayment against future Credit Payment Amounts.
(ii) The Credit Payment Amount shall include
payments for credits attributable to natural gas liquids produced from
the Subject Hydrocarbons until Buyer provides
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Seller with (a) a copy of a published or private ruling, court
decision or other authority which supports the position that IRC
Section 29 credits are not available for such natural gas liquids
(the "IRS Position"), and (b) an opinion reasonably satisfactory to
Seller from a "big-six" accounting firm (or other accounting or law
firm acceptable to both Seller and Buyer) that, in its view, there is
not "substantial authority" under IRC Section 6662 for taking a
position that is contrary to the IRS Position.
(iii) After Buyer provides Seller with an authority
and an opinion in accordance with Section 12.8(ii), the Credit Payment
Amount shall no longer include payments for Tax Credits which are
inconsistent with the IRS Position until Seller provides Buyer with
(a) a copy of a published or private ruling, court decision or other
authority which is contrary to the IRS Position, and (b) an opinion
reasonably satisfactory to Buyer from a "big-six" accounting firm (or
other accounting or law firm acceptable to both Seller and Buyer)
that, in its view, there is "substantial authority" under IRC Section
6662 for taking a position that is contrary to the IRS Position.
(iv) After Seller provides Buyer with a copy of an
authority and an opinion in accordance with Section 12.8(iii), (a) the
Credit Payment Amount shall thereafter include payments for Tax
Credits based upon the position of such opinion (unless and until
Buyer again provides Seller with a copy of an authority and an opinion
in accordance with Section 12.8(ii) with respect to such position),
and (b) the Credit Payment Amount for the first Payment Period
following the receipt of such opinion shall include an amount equal to
the increase in prior Credit Payment Amounts that would result from
recomputing the prior Credit Payment Amounts in accordance with the
position of such opinion.
(v) If the IRS asserts in a Tax Audit that IRC
Section 29 credits are not available for portions of production (the
"Disputed Production") from the Subject Hydrocarbons on the ground
that IRC Section 29 credits are not available for natural gas
liquids, then (a) the computation of the Credit Payment Amount shall
continue to include Tax Credits from the sale of natural gas liquids
subject to Sections 12.8(ii) and (iii) above; (b) Credit Payment
Amounts attributable to the production from the Subject Hydrocarbons
shall be escrowed and distributed as required by, and in accordance
with, the provisions of Section 8.3 (if Buyer has not waived its
rights to have such amounts escrowed pursuant to Section 8.3); and (c)
Seller shall have the right to participate, in accordance with the
provisions of Section 12.8(vii), in challenging the IRS Position that
natural gas liquids do not qualify for IRC Section 29 credits.
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(vi) Should Buyer receive either a 90-day letter
or final partnership administrative adjustment (either, an
"Adjustment") holding that Tax Credits are not available for Disputed
Production, then Seller shall pay Buyer within 60 days of the receipt
by Seller of a copy of the Adjustment, an amount equal to 70% of the
amount of all IRC Section 29 credits with respect to Disputed
Production prior to the applicable Escrow Commencement Date which were
disallowed in the Adjustment, such payment not to exceed the Credit
Payment Amount previously paid by Buyer with respect to such Disputed
Production. Upon the Conclusion of the applicable Tax Audit, Buyer
shall repay to Seller any portion of the amount paid pursuant to the
preceding sentence that would not have been payable if the Adjustment
had conformed to the determinations reached in the Conclusion of the
Tax Audit.
(vii) Buyer agrees to keep Seller fully and
promptly informed of all administrative and court proceedings with
respect to the qualification of natural gas liquids for IRC Section
29 credits. Upon the commencement of any such proceeding, Seller
shall have the right to participate, at its own expense, in
challenging the IRS Position that natural gas liquids do not qualify
for IRC Section 29 credits. Buyer shall fully cooperate in any such
challenge, including without limitation the execution of protests,
petitions and complaints if requested by Seller in the course of such
challenge, and the determination of the nature, method, timing, forum,
strategy, issuances of and response to settlement proposals, counsel
and issues in connection with such challenge shall be at the
discretion of Seller. Seller shall indemnify and hold harmless Buyer
with respect to any liability incurred in connection with providing
such cooperation, and shall reimburse Buyer for all costs incurred (as
incurred and in no event less frequently than quarterly) in doing so,
including reimbursement for a reasonable amount of internal overhead,
and reasonable attorneys' and accountants' fees. If, in connection
with requests for cooperation with respect to such a challenge, Buyer
determines that it is likely to incur an expense to a third party
other than its own attorneys and accountants, then, before incurring
the expense, Buyer shall promptly give notice to Seller. If Seller
declines to reimburse Buyer for the actual amount to be expended in
complying with such request, then Buyer shall be excused from
complying with such request.
12.9 Review of Aggregate Credit Payment Amount
Figure. From time to time, at the written request of either Seller or Buyer,
Seller and Buyer shall in good faith reevaluate the aggregate Credit Payment
Amount figure of $1,900,000 set forth in Section 4.2 above, and in Paragraph
1.a(vii) of the Option to determine if such figure should be reduced in
exchange for Seller's identification of alternative qualified leases and wells
("Alternative Assets") and the assignment of such
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Alternative Assets to Buyer in accordance with an agreement having terms
substantially similar to the terms of this Agreement. If a determination is
made to reduce such figure, Seller and Buyer shall enter into a written
agreement regarding the terms of the reduction, Seller shall assign the
Alternative Assets to Buyer, and Buyer shall grant to Seller an option to
repurchase the Alternative Assets under terms substantially similar to those
set forth in the Option.
12.10 Representations of Seller and Buyer to
Survive Closing. The representations of Seller under Section 7 above, and the
representations of Buyer under Section 6 above, shall survive Closing.
13. Apportionment of Liabilities and Obligations.
13.1 Buyer. Upon Closing, Buyer shall assume and
pay for all costs, expenses, liabilities and obligations accruing or relating
to the owning, operating or maintaining of the Assets or the producing,
transporting and marketing of hydrocarbons from the Assets, relating to periods
on and after the Effective Date, including without limitation, environmental
obligations and liabilities, off-site liabilities associated with the Assets,
the obligation to plug and abandon all Wells and reclaim all Well sites and all
obligations arising under agreements covering or relating to the Assets
(collectively, the "Post-Effective Date Liabilities").
13.2 Seller. Upon Closing, Seller shall retain,
assume and pay for all costs, expenses, liabilities and obligations accruing or
relating to the owning, operating or maintaining of the Assets or the
producing, transporting and marketing of hydrocarbons from the Assets, relating
to periods before the Effective Date, including without limitation,
environmental obligations and liabilities, the obligation to plug and abandon
wells (to the extent relating to periods prior to the Effective Date), off site
liabilities associated with the Assets, and all obligations arising under
agreements covering or relating to the Assets (collectively, the "Pre-Effective
Date Liabilities").
14. Indemnification. For the purposes of this Agreement,
"Losses" shall mean any actual loss, cost and expense (including reasonable
fees and expenses of attorneys, technical experts and expert witnesses),
liability, and damage (including those arising out of demands, suits, sanctions
of every kind and character); provided, however, that in no event shall
"Losses" be deemed to include consequential damages of a party to this
Agreement.
14.1 Buyer's Indemnification of Seller. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Buyer shall indemnify and hold harmless Seller, its officers,
directors, shareholders, employees,
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representatives, agents, successors and assigns, forever, from and against all
Losses and interest thereon which arise from or in connection with (i) the
Post-Effective Date Liabilities, and (ii) Buyer's breach of its
representations, warranties and covenants in this Agreement.
14.2 Seller's Indemnification of Buyer. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Seller shall indemnify and hold harmless Buyer; its officers;
directors; members; employees; representatives; agents; successors and assigns;
and the employees, representatives, agents, successors and assigns of such
members forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Pre-Effective Date Liabilities, and (ii)
Seller's breach of its representations, warranties and covenants in this
Agreement regardless of Seller's knowledge if such representations or
warranties are knowledge qualified, provided that the matters contemplated in
this clause (ii) shall not apply to the representations set forth in Section
7.6. Buyer and Seller shall cooperate fully and consult in good faith with
each other in the litigation of any matter identified in this Section 14.2.
Notwithstanding any of the foregoing provisions of this Section 14.2,
Buyer shall be entitled to payment for matters indemnified under this Section
14.2 only after a court of competent jurisdiction makes a final determination
regarding the matter litigated; provided that such payment shall cover only
Losses incurred by Buyer which have not been remedied by Seller under the
escrow provisions of Section 8.3 above and/or the overpayment provisions of
Section 12.8 above.
14.3 Third Party Claims. If a claim by a third
party is made against Seller or Buyer (an "Indemnified Party"), and if such
party intends to seek indemnity with respect thereto under this Section 14,
such Indemnified Party shall promptly notify Buyer or Seller, as the case may
be (the "Indemnitor"), of such claim. The Indemnitor shall have 30 days after
receipt of such notice to undertake, conduct and control, through counsel of
its own choosing and at its own expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with it in connection therewith; provided
that the Indemnitor shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified Party,
however, the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as the Indemnitor, at its cost and expense, (1) has
undertaken the defense of, and assumed full responsibility for all Losses with
respect to, such claim, and (2) is reasonably contesting such claim in good
faith, by appropriate proceedings, the Indemnified Party shall not pay or
settle any such claim. Notwithstanding compliance by the Indemnitor with the
preceding sentence, the Indemnified Party shall have the right to pay or settle
any such claim, provided that in such event it shall waive any right to
indemnity therefor
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by the Indemnitor for such claim. If, within 30 days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder, the Indemnitor
does not notify the Indemnified Party that it elects, at Indemnitor's cost and
expense, to undertake the defense thereof and assume full responsibility for
all Losses with respect thereto, or gives such notice and thereafter fails to
contest such claim in good faith, the Indemnified Party shall have the right to
contest, settle or compromise the claim but shall not thereby waive any right
to indemnity therefor pursuant to this Agreement.
14.4 HS Guarantee. HS and Orion (collectively,
HS) hereby, jointly and severally, unconditionally guarantee the punctual
payment and performance by Seller of all obligations due Buyer under this
Agreement and under all instruments contemplated hereunder to which Seller is a
party, and agree to pay all costs, expenses (including reasonable attorneys'
fees and expenses associated with claims made by Buyer against HS, but not
against Seller), liabilities and obligations incurred by Buyer in enforcing any
rights under this Agreement and the instruments contemplated hereby with
respect to owning, operating or maintaining the Assets or producing,
transporting and marketing of hydrocarbons from the Assets (all such
obligations being referred to herein as the "Obligations"). Without limiting
the generality of the foregoing, HS' liability hereunder shall extend to all
amounts which constitute part of the Obligations and would be owed by Seller
under this Agreement or the instruments contemplated hereunder but for the fact
that they are unenforceable or limited due to the existence of a bankruptcy,
reorganization or similar proceeding involving Seller.
(a) Guarantee Absolute. HS guarantees
that the Obligations will be paid or performed, as appropriate, strictly in
accordance with the terms of this Agreement and any instrument contemplated
hereby to which Seller is a party, and any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of Buyer with respect thereto. The obligations of HS under this
guarantee are independent of the Obligations, and a separate action or actions
may be brought and prosecuted against HS to enforce this guarantee,
irrespective of whether any action is brought against Seller or whether Seller
is joined in any action or actions.
(b) Notice. HS hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations and this guarantee and any requirement that Buyer
exhaust any right or take any action against Seller or any other person.
(c) Representation and Warranties. HS
hereby represents and warrants as follows:
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(i) There are no conditions precedent to the
effectiveness of this guarantee that have not been satisfied or
waived.
(ii) HS is a corporation duly organized and in good
standing under the laws of the State of Delaware.
(iii) This guarantee has been duly authorized by all
necessary corporate action; is binding upon and enforceable against
HS in accordance with its terms; and will not violate or constitute a
default under its Certificate of Incorporation or by-laws, or any
agreements or indentures to which HS is a party or by which HS or its
properties are bound.
(d) Amendments, Consents. No amendment
or waiver of any provision of this guarantee, and no consent to any departure
by HS herefrom, shall in any event be effective unless the same shall be in
writing and signed by Buyer, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(e) Continuing Guarantee. This
guarantee by HS is a continuing guarantee and shall (1) remain in full force
and effect until the later of (i) the payment or performance in full of the
Obligations, and (ii) the termination of both this Agreement and the Management
Agreement contemplated hereunder; (2) be binding upon HS, its successors and
assigns; and (3) inure to the benefit of, and be enforceable by, Buyer and its
successors and assigns.
15. Miscellaneous.
15.1 Further Assurances. After Closing, Seller
and Buyer shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and take such other action as may
be reasonably necessary or advisable to carry out the purposes and intents of
this Agreement and any document, certificate or other instrument delivered
pursuant hereto.
15.2 Expenses. Seller and Buyer each agree to pay
one-half of the reasonable costs and expenses of Williamson Petroleum
Consultants, Inc., Arthur Andersen LLP and Davis, Graham & Stubbs LLP incurred
in connection with this transaction, subject to receipt of evidence and
substantiation thereof. Such costs and expenses shall not include any costs or
expenses associated with the Tax Opinion. Seller and Buyer shall pay their
respective amount of taxes and fees, apportioned to each under Section 12.2.
15.3 Notices. All notices under this Agreement
shall be in writing and addressed as set forth below. Any communication or
delivery hereunder shall be deemed to have been
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duly made and the receiving party charged with notice (i) if personally
delivered or telecopied, when received, (ii) if mailed, three business days
after mailing, certified mail, return receipt requested, or (iii) if sent by
overnight courier, one day after sending. All notices shall be addressed as
follows:
If to Seller:
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Telephone: (303) 762-9991
Fax: (303) 762-9992
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Buyer:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
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Any party may, by written notice so delivered to the other party, change the
address or individual to which delivery shall thereafter be made.
15.4 Survival. The representations, warranties,
covenants, agreements and indemnities included or provided in this Agreement
shall survive the Closing. The doctrine of merger shall not cause any
representation, warranty, covenant, agreement or indemnity under this Agreement
to terminate as a result of Buyer and Seller entering into the Assignment,
Option or any other instrument contemplated hereunder.
15.5 Confidentiality. Buyer and Seller shall keep
this Agreement confidential except to the extent each may be required to
disclose the contents hereof by recording the Assignment, Option, and
Memorandum of Management Agreement and Power of Attorney in the real property
records in the counties where the Assets are located or filing the official
forms of conveyances covering the Assets with appropriate governmental
authorities, the IRS or to the extent required in the operation of the Assets,
pursuant to the Management Agreement, by law, regulation or order, in
connection with obtaining third party consents and waivers of preferential
purchase rights and other matters, or in connection with any public
announcement issued in accordance with Section 15.6 hereof.
15.6 Announcements. Seller and Buyer shall
consult with each other regarding all press releases and other public
announcements issued at, prior to or following Closing concerning this
Agreement or the transactions contemplated hereby and except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange. Neither Buyer nor Seller shall issue any such press
release or other public announcement without the prior written consent of the
other party, which consent will not be unreasonably withheld. In all such
press releases and other public announcements, Seller shall refer to Buyer as
being affiliated with large east coast financial institutions.
15.7 Assignment. Neither Buyer nor Seller may
assign its rights or delegate its duties or obligations under the terms of this
Agreement without the prior written consent of the other party, provided that
either Buyer or Seller may assign its rights, but not its obligations under
this Agreement, to any party (including any affiliated or nonaffiliated party)
as long as such assignment does not relieve the assigning party of its
obligations to the other party hereto, and provided further that Buyer may not
cause or permit an assignment, transfer, sale, alienation or other disposition
of all or any portion of the Assets which would result in the transferred
Assets becoming "plan assets" under the Employee Retirement Income Security Act
of 1974, as amended. Notwithstanding the foregoing provisions of this Section
15.7, Seller shall be entitled without prior consent, but upon written notice
within a reasonable time
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<PAGE> 38
thereafter, to assign or otherwise convey to HS or Orion all or any portion of
the Production Payment, Reversion Interest or Seller's obligations to Buyer
under this Agreement, the Assignment, the Management Agreement or the Option.
Such an assignment or conveyance of obligations to HS or Orion shall serve to
release Seller from any such obligations and to substitute HS or Orion, as
appropriate, to be the obligor under such obligations; provided, however, that
such an assignment or conveyance to Orion shall not release HS from its
obligations under Section 14.4 above.
15.8 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
successors and, subject to Section 15.7 hereof, their assigns.
15.9 Complete Agreement. When executed by the
authorized representative of Seller and Buyer, this Agreement, the Exhibits
hereto and the documents to be delivered pursuant hereto shall constitute the
complete agreement between the parties. This Agreement may be amended only by
a writing signed by both parties.
15.10 Knowledge. As used in this Agreement, the
term "knowledge," "best knowledge" or any variations thereof shall mean the
actual knowledge of any fact, circumstance or condition by the officers or
employees at a manager or higher level of the party involved as such knowledge
has been obtained in the performance of their duties in the ordinary course of
business after making reasonable and appropriate inquiries.
15.11 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF COLORADO
WITHOUT REFERENCE TO THE CONFLICT OF LAW PROVISIONS THEREOF.
15.12 Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each party and delivered to the other party.
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<PAGE> 39
EXECUTED as of the date first above mentioned.
BUYER:
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
SELLER:
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
David G. Stolfa
Manager
HS Resources, Inc., a Delaware corporation ("HS") and its wholly-owned
subsidiary Orion Acquisition, Inc., a Delaware corporation ("Orion"), are
signatories to this Agreement for the purpose of confirming their obligations
under Section 14.4.
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - -------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - -------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
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<PAGE> 40
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996 by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
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<PAGE> 41
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
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<PAGE> 42
EXHIBITS
Exhibit A Leases (Weld and Adams County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Manager's Certificate
Exhibit Q Forms of Opinions on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
<PAGE> 43
EXHIBIT C
WELLBORE ASSIGNMENT OF OIL AND GAS LEASES
WITH RESERVATION OF PRODUCTION PAYMENT
THIS WELLBORE ASSIGNMENT OF OIL AND GAS LEASES WITH
RESERVATION OF PRODUCTION PAYMENT (this "Assignment") is made effective as of
May 15, 1996 (the "Effective Date") by and between Wattenberg Resources Land,
L.L.C., a Delaware limited liability company, whose manager has an office at
3300 South Columbine Circle, Englewood, Colorado 80110 (herein called
"Grantor"), and Wattenberg Gas Investments, LLC, a Delaware limited liability
company, 82 Devonshire Street, R22C, Boston, Massachusetts 02109 (herein called
"Grantee").
ARTICLE 1
CERTAIN DEFINITIONS AND REFERENCES
1.1 CERTAIN DEFINED TERMS. When used in this Assignment, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Affiliate" shall mean (a) any person directly or indirectly
owning, controlling or holding with power to vote 50% or more of the
outstanding voting securities of Grantee, (b) any person 50% or more
of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by Grantee, (c) any
person directly or indirectly controlling, controlled by or under
common control with Grantee, and (d) any officer, director or partner
or member of Grantee or any person described in clause (c) of this
definition.
"Assignment" is defined in the first paragraph above.
"Business Day" shall mean a day on which commercial banks are
open for business in both the Commonwealth of Massachusetts and the
State of Colorado.
"Effective Date" is defined in the first paragraph.
"Full Production Date" shall mean the date on which the total
volume of gas attributable to the Subject Hydrocarbons produced, saved
and sold from and after the Effective Date equals a volume equivalent
to 7,935,454 MCF (wellhead gas, net to Grantee); provided that such
volume shall be decreased by an amount, if any, equal to the aggregate
volume of reserves allocated to properties on which Grantor has
exercised the Option.
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"Grantee" shall mean Grantee as defined in the first paragraph
of this Assignment, and its successors and assigns and, unless the
context in which used shall otherwise require, such term shall mean
any successor-owner at the time in question of any or all of the
Subject Interests.
"Grantor" shall mean Grantor as defined in the first paragraph
and its successors and assigns; and, unless the context in which used
shall otherwise require, such term shall mean any successor-owner at
the time in question of any or all of the Production Payment.
"Gross Proceeds" shall have the meaning assigned to it in
Section 4.2(a).
"Leases" is defined in Section 2.1(a).
"Management Agreement" means the Management Agreement between
Grantor and Grantee dated effective as of May 15, 1996.
"Measurement Amount" is defined in Section 4.5.
"Net Profits" for any Payment Period shall mean the net
balance, positive or negative, resulting after application of the
credits and debits as provided in Sections 4.2 and 4.3 for such
period.
"Net Profits Account" shall have the meaning assigned to it in
Section 4.1.
"Non-Affiliate" shall mean any Person who is not an Affiliate.
"Option" shall mean that Option to Purchase Oil and Gas
Interests between Grantee and Grantor dated effective as of May 15,
1996.
"Other Income" is defined in Section 4.2(b).
"Payment Period" shall mean a calendar quarter, provided that
the first Payment Period shall mean the period from the Effective Date
until the end of the calendar quarter during which the Effective Date
occurs, and the last Payment Period shall mean the portion of the
calendar quarter during which the Termination Date occurs from the
beginning of such calendar quarter until and including the Termination
Date.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation or other legal
entity.
"Production Payment" is defined in Section 3.1.
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<PAGE> 45
"Production Payment Period" shall mean the period from the
Effective Date until and including the Termination Date.
"Production Sales Contracts" shall mean all contracts,
agreements and arrangements for the sale or disposition of Subject
Hydrocarbons that may be produced from or attributable to the Subject
Interests, whether presently existing or hereafter created.
"Purchase Agreement" means the Purchase and Sale Agreement
between Grantor and Grantee dated May 21, 1996.
"Reversion Interest" is defined in Section 3.3.
"Subject Hydrocarbons" shall mean that portion of the oil, gas
and other minerals in and under and that may be produced, from and
after the Effective Date, from or attributable to the Subject
Interests and after deducting the appropriate share of all royalties
and any overriding royalties (other than those overriding royalties
conveyed herein), production payments (except the Production Payment)
and other similar charges burdening the Subject Interests on the
Effective Date or additional burdens created under the Management
Agreement. There shall not be included in the Subject Hydrocarbons
any oil, gas or other minerals unavoidably lost in production or used
by Grantee in conformity with good oil field practices for production
operations (including without limitation, fuel, secondary or tertiary
recovery) conducted solely for the purpose of producing Subject
Hydrocarbons from the Subject Interests, but only so long as such
Subject Hydrocarbons are so used.
"Subject Interests" is defined in Section 2.1.
"Termination Date" shall mean the day on which the total
volume of gas attributable to Subject Hydrocarbons produced, saved and
sold from and after the Effective Date equals 6,074,770 MCF (wellhead
gas, net to Grantee); provided that such volume shall be decreased by
an amount, if any, equal to the aggregate volume of Subject
Hydrocarbons on which Grantor has exercised the Option, multiplied by
the ratio of 6,074,770 to 7,935,454.
"Wells" is defined in Section 2.1(a).
1.2 REFERENCES AND TITLES. All references in this Assignment to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Assignment
unless expressly provided otherwise. Titles appearing at the beginning of any
of such subdivisions are for convenience only and shall not constitute part of
such subdivisions and shall be disregarded in construing the language contained
in such subdivisions. The words "this Assignment", "this instrument",
"herein", "hereof",
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<PAGE> 46
"hereby", "hereunder" and words of similar import refer to this Assignment (and
reservation of Production Payment) as a whole and not to any particular
subdivision unless expressly so limited. Words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires. All references in this Assignment to Exhibits or Schedules refer to
exhibits or schedules to this Assignment unless expressly provided otherwise,
and all such Exhibits or Schedules are hereby incorporated herein by reference
and made a part hereof for all purposes.
ARTICLE 2
ASSIGNMENT
2.1 For and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, TRANSFER,
ASSIGN, and CONVEY unto Grantee, its successors and assigns, all of the
following (the "Subject Interests"):
(a) The right, title and interest of Grantor in and to
the oil and gas leases described in Exhibit A (attached hereto and
made a part hereof for all purposes) insofar and only insofar as said
leases cover the right to produce from the wellbores of the wells
described in Exhibit B (attached hereto and made a part hereof for all
purposes) from the intervals in such wells identified in Exhibit B as
of the Effective Date (the above described interest in such leases
being herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions, limitations,
burdens, contracts, agreements and other matters applicable to the
Leases and the Wells, and excluding such portion of the Leases and the
Wells which are not conveyed to Grantee because of Defective Interests
or which were determined to be Excluded Assets (as such terms are
defined in the Purchase Agreement);
(b) The right, title and interest of Grantor in and to
overriding royalty interests in the Leases insofar and only insofar as
the Leases cover the wellbores associated with the Wells from the
producing intervals identified in Exhibit B;
(c) To the extent affected, the right, title and interest
of Grantor in and to, or derived from, the following insofar and only
insofar as same are attributable to the Leases and the Wells:
(i) The presently existing and valid oil,
gas or mineral unitization, pooling, operating and communitization
agreements, declarations and orders
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<PAGE> 47
affecting the Leases and Wells, and in and to the properties covered
and the units created thereby;
(ii) The personal property and fixtures that
are appurtenant to the Wells, including all wells, casing, tubing,
pumps, separators, tanks, lines and other personal property and oil
field equipment appurtenant to such Wells; provided, however, that
Grantor shall remain co-owner of any personal property appurtenant to
any property owned by Grantor that is not exclusively part of the
Wells;
(iii) The presently existing and valid gas
sales, purchase, production swap, gathering and processing contracts
and operating agreements, joint venture agreements, partnership
agreements, rights-of- way, easements, permits and surface leases and
other contracts, agreements and instruments (but specifically
excluding any management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in (c)(i) above; provided, however, that
Grantor shall remain co-owner of any agreements, including unitization
and pooling agreements, if they pertain to any property owned by
Grantor that is not exclusively part of the Leases and Wells;
reserving to Grantor, however, the Production Payment, the Reversion Interest
and the other rights reserved herein, all as provided in Article 3 below; to
have and to hold the Subject Interests forever.
ARTICLE 3
RESERVATIONS
3.1 PRODUCTION PAYMENT. Grantor reserves unto itself, and its
successors and assigns, from this Assignment a production payment payable out
of and only from Subject Hydrocarbons equal to 100% of the Net Profits derived
from the Subject Hydrocarbons; such production payment to be effective during
the Production Payment Period and such payment, in any Payment Period, not to
exceed the Gross Proceeds during such Payment Period, (the "Production
Payment"); and subject to the terms and conditions contained herein.
3.2 SURFACE AND OTHER USE. Grantor reserves unto itself, and its
successors and assigns, from this Assignment the right to use as much of the
surface of the acreage covered by the Leases as well as the wellbores conveyed
hereunder as may be necessary in the conduct of operations in those zones,
formations and depths not assigned to Grantee herein and on other property
owned or leased by Grantor. Grantor further reserves the right to drill
through the depths, zones and formations herein assigned to Grantee in
conducting any operations in the depths, zones and formations not assigned
herein or on other property owned or
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<PAGE> 48
leased by Grantor, and also the right to drill, produce, operate and maintain
infill wells as permitted by regulatory agencies having jurisdiction over such
matters. Grantor reserves the right to jointly use any easements and
rights-of-way for its operations on the land covered hereby or on other lands
in the area.
3.3 REVERSION INTEREST AFTER FULL PRODUCTION DATE. Grantor
reserves unto itself, and its successors and assigns, an undivided 75% interest
in and to the Subject Interests from and after the Full Production Date (the
"Reversion Interest"); provided, however, that this reservation will not take
effect if the estimated net cash flow from operations and production of the
Subject Hydrocarbons remaining after the Full Production Date, when taken as a
whole, is not reasonably expected by Grantor in good faith to exceed the
estimated cost to plug and abandon the Wells. If the Full Production Date is
reached and this reversion becomes effective, Grantor and Grantee agree to
enter into a mutually acceptable Joint Operating Agreement to govern operation
of the Subject Interests after the Full Production Date, in form and substance
similar to the Model Form Operating Agreement typically used by Grantor at the
Full Production Date, naming Grantor as Operator. For the purposes of this
Section 3.3, net cash flow from operations and production means the excess of
revenue from production of Subject Hydrocarbons over the aggregate of operating
expenses, overhead costs and capital costs required to produce such Subject
Hydrocarbons.
3.4 SIDETRACK WELLBORE DRILLING RIGHTS. Grantor reserves unto
itself, and its successors and assigns, the right to drill sidetrack wellbores
and to produce oil, gas and other hydrocarbons from completions in such
sidetrack wellbores from the Wells with respect to the Leases, insofar and only
insofar as (i) such drilling operations are in accordance with local, state and
federal governmental authorities having jurisdiction over such operations, and
(ii) such drilling operations are conducted primarily to exploit oil and gas
reserves which cannot be economically or efficiently produced from the
wellbores of the Wells conveyed hereunder (the "Drilling Rights").
This reservation includes a corresponding right, title, interest and
estate in and to the property and rights incident to the Drilling Rights and
the lands covered thereby or unitized therewith, including, without limitation:
(1) A corresponding right to the presently existing oil, gas or
mineral unitization, pooling and communitization agreements,
declarations and orders relating to the Leases and the units
associated therewith (including, without limitation, all units formed
under orders, regulations, rules or other official acts of any
federal, state or other governmental agency having jurisdiction),
which relate to any of the Leases.
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(2) A corresponding right to the presently existing oil and gas,
sales, purchase, exchange and processing contracts, casinghead gas
contracts, operating agreements, joint venture agreements, area of
mutual interest agreements, farmout and farmin agreements and all
other contracts, agreements and instruments which relate to any of the
Leases or Wells and to the production of oil, gas and other minerals
from or attributable to the Leases or Wells, but only insofar as such
contracts, agreements and instruments relate to the rights conveyed
herein.
(3) A corresponding right to all personal property, improvements,
lease and well equipment, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or useful or held for future use
in connection with the exploration, development or operation or
maintenance of the Leases or Wells, or any unit or units or operation
or maintenance of the Leases or Wells, or any unit or units in which
part or parts of the Leases or Wells may be included.
(4) A corresponding right, title, interest and estate, whether
real, personal or mixed, of every nature and description in and to the
lands described on Exhibit A, whether such right, title, claim or
interest be under and by virtue of an oil, gas and mineral lease, an
operating agreement, a unitization, pooling or communitization
agreement, declaration or order, a division order, a transfer order or
any type of contract, conveyance or instrument, or under and by virtue
of any type of claim or title, legal or equitable recorded or
unrecorded, and even though Grantor's interests therein be incorrectly
described in or a description of such interest be omitted from the
exhibit thereto.
(5) A corresponding and concurrent right of ingress and egress to
and from the lands covered by the Leases for the purpose of exploring
for, drilling for, producing and marketing the hydrocarbons owned by
each of them at their respective depths and locations under the terms
of the Leases. Further, each party shall own and hold proportionally
any and all rights granted in the Leases or otherwise relating thereto
pursuant to any agreements, surface leases, permits, rights-of-way,
pooling declarations, licenses, governmental regulations or other
grant or instrument as incident to and for the purpose of exploring
for, drilling for and producing the minerals owned by them in their
respective depths and locations including the right to drill pursuant
to this Assignment, lay and maintain pipelines and waterlines, dig
pits, erect structures and to perform any and all other operations
incident to the rights and interests therein.
Grantor shall not be entitled to exercise the Drilling Rights as to
any well if such exercise would likely result in a
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termination of production from the associated Well for a period exceeding 90
days. Grantor shall promptly give Grantee reasonable notice concerning such
exercise, provided that such notice may be given either before or after the
commencement of the drilling of a sidetrack wellbore in a Well. All exercises
of the Drilling Rights must be conducted in accordance with the provisions of
the Sidetrack Wellbore Terms attached hereto as Schedule 1.
ARTICLE 4
PRODUCTION PAYMENT ACCOUNTING AND PAYMENT
4.1 ESTABLISHMENT OF NET PROFITS ACCOUNT. Grantee shall establish
and maintain a Net Profits Account (herein called the "Net Profits Account") in
accordance with the various provisions of this Assignment and at all times
during the Production Payment Period shall keep true and correct books and
records with respect thereto. Such books and records shall be open for
inspection, copying and audit by Grantor and its accountants and
representatives.
4.2 CREDITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Gross Proceeds and Other Income.
(a) "Gross Proceeds" shall mean, on an accrual basis, all
consideration, direct or indirect, from sales of Subject Hydrocarbons,
subject to the following:
(1) If a controversy exists (whether by reason of
any statute, order, decree, rule, regulation, contract, or
otherwise) as to the correct or lawful sales price of any
Subject Hydrocarbons, then at Grantor's sole election, Grantor
may choose to treat amounts affected by such controversy (i)
as Gross Proceeds of Grantee, or (ii) not as Gross Proceeds of
Grantee and require Grantee to promptly deposit such amounts
with an escrow agent pending settlement of such controversy,
provided that all amounts, excluding any interest or other
income, thereafter paid to Grantee by such escrow agent out of
or on account of such escrow shall be considered to be amounts
from the sale of Subject Hydrocarbons. Amounts of Grantee not
deposited with an escrow agent shall be considered Gross
Proceeds;
(2) Gross Proceeds relating to any non-consent
operations conducted with respect to all or any part of the
Subject Hydrocarbons after the Effective Date shall be subject
to Section 5.8;
(3) Gross Proceeds shall not include any amount
which Grantee shall receive as a bonus for any lease or
payments made to Grantor in connection with adjustment
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of the cost of any Well and leasehold equipment upon
unitization or revision of participating areas under federal
divided-type units covering any of the Subject Hydrocarbons;
(4) Cash settlements and cash make-ups with
respect to the Subject Hydrocarbons under gas balancing or
similar agreements shall be considered derived from the sale
of Subject Hydrocarbons;
(5) The proceeds from (i) all insurance and (ii)
all judgments, claims and settlements, which are used to
remedy, replace or repair losses or damages actually incurred,
to the extent such proceeds relate to the production of
Subject Hydrocarbons; and
(6) Gross Proceeds shall not include Other Income.
(b) "Other Income" shall mean, on an accrual basis, the
following:
(1) Proceeds after the Effective Date from (i)
the sale of any materials, supplies, equipment and other
personal property or fixtures, or any part thereof or interest
therein, used in connection with the Subject Hydrocarbons,
(ii) delay rentals, (iii) lease bonuses, and (iv) rentals from
reservoir use or storage; including without limitation all
amounts attributable thereto by way of conformance of
investment in personal property and equipment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from
time to time unitized or are affected by the revision of a
participating area in a federal divided-type unit;
(2) Proceeds from all insurance, other than to
remedy or repair losses or damages actually incurred, to the
extent such proceeds relate to the production of Subject
Hydrocarbons, (i) the cost of which is charged to the Net
Profits Account, directly or indirectly, and/or (ii) that
accrue to Grantee as a consequence of the loss or damage to
any one or more of the following which occurs after the
Effective Date: the Subject Hydrocarbons, or any part thereof
or interest therein, the interest of Grantee in any materials,
supplies, equipment or other personal property or fixtures
used in connection with any of the Subject Hydrocarbons;
except to the extent such amounts are used to repair or
replace the items damaged or lost giving rise to the receipt
of such amounts;
(3) Amounts from a purchaser of Subject
Hydrocarbons (i) as a prepayment of any portion of the
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sales price for such Subject Hydrocarbons, (ii) as advance gas
payments or (iii) as payments pursuant to contractual
provisions providing for "take-or-pay" payments (including
amounts awarded by a court or agreed to by the parties in any
settlement of a claim (net of costs and attorneys' fees
incurred in connection therewith) as damages for the failure or
refusal of the purchaser to take Subject Hydrocarbons pursuant
to the contract which contains such provisions) shall be
considered to be from the sale of Subject Hydrocarbons;
provided that such amounts shall not be considered to be from
the sale of Subject Hydrocarbons at a later date when Subject
Hydrocarbons are delivered in respect of any such payments
under "make-up" or similar provisions;
(4) Proceeds of (i) all insurance and (ii) all
judgments, claims and settlements, for damages to one or more
of the following which occurs after the Effective Date: to
the extent such proceeds relate to the production of Subject
Hydrocarbons, or any part thereof or interest therein; any
materials, supplies, equipment or other personal property or
fixtures, or any part thereof or interest therein, used in
connection with any of the Subject Hydrocarbons; except to the
extent such amounts are used to repair, replace or remedy
losses or damages actually incurred, which gave rise to the
receipt of such amounts;
(5) Any interest, penalty or other amounts which
are attributable to the Subject Hydrocarbons and are not
derived from the sale of Subject Hydrocarbons;
(6) Any interest or other income earned on funds
deposited into an escrow account in accordance with the
provisions of Section 4.2(a)(1) above; and
(7) All other monies and things of value
attributable to ownership after the Effective Date of the
Subject Hydrocarbons and the materials, supplies, equipment
and other personal property and fixtures used in connection
with the Subject Hydrocarbons.
4.3 DEBITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be debited (without duplication), on an
accrual basis, with the following amounts:
(a) All direct costs which are attributable to production
of the Subject Hydrocarbons (i) for all direct labor (including fringe
benefits), other services and expenses necessary for developing,
operating, producing, reworking (including recompleting) and
maintaining the Subject Hydrocarbons after the Effective Date, (ii)
for
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dehydration, compression, separation, gathering, transportation and
marketing of the Subject Hydrocarbons after the Effective Date, and
(iii) for all materials, supplies, equipment and other personal
property and fixtures purchased for use in connection with the Subject
Hydrocarbons after the Effective Date (including without limitation
(A) all amounts necessary for conformance of investment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from time to
time unitized or if any participating area in a federal divided-type
unit is changed, and (B) the cost of secondary recovery, pressure
maintenance, repressuring, recycling and other operations conducted
for the purpose of enhancing production);
(b) Costs (including without limitation outside legal,
accounting and engineering services) attributable to the Subject
Hydrocarbons and allocated in accordance with revenues therefrom of
(i) handling, investigating and/or settling litigation, administrative
proceedings and claims (including without limitation lien claims other
than liens for borrowed funds) and (ii) payment of judgments,
penalties and other liabilities (including interest thereon), paid by
Grantee (and not reimbursed under insurance maintained by Grantee or
others) and involving any of the Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date, or requiring the payment or restitution of
any proceeds of Subject Hydrocarbons, or arising from tax or royalty
audits, except that there shall not be debited to the Net Profits
Account any expenses incurred by Grantee in litigation of any claim or
dispute arising hereunder between Grantee and Grantor or amounts paid
by Grantee to Grantor pursuant to a final order entered by a court of
competent jurisdiction resolving any such claim or dispute or amounts
paid by Grantee to Grantor in connection with the settlement of any
such claim or dispute;
(c) All taxes (except income, transfer, inheritance,
estate, franchise and like taxes) attributable to the ownership of the
Subject Hydrocarbons or the extraction of the Subject Hydrocarbons
after the Effective Date, including without limitation production,
severance, and/or excise and other similar taxes assessed against,
and/or measured by, the production of (or the proceeds or value of
production of) Subject Hydrocarbons (without regard to the period of
ownership for which such taxes are assessed), occupation taxes, sales
and use taxes, and ad valorem taxes assessed against or attributable
to the Subject Hydrocarbons or any equipment located on any of the
Subject Interests, as such equipment is required for the production of
Subject Hydrocarbons;
(d) Insurance premiums attributable to the ownership or
operation of the Subject Hydrocarbons for insurance
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actually carried for periods after the Effective Date, or any
equipment located on any of the Subject Interests, as such equipment
is required for the production of Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date;
(e) All amounts attributable to the Subject Hydrocarbons
(to the extent attributable to periods after the Effective Date) and
consisting of (i) rent and other consideration attributable to the use
or damage to the surface and (ii) delay rentals, shut-in well
payments, minimum royalties and similar payments pursuant to the
provisions of agreements in force and effect before the Effective
Date;
(f) Amounts attributable to the Subject Hydrocarbons (to
the extent attributable to periods after the Effective Date) and
charged by the relevant operator as overhead charges specified in
applicable operating agreements (including applicable COPAS charges);
(g) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject
Hydrocarbons any amounts previously included in Gross Proceeds or
Other Income are reclaimed from Grantee or its representative, then
the amounts reclaimed as promptly as practicable following Grantee's
payment thereof;
(h) The Management Fee (as defined in the Management
Agreement) paid pursuant to the Management Agreement;
(i) If Grantee shall be a party as to any non-consent
operations conducted with respect to all or any of the Subject
Hydrocarbons after the Effective Date, all costs to be debited to the
Net Profits Account with respect thereto shall be governed by Section
5.8;
(j) Except as otherwise provided elsewhere in this
Assignment, all other direct expenditures attributable to the Subject
Hydrocarbons paid by Grantee after the Effective Date for the
necessary or proper development, operation, maintenance and
administration, after the Effective Date, of the Subject Hydrocarbons,
if reasonably incurred; provided, however, that notwithstanding
anything herein provided to the contrary, the Net Profits Account
shall not be debited with any cost or expense which is deducted or
taken into account in determining Gross Proceeds or Other Income,
including, without limitation, the value of any component of Gross
Proceeds or Other Income.
4.4 ACCOUNTING FOR NET PROFITS. All debits to the Net Profits
Account calculated pursuant to Section 4.3 which are attributable to costs and
expenses incurred during a Payment
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Period, up to and including the last day of such Payment Period, shall be
debited against the Net Profits Account as of the last day of such period. All
credits to the Net Profits Account calculated pursuant to Section 4.2 which are
attributable to the sale of Subject Hydrocarbons during a Payment Period, shall
be credited to the Net Profits Account as of the last day of such Payment
Period.
4.5 MEASUREMENT AMOUNT AND PAYMENT. As of the end of each Payment
Period, Grantee shall calculate an amount (the "Measurement Amount"), equal to
the sum of (a) any Measurement Amount carried forward from a prior Payment
Period and (b) the Net Profits for the then current Payment Period. Not more
than 75 days following a Payment Period, Grantee shall pay Grantor the lesser
of (i) the Measurement Amount for such Payment Period or (ii) Gross Proceeds
for the Payment Period in question. If the Measurement Amount for a Payment
Period is a negative amount, no payment shall be due and payable by Grantee to
Grantor hereunder for such Payment Period, and the negative amount shall be
carried forward for the next and succeeding Payment Periods until such deficit
is wiped out and liquidated. If the Measurement Amount for the Payment Period
is a positive amount and exceeds Gross Proceeds for the Payment Period, the
excess Measurement Amount shall be carried forward to the next Payment Period.
Grantee shall send to Grantor at the same time set for the payment a
statement showing the calculation of the Measurement Amount, the reason for any
nonpayment, the condition of the Net Profits Account as of the close of
business on the last day of the relevant Payment Period and clearly showing
(with sufficient description so that Grantor can identify such items and the
particular Subject Hydrocarbons involved) those items which gave rise to debits
and credits to the Net Profits Account during such Payment Period and clearly
showing for each Subject Interest the quantities of Subject Hydrocarbons
produced therefrom during the Payment Period covered by such statement, the
volumes of such production sold, the prices at which such volumes were sold,
and the taxes paid with respect to such sales.
Although the books for the Net Profits Account shall be kept on an
accrual basis, for purposes of this Section 4.5, Net Profits will be
tentatively computed and paid in accordance with Grantor's standard billing and
disbursement procedures, which shall be consistent with standard industry
practices, until the Termination Date. Within 90 days following the
Termination Date, the Net Profits Account shall be reconciled to the accrual
method and Grantor and Grantee shall make such payments or refunds to each
other as are necessary to effect such reconciliation.
4.6 ACCOUNTING FOR INTEREST EXPENSE. For federal income tax
purposes, interest with respect to payments under the Production Payment shall
be taken into account under the noncontingent bond method of Prop. Treas. Reg.
Section 1.1275-4(b)(2) (or any successor provision of final Treasury
Regulations) in
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accordance with the projected payment schedule attached as Schedule 2.
4.7 ALLOCATION OF COSTS AND EXPENSES. Costs and expenses shall be
allocated in accordance with Section 12.6 of the Purchase Agreement, if
applicable.
ARTICLE 5
OPERATION OF SUBJECT INTERESTS
5.1 RIGHTS AND DUTIES OF GRANTEE. Grantee (subject to the terms
and provisions of any applicable operating agreements and subject to the other
provisions of this Assignment and the Management Agreement) as between Grantor
and Grantee, has exclusive charge, management and control of all operations to
be conducted on the Subject Interests and may take any and all actions which a
reasonably prudent operator would deem necessary or advisable in the
management, operation and control thereof. Grantee shall promptly (and, unless
the same are being contested in good faith and by appropriate proceedings,
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
developing, operating and maintaining the Subject Interests. Grantee shall be
obligated to operate and maintain the Subject Interests as would a reasonable
and prudent operator under similar circumstances in accordance with good oil
field practices. For the Subject Interests which Grantee does not operate,
Grantee shall take all such action and exercise all such rights and remedies as
are reasonably available to it to cause the operator to so maintain and operate
such Subject Interests. Grantee shall be deemed to have fully discharged all
of its obligations under this Section 5.1, and shall have no liability to
Grantor under this Section 5.1 during any period when the Management Agreement
is in effect and Grantee is in compliance with the Management Agreement.
5.2 SALES OF SUBJECT HYDROCARBONS. Grantee shall have the
obligation to market or cause to be marketed the Subject Hydrocarbons in
accordance with its good faith business judgment and sound oil field practices.
Grantee shall fully discharge its obligations to Grantor under this Section 5.2
during any period when the Management Agreement is in effect and Grantee is not
in default thereunder. As to any third parties, all acts of Grantee in
marketing the Subject Hydrocarbons and all Production Sales Contracts executed
by Grantee shall be binding on Grantor and the Production Payment; it being
understood that the right and obligation to market the Subject Hydrocarbons is
at all times vested in Grantee and Grantor does not have any such right or
obligation or any possessory interest in all or part of the
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Subject Hydrocarbons, except as may be granted by separate agreement or
instrument. Accordingly, it shall not be necessary for Grantor to join in any
new Production Sales Contracts or any amendments to existing Production Sales
Contracts.
5.3 INSURANCE. Grantee shall obtain or cause to be obtained (and
maintain or cause to be maintained during the economic life of the Subject
Interests) the types of insurance as in its reasonable good faith business
judgment a reasonable and prudent operator would carry under similar
circumstances. Grantee shall fully discharge all of its obligations under this
Section 5.3, and shall have no liability to Grantor under this Section 5.3
during any period when the Management Agreement is in effect and Grantee is in
compliance with the Management Agreement.
5.4 CONTRACTS WITH AFFILIATES. To the extent not provided for in
any applicable operating agreement, Grantee may perform services and furnish
supplies and equipment with respect to the Subject Interests, provided that the
amount of compensation, price or rental that can be charged to the Net Profits
Account therefor must be no less favorable than those available from
Non-Affiliates in the area engaged in the business of rendering comparable
services or selling or leasing comparable equipment and supplies which could
reasonably be made available to the Subject Interests.
5.5 GOVERNMENT REGULATION. All obligations of Grantee hereunder
shall be subject to and limited by all applicable federal, state and local
laws, rules, regulations and orders (including those of any applicable agency,
board, official or commission having jurisdiction).
5.6 ABANDONMENTS. Prior to releasing, surrendering or abandoning
any portion of the Subject Interests, Grantee shall first offer in writing to
reassign such interest to Grantor, with Grantor assuming all liability and
obligations for such interest after such assignment. If Grantor does not
accept the offer to reassign within 60 days from such offer, Grantee shall have
the right without the joinder of Grantor to release, surrender and/or abandon
its interest in the Subject Interests, or any part thereof, or interest therein
even though the effect of such release, surrender or abandonment will be to
release, surrender or abandon the Production Payment the same as though Grantor
had joined therein insofar as the Production Payment covers the Subject
Interests, or any part thereof or interest therein, so released, surrendered or
abandoned by Grantee.
5.7 POOLING AND UNITIZATION.
(a) Certain of the Subject Interests may have been pooled
or unitized for the production of oil, gas and/or minerals prior to
the Effective Date or, after the Effective Date, may be so pooled or
unitized pursuant to
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Section 5.7(b). Such Subject Interests are and shall be subject to
the terms and provisions of such pooling and unitization agreements,
and the Production Payment in each such Subject Interest shall apply
to (and the term "Subject Hydrocarbons" shall include) the production
from such units which is attributable to such Subject Interest (and
the Net Profits Account shall be computed giving consideration to such
production and costs, expenses, charges and credits attributable to
such Subject Interest) under and by virtue of the applicable pooling
and unitization agreements.
(b) Grantee shall have the right and power to unitize,
pool or combine the lands covered by the Subject Interests, or any
portion or portions thereof, with any other land or lease or leases so
as to create one or more unitized areas (or, with respect to unitized
or pooled areas theretofore created, to dissolve the same or to amend
and/or reconfigure the same to include additional acreage or
substances or to exclude acreage or substances). If pursuant to any
law, rule, regulation or order of any governmental body or official,
any of the Subject Interests are pooled or unitized in any manner, the
Production Payment insofar as it affects such Subject Interest shall
also be deemed pooled and unitized, and in any such event the
Production Payment shall apply to (and the term "Subject Hydrocarbons"
shall include) the production which accrues to such Subject Interest
under and by virtue of such pooling and unitization arrangements and
the Net Profits Account shall be computed giving consideration to such
production and costs, expenses, charges and credits attributable to
such Subject Interest under and by virtue of such pooling and
unitization arrangement. Notwithstanding the foregoing provisions of
this Section 5.7(b), Grantee shall have no right or interest in any
well that is not specifically described on Exhibit B or in the
production from any such well.
5.8 NON-CONSENT OPERATIONS.
(a) If Grantee elects (subject to Section 5.1) to be a
non-participating party (whether pursuant to an operating agreement or
other agreement or arrangement, including without limitation,
non-consent rights and obligations imposed by statute or regulatory
agency) with respect to any operation on any Subject Interest or
elects to be an abandoning party with respect to a Well located on any
Subject Interest, the consequence of which election is that Grantee's
interest in such Subject Interest or part thereof is temporarily
(i.e., during a recoupment period) or permanently forfeited to the
parties participating in such operations, or electing not to abandon
such Well, then the costs and proceeds attributable to such forfeited
interest shall not, for the period of such forfeiture (which may be a
continuous and permanent period), be debited or credited to the Net
Profits Account and such forfeited interest shall
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not, for the period of such forfeiture, be subject to the Production
Payment.
(b) If Grantee elects (subject to Section 5.1) to be a
participating party to such an operation, or elects to be a
non-abandoning party with respect to such a Well, and any other party
or parties have elected not to participate in such operation (or have
elected to abandon such Well) with the result that (pursuant to an
operating agreement or other agreement or arrangement, including
without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) Grantee becomes entitled to receive,
either temporarily (i.e., through a period of recoupment) or
permanently, interests belonging to such other party or parties, then
the costs and proceeds attributable to such non-participating parties'
interests to which Grantee becomes so obligated and entitled shall be
debited and credited to the Net Profits Account as though such
interests were part of the Subject Interests.
5.9 RENEWALS AND EXTENSIONS OF LEASES. The Production Payment
and the Reversion Interest shall apply to all renewals, extensions and other
similar arrangements (and/or interests therein) of or with respect to any Lease
which is included in the Subject Interests, whether or not such renewals,
extensions or arrangements have heretofore been obtained by Grantor, or
Grantor's predecessors in title, or are hereafter obtained by Grantee as well
as to each new lease covering any minerals covered by one or more of the Leases
if same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
ARTICLE 6
GRANTOR LIABILITY AND EQUIPMENT
6.1 NO PERSONAL LIABILITY OF GRANTOR. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS ASSIGNMENT, GRANTOR SHALL NOT, BY VIRTUE OF THE
PRODUCTION PAYMENT OR REVERSION INTEREST RESERVED IN THIS ASSIGNMENT,
PERSONALLY BE RESPONSIBLE FOR PAYMENT OF ANY PART OF THE COSTS, EXPENSES OR
LIABILITIES INCURRED IN CONNECTION WITH EXPLORING, DEVELOPING, OPERATING,
OWNING AND/OR MAINTAINING THE SUBJECT INTERESTS; PROVIDED, HOWEVER, ALL SUCH
COSTS, EXPENSES AND LIABILITIES SHALL, TO THE EXTENT THE SAME RELATE TO PERIODS
AFTER THE EFFECTIVE DATE, NEVERTHELESS BE CHARGED AGAINST THE NET PROFITS
ACCOUNT AS AND TO THE EXTENT HEREIN PERMITTED.
6.2 OWNERSHIP OF EQUIPMENT. The Production Payment does not
include any right, title or interest in and to any of the personal property,
fixtures, structures or equipment now or hereafter placed on, or used in
connection with, the Subject Interests.
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ARTICLE 7
TRANSFERS
7.1 ASSIGNMENTS BY GRANTEE. Upon prior written notice to Grantor,
but under no circumstance requiring Grantor's consent, Grantee shall have the
right to transfer all or any portion of the Subject Interests; provided,
however, that (i) the Subject Interests shall at all times be subject to this
Assignment, the Production Payment, the Reversion Interest, the Purchase
Agreement and the Limited Power of Attorney contemplated thereunder, the Option
and the Management Agreement, (ii) if such transfer or transfers result in less
than all of the Subject Interests being transferred to and held by the same
Person, Grantee shall retain the obligation to administer and pay the
Production Payment in accordance with the provisions hereof in the same manner
as if the Production Payment was held by a single Person, and (iii) Grantee may
not make an assignment, transfer, sale, alienation or other disposition of any
Subject Interests which would result in any of the Subject Interests becoming
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended. An assignment of the Subject Interests by Grantee shall not
release Grantee from any obligation to Grantor under this Assignment, the
Purchase Agreement, the Management Agreement or the Option.
7.2 ASSIGNMENTS BY GRANTOR. Upon prior written notice to Grantee,
Grantor shall have the right to transfer, pledge, or mortgage at any time and
from time to time all or any portion of the Production Payment or Reversion
Interest. Any such assignment shall not release Grantor from any obligation to
Grantee under this Assignment, the Purchase Agreement, the Management Agreement
or the Option, except to the extent provided for in such agreements.
Notwithstanding the foregoing provisions of this Section 7.2, but subject to
Section 7.3, Grantor shall be entitled without any prior written notice or
consent to assign or otherwise convey to HS Resources, Inc., a Delaware
corporation ("HS") or its wholly-owned subsidiary Orion Acquisition, Inc., a
Delaware corporation ("Orion"), all or any portion of the Production Payment,
Reversion Interest or Grantor's obligations to Grantee under this Assignment,
the Purchase Agreement, the Management Agreement or the Option. Such an
assignment or conveyance of obligations to HS or Orion shall serve to release
Grantor from any such obligations and to substitute HS or Orion, as
appropriate, to be the obligor under such obligations; provided, however, that
such an assignment or conveyance to Orion shall not release HS from its
obligations under this Assignment, the Purchase Agreement, the Management
Agreement or the Option.
7.3 CHANGE IN OWNERSHIP OF PRODUCTION PAYMENT OR REVERSION
INTEREST. No change of ownership or right to receive payment of the Production
Payment or the Reversion Interest, or of any part thereof, however accomplished
shall be binding upon Grantee until notice thereof has been furnished by the
person claiming the benefit thereof, and then only with respect to payments
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thereafter made. Notice of the sale or assignment shall consist of a copy of
the recorded instrument accomplishing the same or if there be no recorded
instrument then a copy of the applicable document accomplishing same; notice of
change of ownership or right to receive payment accomplished in any other
manner (for example by reason of incapacity, death or dissolution) shall
consist of copies of recorded documents and complete proceedings legally
binding and conclusive of the rights of all parties. Until such notice has
been furnished to Grantee as provided above, the payment or tender of all sums
payable on the Production Payment and delivery of all notices may be made in
the manner provided herein precisely as if no such change in interest or
ownership or right to receive payment had occurred. The kind of notice herein
provided shall be exclusive, and no other kind, whether actual or constructive,
shall be binding on Grantee.
ARTICLE 8
MISCELLANEOUS
8.1 GOVERNING LAW. The validity, effect and construction of this
Assignment shall be governed by the law of the State of Colorado, exclusive of
the conflict of laws provisions thereof.
8.2 INTENTIONS OF THE PARTIES. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income
tax purposes, the parties elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A of the IRC, and agree not to take any
position inconsistent with such election. In addition, the parties hereto
intend that the Production Payment reserved hereby by Grantor shall at all
times be treated as an incorporeal (i.e., a non-possessory) interest in real
property or land and as a production payment under Section 636 of the IRC,
payable out of Gross Proceeds (rather than as a working or any other interest).
8.3 NOTICES. All notices and other communications required or
permitted under this Assignment shall be in writing and, unless otherwise
specifically provided, shall be delivered personally, by prepaid telecopy or
similar means (with signed confirmed copy to follow by mail in the manner
provided below), or (except for quarterly statements provided for under Section
4.5 above which may be sent by regular mail) by registered or certified mail,
postage prepaid, or by delivery service for which a receipt is obtained, at the
following addresses for Grantor and Grantee, and shall be deemed delivered on
the date of receipt.
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If to Grantor:
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Telephone: (303) 762-9991
Fax: (303) 762-9992
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Grantee:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Either party may specify an alternative address by giving notice to the other
party, in the manner provided in this Section 8.3.
8.4 FURTHER ASSURANCES. Grantor and Grantee agree to execute and
deliver to the other all such other and additional instruments, notices,
division orders, transfer orders and other documents and to do all such other
and further acts and things as may be necessary to more fully and effectively
grant, convey and
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assign to Grantee and to reserve to Grantor the rights, titles, interests and
estates conveyed to Grantee and reserved by Grantor hereby or intended to be so
conveyed and reserved.
8.5 EXECUTION BY HS AND ORION. HS and Orion are signatories to
this Assignment to confirm the conveyance to Grantee hereby of a working
interest or royalty interest, as applicable, for tax purposes and HS and Orion
hereby grant, bargain, sell, transfer, assign and convey such rights and
interests as are necessary to effect such intent; subject, however, to
Grantor's reservation of the Production Payment and Reversion Interest under
this Assignment, and subject to Grantor's Option and the provisions of the
Management Agreement.
8.6 COUNTERPARTS. This Assignment may be executed in multiple
originals, all of which are identical except that, for the convenience of
recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A and Exhibit B which include descriptions of
properties located in the recording jurisdiction in which the particular
counterpart is being recorded. All of such counterparts together shall
constitute one and the same instrument.
8.7 BINDING EFFECT. All the covenants and agreements of Grantor
and Grantee herein contained shall be deemed to be covenants running with
Grantor's and Grantee's interest in the Subject Interests and the lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be binding upon, each of the parties hereto and their respective
successors and, subject to the provisions of this Section 8.6, their assigns.
Any sale, conveyance, assignment, sublease or other transfer of the Subject
Interests, or any interest therein or any part thereof, shall provide that the
assignee assume all of the obligations of the assignor with respect to the
interest so transferred, and unless the non-assigning party otherwise expressly
consents in writing, the assigning party shall also remain liable for the
discharge of its obligations.
8.8 PARTITION. Grantor and Grantee acknowledge that Grantor and
Grantee have no right or interest that would permit either to partition any
portion of the Subject Interests, and Grantor and Grantee waive any such right.
8.9 SPECIFIC PERFORMANCE. In addition to any other remedy which
Grantor may enjoy under this Agreement, at law or in equity, Grantor shall have
the right to seek and enforce the remedy of specific performance by Grantee of
its obligations under this Agreement.
8.10 EFFECTIVE DATE. This Assignment shall become effective for
all purposes as of 7:00 a.m. (at the respective locations of the Subject
Interests) on the Effective Date.
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IN WITNESS WHEREOF, the parties have executed this Assignment
effective as of the Effective Date.
GRANTOR:
WATTENBERG RESOURCES LAND, L.L.C.
By:
Name: David G. Stolfa
Title: Manager
GRANTEE:
WATTENBERG GAS INVESTMENTS, LLC,
By its Manager, Fontenelle, Inc.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Gary L. Greenstein
- - ---------------------------------- Vice President
Name: Roger D. Tullberg
Title: Assistant Secretary
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - ---------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - ---------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
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STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company, on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc. in
its capacity as Manager of Wattenberg Gas Investments, LLC, a Delaware limited
liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
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<PAGE> 66
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
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SCHEDULE 1
SIDETRACK WELLBORE TERMS
1. DEFINITIONS:
"Sidetrack Wellbore" as used in this agreement shall mean and
include all down hole operations performed in an existing well (a "Well") in an
attempt to establish production through a sidetrack wellbore from a formation
in which the Well may or may not currently be completed.
2. EXPENSES OF SIDETRACK WELLBORES:
The costs and expenses of all Sidetrack Wellbore operations
shall be borne in accordance with the provisions of Section 12.6 of the
Purchase Agreement.
3. OWNERSHIP OF WELL AND EQUIPMENT:
The wellhead equipment and down hole equipment through the
depth where the Sidetrack Wellbore commences shall be owned equally by the
owners of the Sidetrack Wellbore and the Wellbore. The tubing and equipment
run on or in the tubing string shall be owned by the owners of the Well and/or
Sidetrack Wellbore being served by the tubing. The casing in the Well below
the depth where the Sidetrack Wellbore commences shall be owned by the owners
of the Well. The lease facilities shall be owned by the owners of the Well or
Sidetrack Wellbore being served thereby, and if both the Well and Sidetrack
Wellbore are being served, they shall be owned equally by such owners.
4. OPERATING RIGHTS OF OWNERS:
The rights, duties and obligations of the owners of Wells
containing a Sidetrack Wellbore, as set out in the operating or other
agreements governing the operation of such wellbores, are not changed, altered
or amended by these terms except as specifically provided herein.
(a) Subject to the further provisions hereof, the owners of a
Well and the owners of the associated Sidetrack Wellbore each have the right to
enter the Well. If the owners of a Sidetrack Wellbore desire to drill, operate
and maintain a Sidetrack Wellbore in the Well and such work will necessitate
the shutting in of the existing production in the Well, the owners of the Well
shall be given reasonable notice of such Sidetrack Wellbore and the estimated
number of days required to complete such work. Such notice shall be given
promptly, either before or after Sidetrack Wellbore drilling or rework
operations commence.
(b) Should a blowout, explosion, fire or other sudden
emergency occur during the course of drilling or rework of any
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<PAGE> 68
Sidetrack Wellbore, the owners drilling such Sidetrack Wellbore shall, at their
expense, take such steps as are necessary to deal with the emergency and to
safeguard life and property, and shall, as promptly as possible, report the
emergency and the action taken to the owners of the Well.
(c) Should a blowout, explosion, fire or other sudden
emergency occur at any time other than during the course of drilling or rework
of a Sidetrack Wellbore, the cost of dealing with any such emergency shall be
borne equally by the owners of the Well and the Sidetrack Wellbore.
5. LIABILITIES OF THE OWNERS:
If a Sidetrack Wellbore is drilled in a Well, the liabilities
of the owners of the Well and the Sidetrack Wellbore shall be as follows:
(a) No liability shall be incurred by the owners of the
Sidetrack Wellbore for causing production to cease from the Well during the
time drilling or rework operations are being conducted on the Sidetrack
Wellbore, as long as such operations are conducted with diligence and without
unreasonable delay; provided, however that if the number of days required to
complete Sidetrack Wellbore operations results in a cessation of production
from the Well for a period greater than 90 days, the owners of the Sidetrack
Wellbore shall pay to the owners of the Well an amount equal to the lesser of
(i) the product of $0.15 multiplied by the average daily production rate from
the Well (in MMBTU/day) prior to the cessation of production for each day that
the Well does not produce after such 90-day period, or (ii) an amount equal to
the fair market value of the last 5% of the reserves associated with the Well
as of the date the Well was acquired by the owners of the Well, based on a
reserve evaluation conducted in accordance with the procedures of the
Securities and Exchange Commission and using an annual discount rate of 10%.
Such payment shall be made within 60 days of the date such obligation accrues.
As an alternative to making a payment under (i) or (ii) immediately above, the
owners of the Sidetrack Wellbore may exercise their rights under the Option to
Purchase Oil and Gas Interests between Wattenberg Resources Land, L.L.C. and
Wattenberg Gas Investments, LLC and such exercise may be made without an
obligation to make any penalty payment thereunder.
(b) If the Sidetrack Wellbore drilling or rework operations
are continued for a period which might cause the termination of a lease being
maintained by production from the Well and any such lease terminates because of
the Sidetrack Wellbore operations, the owners of the Sidetrack Wellbore shall
be liable to the owners of the Well for an amount equal to the fair market
value of the last 5% of the reserves associated with the Well as of the date
the Well was acquired by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities and Exchange
Commission and
-2-
<PAGE> 69
using an annual discount rate of 10%. Such payment shall be made within 60
days of the date such obligation accrues. As an alternative to making a
payment under the foregoing provisions of this Section 5(b), the owners of the
Sidetrack Wellbore may exercise their rights under the Option to Purchase Oil
and Gas Interests between Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC and such exercise may be made without an obligation to make
any penalty payment thereunder.
(c) If the Sidetrack Wellbore drilling operations disturb or
remove the means of separation of the reserves in the Well from the reserves to
be exploited from the Sidetrack Wellbore, or otherwise cause a permanent
cessation or reduction of production from the Well, the Operator shall, before
and after the operation, conduct a test of the Well for the purpose of
determining whether or not the producing capacity of the formation completed in
the Well has been impaired, by employing the procedure set forth as follows:
(1) The producing capacity of the Well shall be
determined by comparing the actual production before and after
the Sidetrack Wellbore drilling operations during the thirty
(30) days in which there was actual production immediately
before and after such operations, with the Well producing
under similar pressure differential and other conditions. If
the producing conditions or equipment size are different, an
appropriate applicable method as jointly agreed to by owners
of the Sidetrack Wellbore and the owners of the Well will be
utilized to determine the effect on deliverabilities which the
Sidetrack Wellbore drilling operations caused.
(2) If the producing capacity of the Well has been
reduced in excess of fifty percent (50%), and there is no
cause for such reduction other than the Sidetrack Wellbore
operations, damages will be deemed to have occurred. If
damage has occurred, the rights and liabilities between the
owners of the Sidetrack Wellbore and the owners of the Well
shall be adjusted in accordance with the following provisions
of this Section 5(c)(2), which adjustments shall constitute
the sole and exclusive remedies of the owners of the Well for
damage to the producing Well(s).
The owners of the Sidetrack Wellbore may, at their sole cost,
risk and expense, attempt to restore the Well to 50% or more
of its former capacity. If the attempt is unsuccessful, or if
no attempt is made, the owners of the Sidetrack Wellbore shall
pay damages to the owners of the Well in an amount equal to
the fair market value of the last 5% of the reserves
associated with the Well as of the date the Well was acquired
by the owners of the Well, based on a reserve evaluation
conducted in
-3-
<PAGE> 70
accordance with the procedures of the Securities and Exchange
Commission and using an annual discount rate of 10%. Such
payment shall be made within 60 days of the date such
obligation accrues. As an alternative to making a payment
under the foregoing provisions of this Section 5(c)(2), the
owners of the Sidetrack Wellbore may exercise their rights
under the Option to Purchase Oil and Gas Interests between
Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC and such exercise may be made without an
obligation to make any penalty payment thereunder.
6. CLASSIFICATION OF PAYMENTS
Any payment under Section 5 above, received by the owners of
the Well(s), shall not be considered as Gross Proceeds or Other Income for
purposes of the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated May 21, 1996 between Wattenberg Resources Land,
L.L.C. and Wattenberg Gas Investments, LLC.
-4-
<PAGE> 71
SCHEDULE 2
PAYMENT SCHEDULE OF THE PRODUCTION PAYMENT
Date Payment Interest
- - --------------------------------------------------------------------------------
<PAGE> 72
EXHIBIT D
OPTION TO PURCHASE OIL AND GAS INTERESTS
This Option to Purchase Oil and Gas Interests (this "Option")
is granted effective as of May 15, 1996 (the "Effective Date") by Wattenberg
Gas Investments, LLC, a Delaware limited liability company, 82 Devonshire
Street, R22C, Boston, Massachusetts 02109 ("Grantor") to Wattenberg Resources
Land, L.L.C., a Delaware limited liability company, whose manager has an office
of 3300 South Columbine Circle, Englewood, Colorado 80110 ("Grantee").
For $10.00 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Grantor grants and
conveys to Grantee the exclusive and irrevocable option to purchase from time
to time all or any portion of the following (the "Subject Interests") upon the
terms and conditions set forth herein (the "Option"):
A. All of Grantor's right, title and interest
in and to the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the right to
produce the wells described in Exhibit B from the intervals in
such wells identified in Exhibit B as of the Option Effective
Date (the above described interests in such leases being
herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions,
limitations, burdens, contracts, agreements and other matters
applicable to the Leases and the Wells, and excluding such
portion of the Leases and the Wells which were not conveyed to
Grantor because of Defective Interests or which were
determined to be Excluded Assets (as such terms are defined in
the Purchase and Sale Agreement between Grantor and Grantee
dated May 21, 1996 (the "Purchase Agreement"), and such
exclusions being referred to herein as the "Reserve
Reductions");
B. The right, title and interest of Grantor in
and to overriding royalty interests in the Leases insofar and
only insofar as the Leases cover the wellbores associated with
the Wells from the producing intervals identified in Exhibit
B;
C. To the extent affected, the right, title and
interest of Grantor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization, pooling,
operating and communitization agreements, declarations and
orders affecting the
D-1
<PAGE> 73
Leases and Wells, and in and to the properties covered and the
units created thereby;
D. To the extent affected, the right, title and
interest of Grantor in and to the personal property and
fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and
other personal property and oil field equipment appurtenant to
such Wells; provided, however, that Grantor shall remain
co-owner of any personal property appurtenant to any property
owned by Grantor that is not exclusively part of the Wells;
E. To the extent affected, the right, title and
interest of Grantor in and to and under, or derived from, the
presently existing and valid gas sales, purchase, gathering
and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way,
easements, permits and surface leases and other contracts,
agreements and instruments (but specifically excluding any
management agreements), only in relevant part to the extent
and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in item C above; provided, however,
that Grantor shall remain co-owner of any agreements,
including unitization and pooling agreements, if they pertain
to any property owned by Grantor that is not exclusively part
of the Leases or Wells.
1. EXERCISE OF THE OPTION. The Option may be exercised
as follows:
a. PRIOR TO JANUARY 1, 2003. From the date
of this Option until January 1, 2003, Grantee has the right to exercise the
Option, without penalty, one or more times to purchase up to a cumulative total
of 15% of the Subject Interests (by volume of the sum of the estimated reserves
for such Subject Interests under the Reserve Report, less Reserve Reductions,
if any (such difference, the "Total Reserves")). If Grantee exercises the
Option to purchase a portion of the Subject Interests and such portion by
itself, or when added to any other portion of the Subject Interests previously
purchased by Grantee pursuant to an earlier exercise of the Option, exceeds 15%
of the Subject Interests by volume of the Total Reserves then, in addition to
the Option Price, Grantee shall pay to Grantor a penalty payment as set forth
below, subject to certain exceptions. At the time Grantee exercises the Option
and for the first time a cumulative total of more than 15% of the Subject
Interests have been or are to be repurchased, then the penalty payment shall be
determined based on the cumulative total of the Subject Interests purchased.
If the Grantee exercises the Option again for an additional incremental group
of Subject Interests,
D-2
<PAGE> 74
then the penalty payment shall be determined based on the incremental Subject
Interests purchased.
(1) Penalty Payment Before 2000.
If the Option Effective Date is on or before December 31,
1999, Grantee shall pay to Grantor an amount equal to the
product obtained by multiplying $200,000 by a fraction, the
numerator of which is the sum of the volume of estimated
reserves for the Subject Interests (as set forth in the
Reserve Report, less applicable Reserve Reductions) which
Grantee desires to purchase and the denominator of which is
the volume of Total Reserves (the "Reserve Fraction").
(2) Penalty Payment, 2000 through
2002. If the Option Effective Date is between January 1, 2000
and December 31, 2002, Grantee shall pay to Grantor an amount
equal to the product obtained by multiplying $150,000 by the
applicable Reserve Fraction.
The foregoing penalty payment amounts shall not be payable if Grantee exercises
the Option on or before December 31, 2002 in its entirety with respect to
paragraphs (i) through (vii) below, or in part with respect to paragraphs (vi)
and (vii) below, in each case which it may do from time to time, because:
(i) Credit Payment Amounts (as defined in the
Purchase Agreement) are no longer paid or
credited to Grantee;
(ii) a Tax Audit (as defined in the Purchase
Agreement) has commenced and Grantor has not
waived its right to an escrow pursuant to
Section 8.3 of the Purchase Agreement;
(iii) the Management Agreement dated effective as
of the Effective Date between Grantor and
Grantee, or any successor agreement (the
"Management Agreement") is terminated (other
than by, or on account of a breach thereof
by, Grantee), is held invalid or void, or
Grantor or its successors or assigns fail to
perform thereunder;
(iv) Grantor breaches the Purchase Agreement or
any agreement contemplated thereunder, which
breach if uncured would have a material
adverse effect on Grantee and which has not
been cured by Grantor within 60 days of
receipt of a written notice from Grantee of
such breach;
D-3
<PAGE> 75
(v) payments remain unsatisfied for a period
exceeding 60 days under one or both of the
Contribution Agreements or one or both of
the Guaranty Agreements contemplated by the
Ratification of Obligations under the
Purchase Agreement;
(vi) Grantor denies approval of certain
operations on the Subject Interests in
accordance with Section 2.1(p) or (q) of the
Management Agreement and Grantee elects to
exercise the Option on the properties
affected by the proposed operations rejected
by Grantor; and
(vii) an aggregate of $1,900,000 in Credit Payment
Amounts under the Purchase Agreement has
been credited or paid to Grantee.
Exercises of the Option by Grantee pursuant to paragraph (vi) or (vii) above
shall not be counted towards the cumulative total of 15% of the Subject
Interests in Paragraph 1.a.
Notwithstanding anything herein provided to the contrary, prior to December 31,
1997, Grantee agrees that it will not exercise the Option and purchase the
Subject Interests so that Grantee may enter into a transaction with a third
party under a substantially similar arrangement as the transaction contemplated
by the Purchase Agreement for the primary purpose of monetizing the tax credits
under Section 29 of the Internal Revenue Code, as amended from time to time
(the "Code"), attributable to production from the Subject Interests at a more
favorable rate. If Grantee breaches its agreement set forth in the immediately
preceding sentence, Grantee shall be obligated to pay Grantor all profits
received by Grantee from such third party as a result of the consummation of
such transaction with the third party.
b. ON OR AFTER JANUARY 1, 2003 UNTIL
JANUARY 1, 2005. From January 1, 2003 until January 1, 2005, Grantee has the
right to exercise the Option one time to purchase the remaining Subject
Interests as an entirety without penalty for the associated Option Price.
c. PARTIAL EXERCISE LIMITED. Grantee may
not exercise the Option to purchase in the aggregate more than 25% of the Total
Reserves unless Grantee exercises the Option as to all of the Subject
Interests; provided, however that this limitation shall not apply to exercises
of the Option contemplated by Paragraphs 1.a.(vi) and (vii) above.
d. MINIMUM PAYMENT. If the Option is
exercised by Grantee, from time to time, on or prior to December 31, 1998,
Grantee shall pay to Grantor a payment equal to (i) $300,000, if the Option is
exercised in full, or (ii)
D-4
<PAGE> 76
$300,000 multiplied by the Reserve Fraction if the Option is exercised in part,
which amount shall apply to, and be a direct off-set of, the Option Price for
all purchased Subject Interests. In no event shall the aggregate of payments
under the immediately preceding sentence ever exceed $300,000. The penalties
set forth in Paragraph 1.a. are in addition to the minimum payment set forth in
the immediately preceding sentence.
2. OPTION TERM. The Option shall terminate on January
1, 2005 (the "Option Term").
3. METHOD OF EXERCISE. To exercise the Option within
the Option Term, Grantee must deliver written notice of such exercise,
delivered personally, by prepaid telecopy or similar means (with signed
confirmed copy to follow by mail in the manner provided below), or by
registered or certified mail, postage prepaid, or by delivery service for which
a receipt is obtained, at the addresses set forth below, and shall be deemed
delivered on the date of receipt.
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
and a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
D-5
<PAGE> 77
Grantor may specify an alternative address by giving written notice to Grantee
of such change.
4. OPTION EFFECTIVE DATE. The effective date of a
purchase of all or any portion of the Subject Interests pursuant to the Option
(the "Option Effective Date") shall be the first day of the month following the
date Grantor receives the notice of exercise of the Option specifying the
Subject Interests which Grantee desires to purchase pursuant to such exercise
of the Option.
5. OPTION PRICE. The purchase price (the "Option
Price") for the Subject Interests, or any portion thereof, shall be the
appraised current fair market value of the Subject Interests in question as of
the Option Effective Date. Unless Grantor and Grantee agree otherwise, the
appraised fair market value of the Subject Interests in question shall be the
present value as of the Option Effective Date of the future net revenue
estimated to be received therefrom, determined in accordance with generally
accepted engineering principles in effect at the time, by Williamson Petroleum
Consultants, Inc. or some other nationally recognized petroleum engineering
firm agreed upon by Grantor and Grantee. The price of natural gas used in the
forecast shall be based on an unescalated average gas price for the most recent
12-month period, as quoted in the first monthly publication of Inside FERC's
Gas Market Report for the Colorado Interstate Gas Co. ("CIG") Index (or a
mutually agreeable substitute index if such index is no longer published), less
an unescalated average gathering and transportation cost from wellhead to the
CIG mainline for the most recent 12-month period, multiplied by a BTU/SCF
factor appropriate to the affected properties; the price of hydrocarbon liquids
used in the forecast shall be based on the unescalated actual price received on
the Subject Interests during the most recent 12- month period; and the costs
used in the forecast shall be the unescalated average of the monthly costs
attributable to the Subject Interests in question during the most recent
12-month period preceding the Option Effective Date. The discount rate to be
applied shall be the 6-month London Interbank Offered Rate in effect on the
date on which the fair market value determination is made plus 6%.
6. TERMS OF PURCHASE. Upon the closing of the purchase
of all or any portion of the Subject Interests pursuant to an exercise of the
Option, Grantee shall be entitled to receive the proceeds, accounts receivable,
income, revenues, monies and other items attributable to the Subject Interests
in question from and after the Option Effective Date in question and same shall
be paid over to Grantee, and Grantee shall be liable to pay the expenses
attributable to the Subject Interests in question from and after the Option
Effective Date in question. Subject to the terms of the Assignment, Grantor
shall be entitled to receive the production from the Subject Interests in
question prior to the Option Effective Date in question and shall be liable to
pay the expenses attributable to the Subject Interests
D-6
<PAGE> 78
in question prior to the Option Effective Date in question. Upon the closing
of the purchase of all or any portion of the Subject Interests pursuant to an
exercise of the Option, Grantee shall assume all obligations and liabilities
attributable to the ownership or operation of the Subject Interests in question
on and after the Option Effective Date in question, including the contractual
and regulatory obligations in connection with the Subject Interests in
question, and Grantee shall defend, indemnify and hold harmless Grantor (and
its successors, assigns, members, officers, managers (including the employees,
representatives, agents, successors and assigns of such members), employees,
representatives, agents and consultants) from and against all claims, demands,
actions, obligations, liabilities and expenses (including reasonable attorney,
consultant and expert witness fees) arising from such obligations and
liabilities assumed by Grantee hereunder.
7. PAYMENT AND CLOSING. The closing of a purchase
pursuant to an exercise of the Option shall occur at the offices of Grantee at
9:00 a.m., on a mutually agreed upon business day no later than 30 days from
the date Grantor receives the notice of an exercise of the Option. At the
closing, Grantee shall deliver by wire transfer of immediately available U.S.
funds, to the account designated by Grantor, the Option Price for the Subject
Interests in question, and Grantor shall deliver to Grantee an assignment fully
executed and in recordable form of the Subject Interests in question dated
effective as of the Option Effective Date in question and in form and substance
reasonably satisfactory to Grantee with warranty of title as to all matters
arising by, through or under Grantor, but not otherwise.
8. GOVERNING LAW. The validity, effect and construction
of this Option shall be governed by the law of the State of Colorado, without
reference to its conflict of laws provisions.
9. SPECIFIC PERFORMANCE. In addition to any other
remedy which Grantee may enjoy under this Option, at law or in equity, Grantee
shall have the right to seek and enforce the remedy of specific performance by
Grantor of its obligations under this Option.
10. FURTHER ASSURANCES. Grantor and Grantee agree to
execute and deliver to the other all such other and additional instruments,
notices, division orders, transfer orders and other documents and to do all
such other and further acts and things as may be necessary to more fully and
effectively grant, convey and assign to Grantee the rights, titles, interests
and estates conveyed to Grantee hereby or intended to be so conveyed.
11. COUNTERPARTS. This Option may be executed in
multiple originals, all of which are identical except that, for the convenience
of recording, counterparts hereof which are being
D-7
<PAGE> 79
recorded include only those certain portions of Exhibit A which include
descriptions of properties located in the recording jurisdiction in which the
particular counterpart is being recorded. All of such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Option
effective as of the Effective Date.
GRANTOR:
Wattenberg Gas Investments, LLC
By: its Manager, Fontenelle, Inc.
Attest: By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
- - -------------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
GRANTEE:
Wattenberg Resources Land, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
D-8
<PAGE> 80
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company, on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware Corporation, in its capacity as Manager of Wattenberg Gas Investments,
LLC, a Delaware limited liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) -------------
D-9
<PAGE> 81
EXHIBIT E
RESERVE REPORT
SEE ATTACHED
E-1
<PAGE> 82
EXHIBIT F
PREFERENTIAL RIGHTS AND CONSENTS
WELL NAME AGREEMENT RESPONSE
--------- --------- --------
F-1
<PAGE> 83
EXHIBIT G
PREPAYMENTS
NONE
G-1
<PAGE> 84
EXHIBIT H
GAS IMBALANCES
NONE
H-1
<PAGE> 85
EXHIBIT I
OPERATIONS IN PROGRESS
NONE
I-1
<PAGE> 86
EXHIBIT J
HYDROCARBON SALES CONTRACTS
1. Gas Purchase and Sale Agreement, No. 146740 (NIE Prospect),
dated 2-19-92, with Amoco Production Company.
2. Gas Purchase and Processing Agreement, No. GPA.001.S (SPI
Prospect), dated 11-8-91, with PanEnergy Field Services
(formerly ANGI).
3. Gas Purchase and Processing Agreement, No. GPA.020.S (SPI
Prospect), dated 7-28-93, with PanEnergy Field Services
(formerly ANGI).
4. Gas Purchase and Processing Agreement, No. GPA.027.BT (SUN
Prospect), dated 7-24-85, with PanEnergy Field Services
(formerly ANGI).
5. Gas Purchase and Processing Agreement, No. GPA.111.K dated
1-7-86, with PanEnergy Field Services (formerly ANGI).
6. Gas Purchase and Processing Agreement, No. GPA.232.K (NIE
Prospect), dated 10-12-90, with PanEnergy Field Services
(formerly ANGI).
7. Gas Purchase and Processing Agreement, No. GPA.289.K (ALA
Prospect), dated 11-30-93, with PanEnergy Field Services
(formerly ANGI).
8. Gas Purchase and Sale Agreement (ALA Prospect), dated
10-29-93, with PanEnergy Field Services (formerly ANGI).
9. Gas Purchase and Sale Agreement (NIE Prospect), dated
11-10-78, with KN Gas Marketing (formerly PEPL).
10. Gas Purchase and Sale Agreement (NIE Prospect), dated 8-1-87,
with Vessels Oil and Gas Company.
11. Crude Oil Purchase Agreement, No. P-930116, dated 1-5-93, with
PanEnergy Trading & Transportation (ATTCO).
12. Master Swap Agreement dated 3-26-96 between Wattenberg
Resources Land, L.L.C. and HS Resources, Inc.
J-1
<PAGE> 87
EXHIBIT K
LEGAL PROCEEDINGS
1. During 1994, HS Resources, Inc. (the "Company") was named as a
defendant, in addition to three other companies, in an action brought by
certain landowners in Colorado. The action challenges certain mineral
reservations of one of the Company's assignor in its original surface
conveyance involving two small tracts of the Company's minerals.
2. In February of 1995, the Company was named as one of many
defendants in a suit brought by several royalty owners in Northeast Colorado
seeking royalty payments on certain deductions from gas sales.
3. Potential claims of royalty owners in wells in the Spindle
Field for underpayment of royalty during the period of ownership of the
Company's assignor, based on the differential in price paid for gas produced
from the Spindle Field and gas produced from other fields or properties in the
area.
4. Participation in Joint Defense Agreement, and potential
participation in clean-up or payment of costs, damages or penalties related to
claims made by the United States Environmental Protection Agency against Weld
County Waste Disposal et al.
5. Potential claims of Northern Natural Gas or Gerrity Oil and
Gas Corporation against one of the Company's assignors for ceasing operation of
the natural gas pipeline located in Superior, Colorado based on a determination
that the line was no longer safe or economic.
6. Audit by Rockport-Essex relative to payment of royalties in
Spindle Field.
While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of any of these matters will have a material impact on its
financial condition or the results of operations.
K-1
<PAGE> 88
EXHIBIT L
TAX PARTNERSHIPS
NONE
L-1
<PAGE> 89
EXHIBIT M
NO NGPA CERTIFICATE FILED
<TABLE>
<CAPTION>
Well Reservoir Location
- - ---- --------- --------
<S> <C> <C>
Bernhardt 11-19 1 Codell/Niobrara NW/NW, Sec. 19, T4N, R66W
Berry #1 Codell/Niobrara/J SE/NE, Sec. 8, T3N, R67W
Bierig 42-35 1 Codell/Niobrara SE/NE, Sec. 35, T4N, R66W
Bohlender 1-27 Codell/Niobrara NW/NW, Sec. 27, T4N, R65W
Bohlender 2-27 Niobrara/Sussex NW/NE, Sec. 27, T4N, R65W
Fritzler 41-22 Codell/Niobrara/SX NE/NE, Sec. 22, T4N, R66W
Jerke #2 Codell/Niobrara NE/SW, Sec. 15, T4N, R65W
Johnson 6-30 Codell/Niobrara SE/NW, Sec. 30, T4N, R66W
Johnson UPRR 31-35 Codell/Niobrara NW/NE, Sec. 35, T4N, R66W
Kissler 12-21 1 Codell/Niobrara SW/NW, Sec. 21, T4N, R66W
Krause 2-28 Niobrara/Ft.Hays/SX SW/SW, Sec. 28, T4N, R65W
Lorenz 31-27 2 Codell/Niobrara/SX NW/SE, Sec. 27, T4N, R66W
Lorenz 42-27 1 Codell/Niobrara/SX SE/NE, Sec. 27, T4N, R66W
Pearson 1 Codell/Sussex SW/NW, Sec. 28, T4N, R65W
Sprague A M A1 Codell/Niobrara/SX SW/NW, Sec. 22, T2N, R66W
</TABLE>
M-1
<PAGE> 90
EXHIBIT N
NON-FOREIGN OWNERSHIP AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a
buyer of a United States real property interest must withhold tax if the seller
is a foreign person. To inform Wattenberg Gas Investments, LLC (the "Buyer")
that withholding of tax is not required upon the disposition of a United States
real property interest owned by Wattenberg Resources Land, L.L.C. (the
"Seller"), the undersigned hereby certifies the following on behalf of Seller:
1. The Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, or
foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The United States employer/taxpayer identification
number of the Seller is 84-1338601; and
3. Seller's address is:
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Seller understands that this affidavit may be disclosed to the Internal Revenue
Service by the Buyer and any false statement contained herein may be punished
by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
affidavit and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of Seller.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
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<PAGE> 91
Subscribed and sworn before me this 21st day of May, 1996.
--------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - -----------------------
N-2
<PAGE> 92
NON-FOREIGN OWNERSHIP AFFIDAVIT
SEE ATTACHED FORM - DR 1083
REGARDING
COLORADO REAL PROPERTY WITHHOLDING TAX
N-3
<PAGE> 93
EXHIBIT O
RATIFICATION OF OBLIGATIONS
THIS RATIFICATION OF OBLIGATIONS (this "Ratification") dated
May 21, 1996, but effective May 15, 1996 is entered into by FMR Corp., a
Massachusetts corporation ("FMR"), State Street Boston Corporation, a
Massachusetts corporation ("State Street"), Fontenelle, Inc., a Delaware
corporation and affiliate of FMR ("Fontenelle"), Bald Prairie, Inc., a Delaware
corporation and affiliate of FMR ("Bald Prairie"), and SSB Investments, Inc., a
Massachusetts corporation and affiliate of State Street ("SSBI"). FMR, State
Street, Fontenelle, Bald Prairie and SSBI are collectively referred to herein
as the "Parties," and singularly as a "Party."
Recitals
A. Fontenelle, Bald Prairie and SSBI are members (the
"Members") of Wattenberg Gas Investments, LLC, a Delaware limited liability
company ("WGI"), in accordance with the terms of the Operating Agreement of WGI
dated as of November 8, 1995, and amended and restated April 25, 1996 and May
21, 1996 (the "LLC Agreement").
B. Pursuant to Article 3 of the LLC Agreement, the
Members are obligated to make certain capital contributions with respect to
WGI.
C. WGI entered into that certain Purchase and Sale
Agreement dated December 1, 1995 with HS Resources, Inc. ("HS") (the "Original
Purchase Agreement"), as amended by that First Amendment to Purchase and Sale
Agreement, Assignment, Option, Management Agreement, Gas Purchase Agreement and
Limited Power of Attorney dated April 25, 1996 (the "First Amendment"), whereby
WGI acquired certain oil and gas interests located in Colorado. WGI has
negotiated a Purchase and Sale Agreement dated May 21, 1996 (including all
exhibits, schedules, related documents and conveyances, the "Agreement") with
Wattenberg Resources Land, L.L.C., a Delaware limited liability company ("WRL")
to acquire certain additional oil and gas interests located in Colorado, as
further described on the attached Exhibit A and Exhibit B (the "Assets").
D. Pursuant to the Original Purchase Agreement,
Fontenelle and Bald Prairie executed a Contribution Agreement with WGI dated
December 14, 1995 (the "FMR Contribution Agreement"), wherein they agreed to
contribute funds to WGI in accordance with the LLC Agreement. FMR entered into
a Guaranty Agreement with WGI dated December 14, 1995 (the "FMR Guaranty") to
guarantee the payment and performance of Fontenelle's and Bald Prairie's
obligations under the FMR Contribution Agreement.
O-1
<PAGE> 94
E. Pursuant to the Original Purchase Agreement, SSBI
executed a Contribution Agreement with WGI dated December 14, 1995 (the "SS
Contribution Agreement"), wherein it agreed to contribute funds to WGI in
accordance with the LLC Agreement. By an Assignment of Contribution
Obligations dated December 14, 1995, SSBI acknowledged an assignment of the SS
Contribution Agreement from WGI to HS. State Street entered into a Guaranty
Agreement with WGI dated December 14, 1995 (the "SS Guaranty") to guarantee the
payment and performance of SSBI's obligations under the SS Contribution
Agreement. By an Assignment of Guaranty Rights dated December 14, 1995, State
Street acknowledged an assignment of the SS Guaranty from WGI to HS.
F. The Parties entered into a Ratification of
Obligations dated April 25, 1996 regarding matters covered by the First
Amendment and providing for certain amendments to the FMR Contribution
Agreement.
G. To induce WGI to enter into the Agreement, the
Parties desire to ratify and amend their respective obligations under the FMR
Contribution Agreement, as amended, the FMR Guaranty, the SS Contribution
Agreement and the SS Guaranty which were given with respect to the Original
Purchase Agreement and the First Amendment and to include the Assets under the
Agreement. The Parties desire to provide for an Assignment of Contribution
Obligations and an Assignment of Guaranty Rights, and their respective
acknowledgments, if any, thereunder, to assign such obligations and rights with
respect to the Assets to Wattenberg Resources Land, L.L.C., a Delaware limited
liability company ("WRL") and to allow for the assignment of such obligations
and rights to HS or to Orion Acquisition, Inc., a Delaware corporation.
NOW THEREFORE, in consideration of the mutual benefits the
Parties will each receive as a result of WGI entering into the Agreement, the
Parties each respectively agree as follows:
1. Ratification. The Parties hereby ratify and amend
their respective individual and joint, if any, obligations under the FMR
Contribution Agreement, as amended, the FMR Guaranty, the SS Contribution
Agreement and the SS Guaranty to apply to the Agreement in the same manner and
to the same extent as contemplated in such agreements with respect to the
Original Purchase Agreement, as amended by the First Amendment.
2. Assignment of Rights. To the extent and in the
capacity so provided, the Parties agree to execute and acknowledge, as
appropriate, the Assignment of Contribution Obligations and the Assignment of
Guaranty Rights attached hereto (the "Assignments").
3. No Conditions. Each Party represents as to itself
that (i) there are no conditions precedent to the effectiveness of this
Ratification and the Assignments that have not been
O-2
<PAGE> 95
satisfied or waived, (ii) this Ratification and the Assignments have been duly
authorized by all necessary corporate action, (iii) this Ratification, and the
Assignments if applicable, is/are binding upon and enforceable against the
Party, and (iv) that the undersigned officer of the Party has determined that
this Ratification, and the Assignments if applicable, may reasonably be
expected to benefit, directly or indirectly, the Party.
4. Counterparts. This Ratification may be executed in
one or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each Party.
5. Governing Law. This Ratification shall be governed
by and construed in accordance with the law of the Commonwealth of
Massachusetts, without reference to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the Parties have caused this Ratification
to be duly executed and delivered by their respective duly authorized
representatives as of the date first written above.
FMR CORP. STATE STREET BOSTON CORPORATION
By: By:
------------------------------- -------------------------------
Name: Gary L. Greenstein Name: William M. Reghitto
Title: Vice President Title: Vice President
FONTENELLE, INC. SSB INVESTMENTS, INC.
By: By:
------------------------------- -------------------------------
Name: Gary L. Greenstein Name: Susan A. Feig
Title: Vice President Title: Vice President
BALD PRAIRIE, INC.
By:
-------------------------------
Name: Gary L. Greenstein
Title: Vice President
O-3
<PAGE> 96
ASSIGNMENT OF CONTRIBUTION OBLIGATIONS
This Assignment of Contribution Obligations (this
"Assignment") dated May 21, 1996, and effective as of May 15, 1996, is by and
between Wattenberg Gas Investments, LLC, a Delaware limited liability company
("WGI") and Wattenberg Resources Land, L.L.C., a Delaware limited liability
company ("WRL").
1. As used herein, the term "Contribution Agreement"
shall mean the Contribution Agreement by and between SSB Investments, Inc., a
Massachusetts corporation ("SSBI") and WGI setting forth the obligation of SSBI
to contribute funds to WGI subject to the limits as provided therein.
2. WGI has incurred or will incur certain obligations to
WRL under the Purchase and Sale Agreement dated May 21, 1996 between WRL and
WGI (the "Purchase Agreement").
3. WGI hereby assigns to WRL all of WGI's right, title
and interest under the Contribution Agreement with respect to the Assets
contemplated under the Purchase Agreement. SSBI hereby acknowledges the
foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of WRL and WGI and their respective successors and assigns. WRL
may assign all of its right, title and interest under this Assignment to HS
Resources, Inc. or Orion Acquisition, Inc., both Delaware corporations,
provided that such an assignment shall not be effective until WGI and SSBI are
given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Acknowledged: David G. Stolfa, Manager
SSB INVESTMENTS, INC.
By:
-----------------------------
Susan A. Feig, Vice President
O-4
<PAGE> 97
ASSIGNMENT OF GUARANTY RIGHTS
This Assignment of Guaranty Rights (this "Assignment") dated
May 21, 1996, and effective as of May 15, 1996, is by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company ("WGI") and
Wattenberg Resources Land, L.L.C., a Delaware limited liability company
("WRL").
1. As used herein, the term "Guaranty Agreement" shall
mean the Guaranty Agreement by and between State Street Boston Corporation, a
Massachusetts corporation ("SSBC") and WGI setting forth the guarantee by SSBC
of the performance of the obligations of SSB Investments, Inc., a Massachusetts
corporation, under the Contribution Agreement dated as of December 14, 1995
between SSB Investments, Inc. and WGI.
2. WGI hereby assigns to WRL all of WGI's right, title
and interest to the Guaranty Agreement with respect to the Assets covered by
the Purchase and Sale Agreement dated May 21, 1996 between WGI and WRL.
3. SSBC hereby acknowledges the foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of WRL and WGI and their respective successors and assigns. WRL
may assign all of its right, title and interest under this Assignment to HS
Resources, Inc. or Orion Acquisition, Inc., both Delaware corporations,
provided that such an assignment shall not be effective until WGI and SSBC are
given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Acknowledged: David G. Stolfa, Manager
STATE STREET BOSTON CORPORATION
By:
---------------------------
William M. Reghitto
Vice President
O-5
<PAGE> 98
EXHIBIT P
SELLER'S MANAGER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
David G. Stolfa, in his capacity as Manager of Wattenberg Resources Land,
L.L.C., who, after being duly sworn, did state as follows:
1. This certificate is being given pursuant to Section 11.9 of
that certain Purchase and Sale Agreement ("Agreement") dated
May 21, 1996 between Wattenberg Resources Land, L.L.C.
("Seller") and Wattenberg Gas Investments, LLC ("Buyer").
Unless defined otherwise, the capitalized terms used herein
shall have the meaning set forth in the Agreement.
2. All of the representations and warranties of Seller contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Seller in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Seller has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it prior to the Closing Date.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
Subscribed and sworn before me May 21, 1996.
-------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street,
Suite 4700
Denver, Colorado 80202
- - -----------------------
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<PAGE> 99
EXHIBIT Q
Forms of Opinions on Behalf of Seller
May 21, 1996
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, MA 02109
Attn: Roger D. Tullberg
Ladies and Gentlemen:
We are counsel to Wattenberg Resources Land, L.L.C. (the
"Company"). In our capacity as counsel for the Company, we are familiar with
the transactions contemplated by the Purchase and Sale Agreement dated May 21,
1996 between the Company and Wattenberg Gas Investments, LLC (the "Agreement").
Any capitalized terms used herein which are not defined herein shall have the
meanings given to them in the Agreement.
We have examined the Agreement, the Assignment, the Option and
the Management Agreement (as such terms are defined in the Agreement) and the
other documents and instruments executed by the Company at the closing of the
transactions contemplated by the Agreement (collectively the "Documents"), and
have made such other factual and legal investigations as deemed necessary.
In examining and reviewing the Documents, we have assumed (i)
the genuineness of all signatures and (ii) the due authorization, execution,
and delivery by Wattenberg Gas Investments, LLC of the Agreement.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, we are of the opinion that:
1. The Company is a limited liability company duly organized
and validly existing under the laws of the State of Delaware, and is duly
qualified to carry on its business, and is in good standing, in the State of
Colorado.
2. The Company has all requisite authority to carry on its
business as presently conducted, to enter into the Agreement and each of the
documents contemplated to be executed by the Company at Closing, and to perform
its obligations under the Agreement and under such documents. The consummation
of the transactions contemplated by the Agreement and each of the documents
contemplated to be executed by the Company at Closing will not violate, nor be
in conflict with, (i) any provision of the Company's organizational or
governing documents, (ii) any material agreement or instrument to which the
Company is a party or is bound, or (iii) any judgment, decree, order, statute,
rule
Q-1
<PAGE> 100
or regulation applicable to the Company; provided that, the Company has or has
covenanted to use reasonable efforts to secure (a) consents of or filings with
the United States Department of Interior or the applicable state agencies or
authorities in connection with the assignment of any federal or state leases or
any interest therein ("Governmental Consents"), (b) waivers of preferential
rights to purchase all or any portion of the Assets and consents to or notices
of assignment necessary to convey all or any portion of the Assets which are
not Governmental Consents, and (c) waivers of maintenance of uniform interest
provisions in applicable operating agreements.
3. The execution, delivery and performance of the Agreement
and each of the documents contemplated to be executed by the Company at Closing
and the transactions contemplated thereby have been duly and validly authorized
by the Company.
4. The Agreement has been duly executed and delivered on
behalf of the Company, and all documents and instruments required thereunder to
be executed and delivered by the Company have been duly executed and delivered.
5. The Documents to which the Company is a signatory are
binding on and enforceable against it, by the Buyer or by other signatories
thereto, subject to (i) applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to the assumption that enforcement of
remedies will be undertaken in good faith and in a commercially reasonable
manner, (ii) as to enforceability, to general principles of equity regardless
of whether enforcement is sought in a proceeding in equity or law, and (iii)
the power of a court to deny enforcement of remedies generally based upon
public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. The opinions expressed in this letter are limited
solely to the law of the State of Delaware, and applicable federal law of the
United States of America.
B. This opinion letter is rendered solely for the use
and benefit of FMR Corp., State Street Boston Corporation, their respective
affiliates, and Wattenberg Gas Investments, LLC and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without our prior
written consent.
C. This opinion letter is rendered as of the date
hereof. We do not undertake to advise you of matters that may come to our or
the Company's attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
Q-2
<PAGE> 101
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
RICHARDS, LAYTON & FINGER
Q-3
<PAGE> 102
May 21, 1996
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, MA 02109
Attn: Roger D. Tullberg
Ladies and Gentlemen:
I am General Counsel to HS Resources, Inc. ("HS") and its
wholly-owned subsidiary Orion Acquisition, Inc. ("Orion") (collectively, the
"Companies" and singularly, a "Company"). In my capacity as General Counsel
for the Companies, I am familiar with the provisions of the Purchase and Sale
Agreement dated May 21, 1996 between Wattenberg Resources Land, L.L.C. and
Wattenberg Gas Investments, LLC, to which HS and Orion are signatories (the
"Agreement").
I have examined the Agreement, the Assignment, the Option and
the Management Agreement (as such terms are defined in the Agreement) and the
other documents and instruments affecting the Companies with respect to the
transactions contemplated by the Agreement (collectively the "Documents"), and
have made such other factual and legal investigations as I have deemed
necessary.
In examining and reviewing the Documents, I have assumed (i)
the genuineness of all signatures and (ii) the due authorization, execution,
and delivery by parties to the Documents other than the Companies.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. Each Company is a corporation duly organized and validly
existing under the laws of the State of Delaware, and is duly qualified to
carry on its business, and is in good standing, in the States of Delaware and
Colorado and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse impact on the Assets or the
transactions contemplated by the Agreement.
2. Each Company has all requisite corporate power and
authority to carry on its business as presently conducted, to execute the
Agreement and each of the documents contemplated to be executed by the Company
at Closing, and to perform its obligations under the Agreement and under such
documents. The obligations of each Company contemplated by the Agreement and
each of the documents contemplated to be executed by the Company at Closing
will not violate, nor be in conflict with, (i) any
Q-4
<PAGE> 103
provision of the Company's certificate of incorporation, bylaws or governing
documents, (ii) any material agreement or instrument to which the Company is a
party or is bound, or (iii) any judgment, decree, order, statute, rule or
regulation applicable to the Company.
3. The execution, delivery and performance of the Agreement
and each of the documents contemplated to be executed by the Companies at
Closing and the transactions contemplated thereby have been duly and validly
authorized by all requisite corporate action on the part of each Company.
4. The Agreement has been duly executed and delivered on
behalf of each Company, and all documents and instruments required thereunder
to be executed and delivered by the Companies have been duly executed and
delivered. Based on and assuming the application of Colorado law, the
Agreement and the other documents to which the Companies are signatories do and
shall, constitute legal, valid and binding obligations of the Companies
enforceable in accordance with their terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application with respect to creditors, (ii) general principles of
equity and (iii) the power of a court to deny enforcement of remedies generally
based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter states my opinion on the points
covered if the substantive laws of Colorado were applied, even though certain
of the Documents may be governed by the law of other jurisdictions. No opinion
is given as to the effect of the application of such other laws.
B. This opinion letter is rendered solely for the use
and benefit of FMR Corp., State Street Boston Corporation, their respective
affiliates, and Wattenberg Gas Investments, LLC and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without my prior
written consent.
C. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Companies' attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
HS RESOURCES, INC.
James M. Piccone
General Counsel
<PAGE> 104
EXHIBIT R
BUYER'S MANAGER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Gary L. Greenstein, a Vice President of Fontenelle, Inc., in its capacity as
Manager of Wattenberg Gas Investments, LLC, who, after being duly sworn, did
state as follows:
1. This certificate is being given pursuant to Section 11.11 of
that certain Purchase and Sale Agreement dated May 21, 1996
("Agreement") between Wattenberg Resources Land, L.L.C.
("Seller") and Wattenberg Gas Investments, LLC ("Buyer").
Unless defined otherwise, the capitalized terms used herein
shall have the meaning set forth in the Agreement.
2. All of the representations and warranties of Buyer contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Buyer in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Buyer has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it on or as of the Closing Date.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
Subscribed and sworn before me May 21, 1996.
--------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street,
Suite 4700
Denver, Colorado 80202
- - -----------------------
R-1
<PAGE> 105
EXHIBIT S
Form of Opinions on Behalf of Buyer
May 21, 1996
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Re: Wattenberg Gas Investments, LLC
Ladies and Gentlemen:
We have acted as special Delaware counsel to Wattenberg Gas
Investments, LLC, a Delaware limited liability company (the "Company"), in
connection with certain matters of Delaware law relating to the transactions
contemplated by the Purchase and Sale Agreement dated May 21, 1996 between
Wattenberg Resources Land, L.L.C. ("Seller") and the Company (the "Purchase
Agreement"). Capitalized terms used herein and not otherwise herein defined
are used as defined in the Purchase Agreement.
In rendering this opinion, we have examined and relied upon
copies of the following documents in the forms provided to us: (i) the
Operating Agreement of the Company dated effective as of November 8, 1995, as
amended and restated April 25, 1996 and May 21, 1996 (the "LLC Agreement");
(ii) the Certificate of Formation of the Company as filed in the Office of the
Secretary of State of the State of Delaware (the "State Office") on November 8,
1995 (the "Certificate of Formation"); (iii) the Certificate of Incorporation,
bylaws and certain corporate minutes of Fontenelle, Inc., a Delaware
corporation and the manager of the Company (the "Manager"); (iv) the Purchase
Agreement; (v) the Assignment, in the form attached as Exhibit C to the
Purchase Agreement; (vi) the Option, in the form attached as Exhibit D to the
Purchase Agreement; (vii) the Management Agreement, in the form attached as
Exhibit T to the Purchase Agreement; (viii) the Form of Escrow Agreement, in
the form attached as Exhibit U to the Purchase Agreement; (ix) the Form of
Limited Power of Attorney, in the form attached as Exhibit V to the Purchase
Agreement; (x) the Form of Ratification of Obligations, in the form attached as
Exhibit O to the Purchase
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<PAGE> 106
Agreement; (xi) a Certificate of Buyer's Manager in the form attached hereto as
Annex I (the "Manager's Certificate"); and (xii) certificates of good standing
of the Company and Manager issued as of a recent date by the Office of the
Secretary of State for the State of Delaware. The Purchase Agreement,
Assignment, Option, Management Agreement and Ratification of Obligations are
herein collectively referred to as the "Transaction Documents." In our
examination of the documents referred to above, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as copies or drafts of documents to be executed and the legal competence and
capacity of natural persons to complete the execution of documents. We have
further assumed for the purposes of this opinion: (i) the due formation or
organization, valid existence and good standing of each party (other than the
Company or the Manager) to the documents examined by us under the laws of the
jurisdiction of its formation or organization; (ii) except to the extent
addressed by our opinion in paragraphs 2, 3 and 4 below, the due authorization,
execution and delivery of each of the documents reviewed by us by each party
thereto other than the Company; (iii) that the Transaction Documents are
governed by the law of the State of Colorado or the law of the state otherwise
designated in a Transaction Document and, under the law of Colorado or such
other state, constitute legal, valid and binding obligations of the parties
thereto, enforceable against such parties in accordance with their respective
terms; (iv) that no event or circumstance has occurred on or prior to the date
hereof that would cause a dissolution of the Company under the terms of the LLC
Agreement or the Delaware Limited Liability Company Act, 6 Del. C. Sections
18-101 et seq. (the "Delaware Act"); (v) the payment of consideration for
limited liability company interests in the Company as provided in the LLC
Agreement; and (vi) that the documents examined by us have not been
supplemented, amended or otherwise modified. We have not reviewed any
documents other than those identified above in connection with this opinion,
and we have assumed that there are no documents not reviewed by us that are
contrary to or inconsistent with the opinions expressed herein. No opinion is
expressed with respect to the requirements of, or compliance with, federal or
state securities or blue sky laws. Further, we express no view as to any
documents that are referenced in or constitute exhibits to any of the documents
reviewed by us except to the extent that such documents are identified herein
as Transaction Documents. As to any facts material to our opinion, other than
those assumed, we have relied on the above-referenced documents and on the
accuracy, as of the date hereof, of the matters therein contained. We have not
undertaken any independent investigation to determine the existence or absence
of any facts, or the accuracy of factual matters contained in the documents
reviewed by us, and we have not conducted any searches of court dockets or
other public records.
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<PAGE> 107
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, it is our opinion that:
1. The Company is a limited liability company duly
formed, validly existing and in good standing under the laws of the State of
Delaware. The Manager is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
2. The Company has requisite limited liability company
power and authority under the LLC Agreement and the Delaware Act to execute,
deliver and perform all of its obligations under the Transaction Documents.
The Manager has requisite corporate power and authority under Delaware law to
act as, and perform the obligation of, manager of the Company and to cause the
Company to execute and deliver, and perform its obligations under, the
Transaction Documents.
3. The execution, delivery and performance of the
Transaction Documents have been authorized by all requisite limited liability
company action on the part of the Company and by all requisite corporation
action on the part of the Manager, acting in its capacity as manager of the
Company.
4. When the Transaction Documents have been executed and
delivered by the Manager, the Manager acting in its capacity as manager of and
for and on behalf of the Company, the Transaction Documents will have been duly
executed and delivered on behalf of the Company.
5. The Company's execution and delivery of, and
performance under, the Transaction Documents do not violate the LLC Agreement,
the Certificate of Formation or the Delaware Act. The Manager's execution and
delivery of the Transaction Documents for and on behalf of the Company, and the
Manager causing the Company to perform its obligations under the Transaction
Documents, do not violate the certificate of incorporation or bylaws of Manager
or, to our knowledge based solely on the Manager Certificate, any material
agreement, instrument, order, writ, judgment or decree to which the Manager is
a party or by which Manager is bound.
We understand that the firm of Davis, Graham & Stubbs LLP may
wish to rely as to matters of Delaware law on the opinions set forth above in
connection with the rendering of its opinion to you dated on or about the date
hereof concerning the Transaction Documents, and we hereby consent to such
reliance. Except as provided in the foregoing sentence, the opinions herein
expressed are intended solely for the benefit of HS Resources, Inc., Wattenberg
Resources Land, L.L.C. and its lender banks, including The Chase Manhattan
Bank, N.A., and their respective counsel in connection with the transactions
contemplated by the Transaction Documents and may not be relied upon by any
other
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person or entity, or for any other purpose, without our prior written consent.
Very truly yours,
MORRIS, NICHOLS, ARSHT & TUNNELL
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CERTIFICATE OF OFFICER
OF
FONTENELLE, INC.
Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware corporation ("Fontenelle"), Fontenelle being a member and the Manager
of Wattenberg Gas Investments, LLC, a Delaware limited liability company (the
"Company"), does hereby certify on behalf of Fontenelle and the Company as
follows:
1. I am familiar with the Purchase and Sale Agreement
dated May 21, 1996 ("Purchase Agreement"), between Wattenberg Resources Land,
L.L.C. ("WRL") and the Company, the documents attached as Exhibits thereto
(collectively with the Purchase Agreement, the "WRL Documents") and the
transactions contemplated thereby.
2. I am familiar with all business activities engaged in
by Fontenelle, which activities consist solely of (i) acting as a member and
the Manager of the Company and causing the Company to enter into the WRL
Documents and to perform its obligations thereunder, (ii) acting as a member
and manager of TGas Investments, LLC, a Delaware limited liability company
("TGas") and, in such capacity, causing TGas to enter into a Purchase and Sale
Agreement dated as of August 1, 1995 between TGas and Dalen Resources Oil & Gas
Co. and the documents identified as Exhibits thereto, and causing TGas to
perform its obligations under such documents, (iii) acting as a member and
manager of Natural Gas Investments, L.L.C., a Delaware limited liability
company ("NGI") and, in such capacity, causing NGI to enter into Purchase and
Sale Agreements dated as of September 1, 1995 and November 1, 1995 between NGI
and Cabot Oil & Gas Corporation and Cabot Oil & Gas Production Corporation,
respectively, and the documents identified as Exhibits thereto, and causing NGI
to perform its obligations under such documents, (iv) acting as a member and
manager of the Company and, in such capacity, causing the Company to enter into
(1) the Purchase and Sale Agreement dated as of December 1, 1995 and (2) the
First Amendment to Purchase and Sale Agreement, Assignment, Option, Management
Agreement, Gas Purchase Agreement and Limited Power of Attorney dated April 25,
1996, between the Company and HS Resources, Inc. and the documents identified
as Exhibits and Schedules thereto, and causing the Company to perform its
obligations under such documents, and (v) acting as a member and manager of DJ
Gas Investments, LLC, a Delaware limited liability company ("DJGI") and in such
capacity, causing DJGI to enter into (1) the Purchase and Sale Agreement dated
as of March 12, 1996 between DJGI and SOCO Wattenberg Corporation, and (2) the
Purchase and Sale Agreement dated as of March 12, 1996 between DJGI and Snyder
Oil Corporation, and the documents identified as Exhibits and Schedules
thereto, and causing DJGI to perform its obligations under such documents.
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3. The execution, delivery and performance by Fontenelle
of the Ratification of Obligations to which it is a party (attached as Exhibit
O to the Purchase Agreement, the "Ratification") will not violate any
agreement, instrument, order, writ, judgment or decree to which Fontenelle is a
party or by which it is bound.
4. Fontenelle's execution and delivery of the WRL
Documents for and on behalf of the Company, and Fontenelle serving as Manager
of the Company and causing the Company to perform its obligations under the WRL
Documents, will not violate any agreement, instrument, order, writ, judgment or
decree to which Fontenelle is a party or by which it is bound.
5. I executed the Ratification as Vice President of
Fontenelle, acting for and on behalf of the Company and intending that
Fontenelle be bound thereby, and I have caused the executed Ratification to be
delivered to each of the other parties thereto.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Officer, effective May 15, 1996.
-----------------------------------
Gary L. Greenstein
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May 21, 1996
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Re: Wattenberg Gas Investments, LLC
Ladies and Gentlemen:
I am Associate General Counsel to FMR Corp. ("FMR"). In my
capacity as Associate General Counsel, I am familiar with the transactions
contemplated by the Purchase and Sale Agreement dated May 21, 1996 (the
"Agreement") between Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC ("WGI"). Any capitalized terms used herein which are not
defined herein shall have the meanings given to them in the Agreement.
I have examined the Agreement, the Ratification of Obligations
(the "Ratification") and the other documents and instruments associated with
the closing (the "Closing") of the transactions contemplated by the Agreement,
and have made such other factual and legal investigations as I deemed
necessary.
Based on the foregoing, and subject to the assumptions,
qualification, and limitations set forth herein, I am of the opinion that:
1. FMR is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, is duly qualified
to carry on its business, and is in good standing in the Commonwealth of
Massachusetts and in each jurisdiction in which the failure to so qualify would
have a material adverse impact on FMR's ability to fulfill its obligations
under the Ratification.
2. FMR has all requisite corporate power and authority
to carry on its business as presently conducted, to enter into the Ratification
and to perform its obligations under the Ratification. The consummation of the
transactions contemplated by the Ratification and any other collateral
documents to be executed by FMR at Closing will not violate, nor be in conflict
with, (i) any provision of its articles of
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incorporation, bylaws or governing documents, (ii) any material agreement or
instrument to which FMR is a party or is bound, or (iii) any judgment, decree,
order, statute, rule or regulation applicable to FMR.
3. The execution, delivery and performance of the
Ratification and any collateral documents to be executed by FMR at Closing and
the transactions contemplated thereby have been duly and validly authorized by
all requisite corporate action on the part of FMR.
4. All documents and instruments required to be executed
and delivered by FMR under the Agreement have been duly executed and delivered
on behalf of FMR. Such documents and instruments do and shall, constitute
legal, valid and binding obligations of FMR, enforceable in accordance with
their terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy.
The Opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Wattenberg Resources Land, L.L.C. and its
lender banks, including The Chase Manhattan Bank, N.A., and their respective
counsel in connection with the transactions contemplated by the Agreements and
may not be relied upon by any other person or for any other purpose without my
prior written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my
attention or to the attention of FMR subsequent to the date hereof and that may
affect the opinions expressed herein, including, without limitation, future
changes in applicable laws.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
D. I have made such examination of law as in my judgment
is necessary or appropriate for purposes of this opinion. I am a member of the
bar of the Commonwealth of Massachusetts. I do not express any opinion herein
with respect to the laws of any jurisdiction other than the laws of the
Commonwealth of Massachusetts and the laws of the United States of America.
Very truly yours,
FMR CORP.
Jay Freedman
Associate General Counsel
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May 21, 1996
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Ladies and Gentlemen:
I am Counsel to SSB Investments, Inc. (the "Company") and to
State Street Boston Corporation (the "Guarantor"). The Company is a member of
Wattenberg Gas Investments, LLC, a Delaware limited liability company ("WGI").
In my capacity as Counsel for the Company and Guarantor, I have examined the
Operating Agreement for WGI dated effective as of November 8, 1995, as amended
and restated April 25, 1996 and May 21, 1996 (the "LLC Agreement") and the
Ratification of Obligations dated May 21, 1996 (collectively, the "Documents"),
and have made such other factual and legal investigations as I have deemed
necessary.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase and Sale Agreement dated May 21, 1996 between Wattenberg Resources
Land, L.L.C. ("WRL") and WGI (the "Purchase Agreement") or on the Assets as
defined therein.
2. The Company has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
LLC Agreement, the Ratification of Obligations and the Assignment of
Contribution Obligations and to perform its obligations contemplated under such
documents. The consummation of the transactions contemplated by the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
Obligations will not violate, nor be in conflict with, (i) any
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provision of the Company's Certificate of Incorporation, bylaws or governing
documents, (ii) any material agreement or instrument to which the Company is a
party or is bound, or (iii) any judgment, decree, order, statute, rule or
regulation applicable to the Company.
3. The execution, delivery and performance of the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
Obligations have been duly and validly authorized by all requisite corporate
action on the part of the Company.
4. The LLC Agreement, the Ratification of Obligations and the
Assignment of Contribution Obligations have been duly executed and delivered on
behalf of the Company.
5. The Guarantor is a corporation duly organized and validly
existing under the laws of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase Agreement or on the Assets as defined therein.
6. The Guarantor has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
Ratification of Obligations and the Assignment of Guaranty Rights and to
perform its obligations under such documents. The consummation of the
transactions contemplated by the Ratification of Obligations and the Assignment
of Guaranty Rights will not violate, nor be in conflict with, (i) any provision
of the Guarantor's Certificate of Incorporation, bylaws or governing documents,
(ii) any material agreement or instrument to which the Guarantor is a party or
is bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to the Guarantor.
7. The execution, delivery and performance of the
Ratification of Obligations and the Assignment of Guaranty Rights and the
transactions contemplated thereby have been duly and validly authorized by all
requisite corporate action on the part of the Guarantor.
8. The Ratification of Obligations and the Assignment of
Guaranty Rights have been duly executed and delivered on behalf of the
Guarantor and does and shall, constitute the legal, valid and binding
obligation of the Guarantor enforceable in accordance with their terms, subject
to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
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A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., WRL and its lender banks, including The
Chase Manhattan Bank, N.A., and their respective counsel in connection with the
transactions contemplated by the Documents and may not be relied upon by any
other person or for any other purpose without my prior written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Company's attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
SSB INVESTMENTS, INC.
STATE STREET BOSTON CORPORATION
Charles C. Cutrell, III
Counsel
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May 21, 1996
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Ladies and Gentlemen:
We are counsel to Wattenberg Gas Investments, LLC, a Delaware
limited liability company (the "Company"). In our capacity as counsel for the
Company, we are familiar with the transactions contemplated by the Purchase and
Sale Agreement dated as of May 21, 1996 (the "Agreement") between Wattenberg
Resources Land, L.L.C. (the "Seller") and the Company as the Buyer. Any
capitalized terms used herein which are not defined herein shall have the
meanings given to them in the Agreement.
We have examined the Agreement, the Assignment, the Option,
the Management Agreement and the Ratification of Obligations, as such terms are
defined in the Agreement (collectively the "Documents"). We have reviewed and
are relying on the opinion to the Seller dated May 21, 1996 of Morris, Nichols,
Arsht & Tunnell, special Delaware counsel of the Company, and we have made such
other factual and legal investigations as we have deemed necessary. In
addition, in rendering this opinion we have examined and relied upon
certificates of the Manager of the Company with respect to certain factual
matters.
In examining and reviewing the Documents, we have assumed (i)
the genuineness of all signatures; (ii) the conformity to originals of all
documents submitted to us as copies; (iii) the authenticity of all original
documents of which we have received copies; (iv) the due authorization,
execution, and delivery by the Seller of the Agreement and the other Documents
to which it is a signatory; and (v) that the Documents to which the Seller is a
signatory are binding on and enforceable against the Seller.
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Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, we are of the opinion that
the Documents to which the Company is a signatory are binding on and
enforceable against the Company by the Seller or by other signatories thereto,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to the assumption that enforcement of remedies
will be undertaken in good faith and in a commercially reasonable manner and
subject, as to enforceability, to general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or law.
The opinion expressed in this letter is subject to the
following qualifications and limitations:
A. The opinion expressed in this letter is limited
solely to the law of the State of Colorado and applicable federal laws of the
United States of America.
B. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Seller, its lender banks, including The
Chase Manhattan Bank, N.A., and their respective legal counsel in connection
with the transactions contemplated by the Documents and may not be relied upon
by any other person or for any other purpose without our prior written consent.
C. This opinion letter is rendered as of the date
hereof. We do not undertake to advise you of matters that may come to our
attention subsequent to the date hereof and that may affect the opinions
expressed herein.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
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EXHIBIT T
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement"), dated effective
as of May 15, 1996 (the "Effective Date"), is by and between Wattenberg Gas
Investments, LLC, a Delaware limited liability company, (the "Company" or
"WGI") and Wattenberg Resources Land, L.L.C., a Delaware limited liability
company ("WRL" or "Manager") (collectively, the "Parties").
RECITALS
A. The Company owns certain working interests and
overriding royalty interests in oil and gas leases and wells, as identified on
the attached Exhibits A and B, respectively (collectively, the "Assets");
B. WRL has the resources and expertise necessary to
operate and manage the Assets and to provide management services to the Company
as set forth in this Agreement (collectively, the "Services" as defined in
Article 2 below); and
C. The Company desires to retain Manager to provide such
Services and Manager desires to provide such Services, all pursuant to the
terms of this Agreement.
AGREEMENT
In consideration for the Parties entering other agreements
concurrently herewith and the mutual promises hereunder, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
All capitalized terms used herein without definition shall
have the have the meaning given in the Wellbore Assignment of Oil and Gas
Leases with Reservation of Production Payment dated May 21, 1996, between WRL
and the Company (the "Assignment"), or in the case of the terms "Assets,"
"Credit Payment Amount," "IRC," "Post-Effective Date Liabilities" and "Losses,"
in the Purchase and Sale Agreement dated May 21, 1996, by and between WRL and
the Company (the "Purchase Agreement").
ARTICLE 2
SERVICES
2.1 Subject to Section 2.2 hereof, the constraints of
applicable operating and other agreements to which all or any
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portion of the Assets are now or hereafter subject and the other terms of this
Agreement, Manager agrees to and shall have the exclusive right and authority
to manage the Assets for and on behalf of the Company, such management to
include, without limitation, performance of the following management functions
(the "Services"):
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed, conditioned, marketed,
delivered, transported or sold) gas, oil and related hydrocarbons produced by
the Company from the Assets, and pay or cause to be paid all royalties,
production payments (including, without limitation, the Production Payment),
net profits interests and all other such payment obligations arising in
connection with the Assets or the production of hydrocarbons therefrom;
provided, however, that Manager shall obtain the approval of the Company to
enter into any sales or marketing agreements which have terms of one year or
greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly constituted
federal or state regulatory body), and local laws, ordinances, rules,
regulations and orders applicable to the Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or cause to be
implemented and completed, any remedial, removal or other response action
required on the Assets under applicable environmental laws, with such actions
to be implemented and completed in accordance with customary industry practices
and in compliance with applicable environmental laws.
(e) Inform the Company of any pending or
threatened action or investigation of which Manager receives written notice and
which Manager believes in good faith could have a material adverse effect on
the Assets, including all actions initiated or investigations threatened by a
third party or governmental authority under applicable environmental laws.
(f) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of the Assets in
material compliance with applicable environmental laws and to initiate and
complete any remedial, removal or other response actions required under
applicable environmental laws in response to any release of a hazardous
substance on the Assets.
(g) Employ or contract for the services of any
Person required by Manager, in its reasonable discretion, to assist Manager in
the performance of any of its duties and responsibilities under this Agreement,
including, without limitation, any legal, accounting, geological, geophysical,
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engineering, operating and other services and advice as Manager deems
advisable, in its reasonable discretion, from any Person.
(h) Except for payment of the Production Payment,
pay and perform all obligations of the Company which relate to the Assets,
including, without limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of all money to
which it becomes entitled pursuant to the Assignment, and payment to third
parties, on behalf of the Company, of working interest expenses attributable to
the Assets.
(i) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with respect to all such
insurance, cause the Company to be named as an additional insured party on all
such insurance policies.
(j) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits, applications,
requests or regulatory documents or instruments relating to the Assets.
(k) Establish and maintain all bank accounts,
books and records, capital accounts, the Net Profits Account and other accounts
as are required or convenient to operate the Assets.
(l) Perform all accounting and reporting as
required by the Assignment, the Purchase Agreement, and any other agreement
relating to the Assets and to which the Company is subject; provided, however,
for purposes of this Agreement, the Operating Agreement for Wattenberg Gas
Investments, LLC dated effective as of November 8, 1995, as amended and
restated April 25, 1996 and May 21, 1996, shall not be deemed to be an
agreement relating to the Assets to which the Company is subject; and provided
further that Manager shall not adopt an entitlement accounting method for gas
imbalances that causes the parties subject to the imbalance to be treated as a
partnership for federal income tax purposes.
All accounting and reporting shall be performed in
accordance with the provisions of this Agreement, consistently applied. Such
accounting and reporting may initially be performed based on estimated figures,
and subsequently based on actual figures. Beginning with the partial calendar
quarter commencing on May 15, 1996, and every applicable calendar quarter
thereafter, Manager shall prepare and furnish to the Company within 60 days
after the end of each calendar quarter a Quarterly Report. "Quarterly Report"
shall mean a report detailing gas production and sales from the Assets
attributable to the Wells for the most recent calendar quarter. Such Quarterly
Report shall include (1) an accounting of the Net Profits Account, including a
summary of all credits and debits, and Production Payments determined in
accordance with the Assignment, (2) an
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accounting of the Company's share of all tax credit qualified gas sales and
production, total gas sales and production attributable to the Assets and
produced from the Wells, and (3) all other information necessary and sufficient
for the Company to calculate and verify Credit Payment Amounts.
On or before March 15th of each year, with respect to
the preceding calendar year, Manager shall furnish to the Company a report
(referred to herein as the "Annual Report"), based upon mutually agreeable
procedures, of (1) the Net Profits Account, including all credits and debits,
and all Production Payments determined in accordance with the Assignment, (2)
the Company's share of all tax credit qualified gas sales and production, total
gas sales and production attributable to the Assets and produced from the
Wells, (3) credits under IRC Section 29 which are attributable to the Assets,
(4) Credit Payment Amounts determined in accordance with the Purchase
Agreement, and (5) all other information necessary and sufficient for the
Company to calculate and prepare its tax return for such year. If the
production figures reported by Manager are amended by it or other producers
subsequent to Manager furnishing an Annual Report to the Company, an amended
Annual Report for the affected time period shall be furnished to the Company
within 60 days after the end of a calendar quarter during which Manager
received the amended production figures. Notwithstanding the immediately
foregoing, Manager shall have no obligation to amend a prior Annual Report if
the applicable period of limitations for the Internal Revenue Service to make
assessments with respect to the year in question has expired.
(m) Calculate, supply adequate substantiation,
and invoice the Company for the Credit Payment Amounts determined in accordance
with the Purchase Agreement and the Production Payment determined in accordance
with the Assignment.
If the production information is amended after a
Credit Payment Amount or Production Payment for any given quarter has been
calculated, the Credit Payment Amount and/or the Production Payment for that
quarter shall be recalculated using the amended information (the "Amended
Payment Amount").
Manager shall invoice the Company for all Credit
Payment Amounts and Production Payments within 60 days after the end of each
calendar quarter, or partial calendar quarter, and the receipt of all
supporting data. Manager shall invoice the Company for all Amended Payment
Amounts within 60 days after the end of the quarter during which Manager
received the amended production information from WRL or other producers.
(n) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the Purchase Agreement).
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(o) Receive and collect all revenues and income
attributable to the Assets, including, without limitation, all Gross Proceeds
and Other Income; the parties understand that all Credit Payment Amounts are
deemed not to be revenues and income attributable to the Assets for the
purposes of this subsection (o), however, submitting invoices and sufficient
supporting documentation to the Company for Credit Payment Amounts is a
required obligation of Manager under this Agreement.
(p) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and agreements affecting
the Assets which Manager believes are necessary or desirable in connection with
the ownership, development, operation, production and maintenance of the Assets
or to perform any of the Services hereunder; provided, however, that Manager
shall obtain the approval of the Company to enter into any such contract or
agreement which has a cost exceeding $25,000 per well (or per separately owned
formation within a well), net to the interest of the Company. Unless Manager
obtains the prior approval of the Company, Manager shall not intentionally
undertake or approve any of the Services described in this Section 2.1(p) if
any such Services will exceed by more than 10% the cost levels or estimates
upon which the Company's approval was based; provided that if Manager should
decide to conduct such Services in excess of permitted cost levels, in
circumstances other than to remedy an emergency situation, Manager shall be
personally responsible for all expenditures in excess of the permitted levels.
(q) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits, mediations,
arbitrations and other forms of dispute resolutions and other proceedings which
relate in any way to the Assets or the Services performed pursuant to this
Agreement; provided, however, that Manager shall obtain the approval of the
Company to settle any claim, demand, cause of action or other proceeding if the
cost exceeds $25,000 per well, net to the interest of the Company.
(r) Serve as the Company's representative as to
all hearings, proceedings, filings, permits, bonds, licenses or such other
similar matters as they relate to the drilling of sidetrack wellbores from the
Wells and which relate to any governmental, quasi-governmental or regulatory
body or agency (other than the Internal Revenue Service), and to execute all
applications, permits, orders, consents, waivers and agreements, as such relate
to the Wells with respect to such body or agency. Should a conflict arise
between the interests of Manager and the Company regarding the foregoing
matters, Manager shall advise the Company of (i) any such conflict, and (ii)
Buyer's right to represent itself with respect to such matters.
(s) All other acts and things as are necessary to
carry out Manager's responsibilities under this Agreement.
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If Manager is not at any time the operator of a particular portion of the
Assets, the obligations of Manager under this Agreement with respect to such
portion of the Assets shall be construed to require only that Manager use its
reasonable best efforts to cause the operator of such portion of the Assets to
take such actions or render such performance within the constraints of the
applicable contracts.
2.2 The Parties anticipate that the aggregate of Gross
Proceeds and Other Income from the Assets will be sufficient to perform all of
the Services hereunder. Unless Manager obtains the prior approval of the
Company and except for emergency situations, Manager will not undertake or
approve Services or operations on the Assets that in any instance are
anticipated to involve costs and expenses exceeding the aggregate of Gross
Proceeds and Other Income for such period when such costs and expenses are
payable and which excess costs and expenses cannot reasonably in good faith be
expected to be recouped from the aggregate of Gross Proceeds and Other Income
from a subsequent period or periods. If Manager reasonably in good faith
anticipates that costs and expenses which will need to be incurred during a
particular period in order to perform the Services hereunder for such period
will exceed the aggregate of Gross Proceeds and Other Income for that same
period, and that the excess of costs and expenses over the aggregate of Gross
Proceeds and Other Income cannot reasonably in good faith be expected to be
recouped from the aggregate of Gross Proceeds and Other Income from a
subsequent period or periods, then Manager shall forward to the Company a
timely request for the amount of funds required for Manager to timely perform
such Services, together with documentation supporting Manager's request. The
Company shall respond to Manager's request on or before 10 business days after
receipt of such request. If the Company in its reasonable and sole discretion
elects to grant Manager's request, Manager will undertake such Services or
operations on the Assets and the Company shall pay to Manager the funds
required for Manager to timely perform such Services, with the Company to
recoup all such funds out of the revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company pursuant to
Section 2.2 on a schedule to be determined by the Parties.
2.3 The Company hereby covenants and agrees with Manager
as follows:
(a) All revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company pursuant to
Section 2.2 shall be used by Manager to perform the Services hereunder.
(b) Any Person is entitled to rely on this
Agreement as granting to Manager the power and authority to manage the Assets
and to perform the Services on behalf of the Company. In order to allow
Manager to carry out its duties and
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to exercise its powers hereunder, the Company has executed a Memorandum of
Management Agreement and Power of Attorney (the "Power of Attorney") in the
form set forth on Schedule 1. The Company shall execute such counterparts of
the Power of Attorney as are necessary to carry out the purpose of this
Agreement and to evidence that Manager has the power and authority to manage
the Assets and to perform the Services on behalf of the Company. The Company
and Manager acknowledge that, for purposes of administrative convenience,
certain limitations on the authority of Manager which are set forth in this
Agreement are not set forth in the Power of Attorney, and that this
circumstance shall not result in any expansion in the authority of Manager.
The Company shall, for all purposes of this Agreement, be deemed to have
elected to participate in any actions properly taken by Manager in accordance
with the Power of Attorney.
ARTICLE 3
PERFORMANCE OF SERVICES
Manager agrees to use its reasonable best efforts to perform
all of the Services in a reasonable prudent and timely manner consistent with
good oil field and business practices.
ARTICLE 4
FEES AND EXPENSES
4.1 Management Fee. Commencing on the Effective Date and
continuing throughout the term of this Agreement, the Company shall pay Manager
a fee of $1500 per month (the "Management Fee"). The Management Fee is
intended to reimburse Manager for all of its corporate level internal
administrative expenses incurred in managing the Assets. The Management Fee
does not cover and the Manager shall pay all COPAS overhead charges payable to
any Person (including Manager) with respect to the Assets under any applicable
operating or other agreements, in accordance with Section 2.1(h) as part of the
Company's obligations relating to the Assets. With respect to any Well which
is not covered by an operating agreement, Manager shall charge the Company and
pay to itself out of the revenue and income collected by it pursuant to Section
2.1(o) above or paid to it pursuant to Section 2.2, a monthly overhead charge
of $350 per Well; provided, however that such well rate shall be adjusted in
the manner provided in Paragraph 1(A)(3) of Section III of the 1985 COPAS
Accounting Procedure.
4.2 Expenses Attributable to the Assets. As the owner of the
Assets, the Company is obligated to pay the expenses associated with the Assets
and it is recognized and agreed that during each Payment Period for which a
Credit Payment Amount is due, the Company must fund the expenses from sources
other than Gross Proceeds and Other Income from the Assets during such Payment
Period. In connection with providing the Services, if
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and to the extent that Manager pays or advances expenses associated with the
Assets on behalf of the Company, the Company agrees to reimburse Manager for
such expenses from Gross Proceeds and Other Income during subsequent Payment
Periods, plus interest on any such amount at the Agreed Rate (defined below)
from the end of the Payment Period in which such excess expenses were to be
satisfied, until the date when such expenses are satisfied. The term "Agreed
Rate" shall mean the annual rate of interest equal to the lesser of (i) the
prime rate in effect at The Chase Manhattan Bank, N.A. (or its successor, or if
such bank no longer exists, the U.S. prime rate generally recognized in the
financial media from time to time) and (ii) the maximum rate of interest
allowed by applicable law.
(a) Each invoice delivered by WRL to the Company
pursuant to this Section 4.2 shall include the calculation of the expenses
which are the subject thereof, together with supporting documentation.
ARTICLE 5
INDEMNIFICATION
5.1 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all Losses
which arise directly or indirectly from or in connection with Manager's breach
of its duties or obligations under this Agreement; provided that the Company is
not in material default under the terms and conditions of this Agreement and
does not remain in material default under the terms and conditions of this
Agreement after Manager has given the Company written notice of such material
default and given the Company a reasonable amount of time to cure such material
default; and provided further, Manager's indemnity obligations under the terms
of this Agreement shall not extend to any Losses which arise or result directly
or indirectly from or in connection with the Company's gross negligence,
willful misconduct, and/or material non-compliance with its obligations under
this Agreement if the Company continues to be in material non-compliance with
its obligations under this Agreement after Manager has given the Company
written notice of material non-compliance and given the Company a reasonable
amount of time to cure said material non-compliance or correct the results of
the Company's gross negligence or willful misconduct.
5.2 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all losses
which arise directly or indirectly from or in connection with
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Post-Effective Date Liabilities involving environmental matters, to the extent
that WRL, or its successors and assigns, is jointly liable with the Company and
such environmental matters are attributable to the period of time during which
this Agreement is in force and effect. WRL shall be responsible for and liable
for all costs, expenses, liabilities and obligations accruing or relating to
the owning, operating, or maintaining of the Assets or the producing,
transporting and marketing of hydrocarbons from the Assets relating to periods
before the Effective Date in accordance with Section 13.2 of the Purchase
Agreement.
ARTICLE 6
ASSIGNMENT AND DELEGATION
6.1 This Agreement may be assigned by the Company with
the prior written consent of Manager, which consent shall not be unreasonably
withheld. Without the prior written consent of the Company, the accounting
functions to be performed by Manager hereunder and Manager's indemnity
obligations hereunder may not be assigned and shall remain the obligations of
Manager. With respect to all of the other rights, authority, duties and
obligations, this Agreement may be assigned by Manager in whole or in part at
the same time and to the same extent as Manager is entitled to assign the
Production Payment pursuant to the Assignment. Upon any such assignment of
this Agreement and except for the indemnity obligations and accounting
obligations of Manager, Manager shall have no further liability to the Company
with respect to any obligations or duties accruing following the effective date
of such assignment as to the portion of the Agreement so assigned.
Notwithstanding anything herein provided to the contrary, WRL shall have the
right to assign, pledge or mortgage its rights under Article 4 without the
prior written consent of the Company.
Notwithstanding the foregoing provisions of this Section 6.1,
Manager shall be entitled without prior consent, but upon written notice within
a reasonable time thereafter, to assign or otherwise transfer to HS Resources,
Inc., a Delaware corporation ("HS") or its wholly-owned subsidiary Orion
Acquisition, Inc., a Delaware corporation ("Orion"), all or any portion of its
obligations to the Company under this Agreement, and such an assignment or
transfer of obligations shall serve to release Manager from any such
obligations, to substitute HS or Orion, as appropriate, to be the obligor under
such obligations, and to authorize HS or Orion, as appropriate, to serve as
successor to Manager; provided, however, that such an assignment or transfer to
Orion shall not release HS from its obligations under the Purchase Agreement or
the documents contemplated thereunder.
6.2 Manager shall have the right to delegate, at any time
and from time to time, any of its duties or obligations under this Agreement to
either HS or Orion and to authorize such
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delegatee to fulfill such duties or obligations on behalf of Manager; provided,
however, that such a delegation to Orion shall not release HS from its
obligations under the Purchase Agreement or the documents contemplated
thereunder; and provided further, that any such delegation shall not release
Manager of its obligations hereunder.
6.3 In recognition of the authorization under Section 6.1
and the delegation under Section 6.2, of the Manager's obligations and
authority hereunder, HS and Orion shall each be empowered as an
Attorney-in-Fact of the Company under the Power of Attorney.
ARTICLE 7
TERM / TERMINATION
7.1 This Agreement shall be effective for the period from
the Effective Date until May 15, 1997. Thereafter, this Agreement shall
continue on a year to year basis, but may be terminated by either party upon 90
days written notice to the other party. Notwithstanding the foregoing, if the
Internal Revenue Service publishes a Revenue Procedure or other guidance in the
IRS Cumulative Bulletin allowing for a longer term with respect to management
agreements contemplated under a transaction essentially similar to the Purchase
Agreement, the Company and Manager agree to extend the term of this Agreement
in accordance with such guidance, but in no event shall the term of this
Agreement extend beyond January 1, 2005. This Agreement shall not be
applicable to any portion of the Assets as to which WRL has effected a partial
exercise of the Option.
7.2 If Manager is in breach of its obligations set forth
in Article 3, and the Company is materially damaged as a result of such breach,
the Company shall so inform Manager in writing of such breach (an "Event of
Default"). Thereafter, Manager shall have 30 days in which to cure the Event
of Default or such longer period of time as is reasonably necessary under the
circumstances so long as Manager undertakes to commence the cure of such Event
of Default within such 30-day period and such cure is diligently prosecuted
thereafter. If Manager does not cure the Event of Default within that time
frame, the Company, at its sole option and discretion, may terminate this
Agreement, and retain any legal and equitable rights and remedies it may have
against Manager on account of such breach.
ARTICLE 8
MISCELLANEOUS
8.1 This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more
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counterparts have been signed by each of the Parties and delivered to the
other.
8.2 This Agreement shall be governed by and construed in
accordance with the law of the State of Colorado without reference to the
conflict of laws provisions thereof.
8.3 All notices hereunder shall be sufficiently given for
all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
by United States mail, telecopy, telefax or other electronic transmission
service to the appropriate address as set forth below.
If to Manager:
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Telephone: (303) 762-9991
Fax: (303) 762-9992
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Company:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Fax: (617) 476-6248
Telephone: (617) 563-4791
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
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and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
or at such other address and to the attention of such other person as such
Party may designate by written notice to the other Party.
8.4 Notwithstanding anything herein provided to the
contrary, the Company shall be deemed to have given its approval to Manager for
any matter requiring the Company's approval if the Company fails to deny its
approval to Manager within 7 days of receipt from Manager of a request for
approval under this Agreement, or within such shorter time period if the
situation requires Manager to act before the 7-day period has expired and
Manager notifies Company of such shorter time frame.
8.5 Subject to Article 6 hereof, this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors and assigns. Further, this Agreement, and the rights and
obligations hereunder, shall be a covenant running with the lands attributable
to the Assets.
8.6 This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the Parties. Any party
hereto may, only by an instrument in writing, waive compliance by another Party
with any term or provision of this Agreement on the part of such other Party to
be performed or complied with. The waiver by any Party of a breach of any term
or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
8.7 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 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.
8.8 In addition to any other remedy which Manager may
enjoy under this Agreement, at law or in equity, Manager shall have the right
to seek and enforce the remedy of specific
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performance by the Company of its obligations under this Agreement.
8.9 The provisions of Section 2.2 and of Article 5 shall
survive the termination of this Agreement for any reason with respect to
liabilities or obligations under such provisions that accrue or arise during
the period of time that this Agreement, including any amendments, replacements
or renewals of this Agreement, is valid and in effect.
8.10 This Agreement is subject to that Management
Agreement dated March 26, 1996 between the Company and HS and HS' rights and
obligations thereunder with respect to management of the Assets.
8.11 This Agreement is not intended to create, and shall
not be construed to create, a relationship of partnership or an association for
profit between Manager and the Company.
8.12 The Parties agree not to record this Management
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first above written.
Wattenberg Gas Investments, LLC
By: Its Manager, Fontenelle, Inc.
By:
-------------------------------
Name: Gary L. Greenstein
Title: Vice President
Wattenberg Resources Land, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
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SCHEDULE 1
MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
This MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
(this "Power of Attorney") is dated as of May 21, 1996 and effective as of May
15, 1996 (the "Effective Date"), and is executed by and between Wattenberg Gas
Investments, LLC, a Delaware limited liability company having an office at 82
Devonshire Street, R22C, Boston, Massachusetts 02109 (the "Company");
Wattenberg Resources Land, L.L.C., a Delaware limited liability company whose
manager has an office at 3300 South Columbine Circle, Englewood, Colorado 80110
(the "Manager") (with the Company and the Manager collectively referred to as
the "Parties"); HS Resources, Inc., a Delaware corporation ("HS"), and its
wholly-owned subsidiary Orion Acquisition, Inc., a Delaware corporation
("Orion"), both having an office at 1999 Broadway, Suite 3600, Denver, Colorado
80202.
The Parties hereby give notice that they entered into a
Management Agreement dated May 21, 1996 (the "Agreement"), whereby the Company
contracted with Manager for Manager to perform certain operating and management
services relative to the lands and leases identified on Exhibit A and to the
wells identified on Exhibit B (collectively, the "Assets" as further defined in
that Purchase and Sale Agreement dated May 21, 1996 between the Parties (the
"Purchase Agreement")). Manager hereby delegates to HS and Orion all of
Manager's authority, duties and obligations with respect to the Company under
the Agreement. HS and Orion hereby accept such delegation by Manager and agree
to be bound by the terms of the Agreement. In recognition of the delegation of
such authority and obligations, the Company does hereby appoint and constitute
HS and Orion, individually, as its duly authorized Attorney-in-Fact with the
powers and obligations set forth herein. HS and Orion may present this Power
of Attorney to any third party as evidence of its respective authority to
perform the duties and obligations of Manager under the Agreement.
Manager has agreed to manage the Assets for and on behalf of
the Company, by performing certain management services, as limited and
described in more detail in the Agreement (the "Services").
Effective as of the Effective Date, the Company does hereby
revoke all prior powers of attorney granted in connection with the following
matters and does hereby appoint and constitute Manager as its duly authorized
Attorney- in-Fact with power and authority for the Company and in its name,
place and stead to execute, acknowledge and deliver such instruments as Manager
deems necessary or convenient in connection with the following
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matters relating to real or personal property constituting the Assets:
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed,
conditioned, marketed, delivered, transported or sold) gas,
oil and related hydrocarbons produced by the Company from the
Assets, and pay or cause to be paid all royalties, production
payments, net profits interests and all other such payment
obligations arising in connection with the Assets or the
production of hydrocarbons therefrom; provided, however, that
Manager shall obtain the approval of the Company to enter into
any sales or marketing agreements which have terms of one year
or greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly
constituted federal or state regulatory body), and local laws,
ordinances, rules, regulations and orders applicable to the
Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or
cause to be implemented and completed, any remedial, removal
or other response action required on the Assets under
applicable environmental laws, with such actions to be
implemented and completed in accordance with customary
industry practices and in compliance with applicable
environmental laws.
(e) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of
the Assets in material compliance with applicable
environmental laws and to initiate and complete any remedial,
removal or other response actions required under applicable
environmental laws in response to any release of a hazardous
substance on the Assets.
(f) Employ or contract for the services of any
person required by Manager, in its reasonable discretion, to
assist Manager in the performance of any of its duties and
responsibilities under the Agreement, including, without
limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as
Manager deems advisable, in its reasonable discretion, from
any person.
(g) Pay and perform all obligations of the
Company which relate to the Assets, including, without
limitation, the payment to itself, on behalf of the
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Company, of working interest expenses attributable to the
Assets and of all money to which it becomes entitled, and
payment to third parties, on behalf of the Company, of working
interest expenses attributable to the Assets.
(h) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with
respect to all such insurance, cause the Company to be named
as an additional insured party on all such insurance policies.
(i) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits,
applications, requests or regulatory documents or instruments
relating to the Assets.
(j) Establish and maintain all bank accounts,
books and records, capital accounts, Net Profits Account and
other accounts as are required or convenient to operate the
Assets.
(k) Perform all accounting and reporting related
to the Assets.
(l) Calculate and invoice the Company for amounts
due under the Purchase Agreement.
(m) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the
Purchase Agreement and the Operating Agreement of the
Company).
(n) Receive and collect all revenues and income
attributable to the Assets.
(o) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and
agreements affecting the Assets which Manager believes are
necessary or desirable in connection with the ownership,
development, operation, production and maintenance of the
Assets or to perform any of the Services under the Agreement.
(p) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits,
mediations, arbitrations and other forms of dispute
resolutions and other proceedings which relate in any way to
the Assets or the Services performed pursuant to the
Agreement.
(q) Act on behalf of and bind the Company with
respect to all hearings, proceedings, filing, permits, bonds,
licenses or such other similar matters as they
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relate to the Assets (including, but not limited to the
drilling of sidetrack wellbores from the Wells) or a portion
thereof and which relate to any governmental,
quasi-governmental or regulatory body or agency (other than
the Internal Revenue Service), and to execute all
applications, permits, orders, consents, waivers and
agreements, as such relate to the Assets or a portion thereof,
with respect such body or agency.
(r) Exercise on behalf of the Company the right
to not participate or to non-consent any proposal.
(s) Pool or unitize the Company's interests in
the Assets.
(t) All other acts and things as are necessary to
carry out Manager's responsibilities under the Agreement.
The powers herein conferred shall extend to all acts and
transactions described in (a) - (t) above affecting the Assets and extend to
all forms of interests in the Assets. This Power of Attorney is irrevocable by
the Company and is coupled with an interest in the lands covered by the Assets
for the period from the Effective Date until the Agreement is terminated. If
Manager should elect to exercise its rights under the Option to Purchase Oil
and Gas Interests dated May 21, 1996 between the Parties (the "Option"), this
Power of Attorney shall no longer be effective as to the Assets on which
Manager has exercised the Option.
If Manager is not at any time the operator of a particular
portion of the Assets, the obligations of Manager under the Agreement with
respect to such portion of the Assets shall be construed to require only that
Manager use reasonable best efforts to cause the operator of such portion of
the Assets to take such actions or render such performance within the
constraints of the applicable contracts.
Manager shall use reasonable best efforts to perform the
Services in a reasonable and prudent manner consistent with good oil field and
business practices.
Any person is entitled to rely on this Power of Attorney as
notice that Manager has been given the power and
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authority to manage the Assets and to perform the Services on behalf of the
Company.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
HS RESOURCES, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
ORION ACQUISITION, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
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<PAGE> 136
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company, on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
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<PAGE> 137
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
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EXHIBIT U
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this ____ day
of ______________, by and between Wattenberg Resources Land, L.L.C. ("Seller"),
Wattenberg Gas Investments, LLC ("Buyer"), and __________________ BANK ("Escrow
Agent"). Seller and Buyer are sometimes herein jointly referred to as the
"Parties."
RECITALS
A. Seller and Buyer are the Seller and Buyer,
respectively, under that certain Purchase and Sale Agreement dated May 21, 1996
(the "Purchase Agreement"), and Grantor and Grantee, respectively, under the
Wellbore Assignment of Oil and Gas Leases with Reservation of Production
Payment dated May 21, 1996 (the "Assignment"); and
B. Pursuant to Section 8.3 of the Purchase Agreement,
Seller and Buyer have agreed that Buyer shall deposit certain amounts in an
escrow account; and
C. Escrow Agent has agreed to act as such in accordance
with the terms, provisions and conditions of this Escrow Agreement and to hold
the funds described herein in accordance with the terms and provisions hereof.
AGREEMENT
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Of even date herewith, Buyer has delivered to Escrow
Agent and Escrow Agent hereby acknowledges the receipt of an Credit Payment
Amount (as defined in the Purchase Agreement) for deposit into the account set
up hereunder (the "Escrow Account"). Seller and Buyer have advised Escrow
Agent that Buyer will deliver additional Credit Payment Amounts for deposit
into the Escrow Account. Such sums, together with any interest or other
earnings of the money so deposited shall be referred to herein as the "Escrow
Funds."
2. During the term of this Escrow Agreement, Escrow
Agent shall hold and maintain the Escrow Funds and said funds shall be invested
or reinvested by Escrow Agent at the joint written direction of Seller and
Buyer. Seller and Buyer hereby
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direct Escrow Agent to invest the Escrow Funds in the _______________________
Fund.
The Escrow Agent shall sell all or any designated part of such
investments so directed in writing jointly by Seller and Buyer. All
commissions, brokerage taxes, fees and expenses, if any, applicable to the
acquisition or sale of the investments under this paragraph shall be paid
initially from the interest or income generated from the Escrow Funds and
thereafter from any remaining amounts in the Escrow Funds. The Escrow Agent
shall not be liable for losses on any investments made by it pursuant to and in
compliance with such instructions.
3. The Escrow Agent shall hold and disburse the Escrow
Funds during the term of this Escrow Agreement in accordance with the joint
written instructions from Seller and Buyer. The Escrow Agent shall deliver the
Escrow Funds or any part thereof to the party designated to receive such funds
if Escrow Agent receives joint written instructions from both Seller and Buyer
to do so. The Escrow Agent shall hold the Escrow Funds until it has received a
joint written instruction notice from Seller and Buyer as to how delivery of
the Escrow Funds shall be made. Should any controversy arise between Seller
and Buyer and/or the Escrow Agent with respect to this Escrow Agreement or with
respect to the right to receive the Escrow Funds, the Escrow Agent shall have
the right to consult counsel and/or to institute a bill of interpleader in any
court of competent jurisdiction to determine the rights of the Parties. Should
such actions be necessary, or should the Escrow Agent become involved in
litigation in any manner whatsoever on account of this Escrow Agreement or the
Escrow Funds held hereunder, the Parties bind and obligate themselves, their
successors, assigns and legal representatives to pay the Escrow Agent, in
addition to any charge made hereunder for acting as Escrow Agent, reasonable
attorney's fees incurred by the Escrow Agent, and any other disbursements,
expenses, losses, costs and damages in connection with and resulting from such
actions.
4. Duties of the Escrow Agent
(a) The duties of the Escrow Agent are only such
as are herein specifically provided, being purely ministerial in nature, and
the Escrow Agent shall incur no liability whatsoever except for gross
negligence or willful misconduct. The Escrow Agent is not a party to any other
agreement regarding the subject matter contained herein and as such shall only
be bound by the terms and conditions of this Escrow Agreement.
(b) The Escrow Agent shall be under no
responsibility for the recitals in this Escrow Agreement, the covenants or
undertakings set forth in the Purchase Agreement, the Assignment, or in respect
of any of the items deposited with the Escrow Agent other than to comply with
the specific duties and responsibilities set forth herein and with any written
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instructions or other communications herein provided for; and, without limiting
the generality of the foregoing, the Escrow Agent shall have no obligation or
responsibility to determine the correctness of any statement or calculation
made by any party hereto in any written instruction or other communication or
the genuineness or validity of any document. The Escrow Agent shall be fully
protected in acting in accordance with any written instructions or other
communications from Seller and Buyer given to it in accordance with the
provisions hereof and reasonably believed by it to have been signed by the
proper parties. The Escrow Agent shall have no liability for losses arising
from any cause beyond its control, including (but not limited to) the
following: (i) the act, failure or neglect of any agent or correspondent
selected by the Escrow Agent for the remittance of funds; (ii) any delay,
error, omission or default of any mail, delivery, cable or wireless agency or
operator; (iii) the acts or edicts of any government or governmental agency or
other group or entity exercising governmental powers. The Escrow Agent shall
be entitled to pay from the Escrow Funds the cost and expense of defending any
legal proceedings which may be instituted against it with respect to the
subject matter of this Escrow Agreement (including counsel and investigatory
fees); provided, however, the Escrow Agent shall consult with Seller and Buyer
prior to incurring any such legal expenses. The Escrow Agent shall not be
required to institute legal proceedings of any kind.
5. The Escrow Agent may resign at any time by giving
written notice to Seller and Buyer. Such resignation shall not be effective
until a new Escrow Agent has been appointed by the joint written agreement of
Seller and Buyer. The Escrow Agent may at any time be removed by notice in
writing delivered to the Escrow Agent by Seller and Buyer. The Escrow Agent's
sole responsibility thereafter shall be to keep safely all Escrow Funds then
held by it and to deliver the same to a person designated by the Parties or in
accordance with the directions of a final order or judgment from a court having
competent jurisdiction.
6. For its services pursuant to this Escrow Agreement,
the Escrow Agent shall be entitled to a fee of _______________________ DOLLARS
($______.00 U.S.). Any fees and expenses due the Escrow Agent shall be borne
one- half (1/2) by Seller and one-half (1/2) by Buyer and shall be paid within
10 days after the receipt of an invoice from the Escrow Agent for such fees and
expenses. The Parties jointly and severally agree to pay to the Escrow Agent
its fees for the services rendered by it pursuant to the provisions of this
Escrow Agreement and will reimburse the Escrow Agent for its reasonable
expenses, including reasonable attorney's fees incurred in connection with the
negotiations, drafting and performance by it of such services. Except as
otherwise noted, this fee covers account acceptance, set-up and termination
expenses, plus usual and customary related administrative services such as
safekeeping, investment, collection and distribution of assets, including
normal record
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<PAGE> 141
keeping and reporting requirements. Any additional services beyond the
receipt, investment and payment of funds specified in this Escrow Agreement, or
activities requiring excessive administrator time or out-of-pocket expenses
such as optional substitution of collateral or securities, shall be deemed
extraordinary fees for which related costs, transaction charges and additional
fees will be billed at the Escrow Agent's standard charges for such items.
7. The Parties agree to jointly and severally indemnify,
defend and hold the Escrow Agent harmless from and against any and all loss,
damage, tax, liability and expense that may be incurred by the Escrow Agent
arising out of or in connection with its acceptance or appointment as the
Escrow Agent hereunder, including the legal costs and expenses of defending
itself against any claim or liability in connection with its performance
hereunder. Any fees and expenses resulting from the foregoing indemnification
shall be borne one-half (1/2) by Seller and one-half (1/2) by Buyer.
8. The Escrow Agent is hereby given a lien on the Escrow
Funds for all indebtedness that may become owing to the Escrow Agent hereunder,
which lien may be enforced by the Escrow Agent by setoff or appropriate
foreclosure proceedings.
9. The Parties warrant to the Escrow Agent that there
are no federal, state or local tax liabilities or filing requirements
whatsoever concerning the Escrow Agent's actions contemplated hereunder and
warrant and represent to the Escrow Agent that the Escrow Agent has no duty to
withhold or file any report regarding any tax liability (other than with
respect to interest on the Escrow Funds) under any federal or state income tax,
local or state property tax, local or state sales or use taxes, or any other
tax by any taxing authority. The Parties agree to jointly and severally
indemnify the Escrow Agent fully for any tax liability, penalties or interest
incurred by the Escrow Agent arising hereunder and agree to pay in full any
such tax liability together with penalty and interest if any tax liability is
ultimately assessed against the Escrow Agent for any reason as a result of its
actions hereunder (except for the Escrow Agent's individual income tax
liability with respect to its fees).
10. All notices, requests, directions, instructions,
waivers, approvals or other communications to any party hereto shall be made or
delivered in person or by registered mail or certified mail, postage prepaid,
addressed to such party as provided below, or to such other address as such
party may hereafter specify in a written notice to the other parties named
herein, and all such notices or other communications shall be in writing so
addressed and shall be effective upon receipt by the addressee thereof:
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<PAGE> 142
Escrow Agent: _____________________ BANK
Corporate Trust Department
Attn: ______________________
Telephone: ( )
Fax: ( )
Seller: Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
Telephone: (303) 762-9991
Fax: (303) 762-9992
Buyer: Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attn: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
and a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
11. No agreement shall be effective to amend or
supplement this Escrow Agreement unless such agreement is in writing and signed
by the parties hereto. This Escrow Agreement may be executed in any number of
execution counterparts.
12. This Escrow Agreement shall be governed by and
construed in accordance with the law of the State of Colorado, except that
statutory provisions regarding fiduciary duties and liabilities of Trustees
shall not apply to this Escrow Agreement. The Parties expressly waive such
duties and liabilities, it being their intent to create solely an agency
relationship and hold the Escrow Agent liable only in the event of its gross
negligence or
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<PAGE> 143
willful misconduct in order to obtain lower fee schedule rates as specifically
negotiated with the Escrow Agent.
13. This Escrow Agreement shall terminate by its own
terms when no funds remain in the Escrow Account, unless sooner terminated in
writing by the Parties, in which case the balance of any funds remaining in the
Escrow Account upon such termination shall promptly be paid in accordance with
written instructions signed by Seller and Buyer.
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date first above written.
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
BANK,
---------------------------------
as Escrow Agent
By:
-----------------------------------
Name:
Title: President
----------------------
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<PAGE> 144
EXHIBIT V
LIMITED POWER OF ATTORNEY
Wattenberg Gas Investments, LLC, a Delaware limited liability
company, having an office at 82 Devonshire Street, R22C, Boston, Massachusetts
02109 (the "Company") does hereby make, constitute and appoint Thomas H.
McCarthy, Jr. having an office at 3047 S. Claude Court, Denver, Colorado 80210,
to be its true and lawful attorney (attorney-in-fact), for it and in its name
and behalf, to execute and deliver the Assignment, Bill of Sale and Conveyance
attached hereto as Schedule 1, requiring execution and delivery in the name of
the Company pursuant to the terms of that certain Purchase and Sale Agreement
dated May 21, 1996 between the Company and Wattenberg Resources Land, L.L.C.
("WRL"), for the leases and wells identified by exhibit therein (the "Assets").
The attorney-in-fact shall execute and is obligated to execute
from time to time the attached Assignment, Bill of Sale and Conveyance, in any
number of counterparts and covering all or any portion of the Assets, upon the
written request of WRL, regardless of any objection by any party including the
Company. Such written request shall include a copy of a written notice from
WRL to the Company, which WRL represents has been received by the Company at
least 60 days prior to the submittal to the attorney-in-fact (which the
attorney-in-fact shall not be required to verify), stating that (a) the Company
failed to perform an obligation under (i) the Purchase and Sale Agreement, (ii)
the Wellbore Assignment of Oil and Gas Leases with Reservation of Production
Payment dated May 21, 1996 between WRL and the Company, (iii) the Option to
Purchase Oil and Gas Interests dated May 21, 1996 between the Company and WRL
(the "Option"), or (iv) the Management Agreement dated May 21, 1996 between the
Company and WRL, and (b) that WRL tendered any required payment to WGI for the
Assets to be conveyed by the Assignment, Bill of Sale and Conveyance in
accordance with the terms of the Option. The written request shall also
include a signed statement by an officer of WRL, that the Company has not
remedied such failure to perform in the 60 days since the Company's receipt of
the written notice of such failure to perform.
This Limited Power of Attorney is irrevocable by the Company
and is coupled with an interest in the lands covered by the Assets. The
foregoing power of attorney shall be effective from the date hereof until WRL
receives a conveyance of all of the Assets or until the Option expires, which
ever is earlier.
Gary L. Greenstein, Vice President of Fontenelle, Inc., in its
capacity as Manager of the Company, hereby certifies that the execution of this
Limited Power of Attorney is authorized by
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<PAGE> 145
the Operating Agreement of the Company dated effective as of November 8, 1995,
as amended and restated April 25, 1996 and May 21, 1996 and other governing
authority of the Company and that the Company will ratify and confirm all
lawful actions taken by Thomas H. McCarthy, Jr., or his successor, on behalf of
the Company which are authorized by this Limited Power of Attorney. The
Company and WRL each waive any and all claims against the attorney-in-fact and
the right to enjoin the attorney-in-fact for any actions authorized herein.
The Company and WRL each shall indemnify and release the attorney-in-fact from
any damages incurred by or claims made against the attorney-in-fact for any
exercise of authority granted herein.
Thomas H. McCarthy, Jr. may not resign as attorney-in-fact
under this Limited Power of Attorney until he appoints a successor
attorney-in-fact and notifies the Company and WRL of such appointment, and the
successor agrees to such appointment in a writing delivered to WRL. In the
event that Thomas H. McCarthy, Jr. is deceased, is permanently incapacitated or
otherwise is unable to perform under this Limited Power of Attorney, Dante L.
Zarlengo, having an office at 621 - 17th Street, Suite 2200, Denver, Colorado
80293 is appointed as the successor attorney-in-fact for the Company.
WRL may assign all of its right, title, interest and
obligation under this Limited Power of Attorney to HS Resources, Inc. ("HS") or
Orion Acquisition, Inc. ("Orion") (both being Delaware corporations) without
any prior notice or consent of WGI. Upon satisfaction of the requirements set
forth above and receipt of evidence of such an assignment by WRL, the
attorney-in-fact shall execute and deliver requested Assignment, Bill of Sale
and Conveyances to HS or Orion, as appropriate.
[the remainder of this page is intentionally blank]
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<PAGE> 146
This Limited Power of Attorney is executed on May 21, 1996,
and effective for all purposes as of May 15, 1996.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-------------------------------
Name: Gary L. Greenstein
Title: Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
THOMAS H. MCCARTHY, JR.
By:
-----------------------------------
Name: Thomas H. McCarthy, Jr.
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<PAGE> 147
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
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<PAGE> 148
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 21st
day of May, 1996, by Thomas H. McCarthy, Jr., an individual.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
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<PAGE> 149
SCHEDULE 1
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE ("Assignment") is
dated this ____ day of _________, but effective as of _______________ (the
"Effective Date"), from WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited
liability company with an office at 82 Devonshire Street, R22C, Boston,
Massachusetts 02109 (herein called "Assignor"), to WATTENBERG RESOURCES LAND,
L.L.C., a Delaware limited liability company whose manager has offices at 3300
South Columbine Circle, Englewood, Colorado 80110 (herein called "Assignee").
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor does hereby GRANT,
BARGAIN, SELL, CONVEY, ASSIGN, and DELIVER unto Assignee all of the following:
A. All of Assignor's right, title and interest in and to
the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B
from the intervals in such wells identified in
Exhibit B as of the Effective Date (the above
described interests in such leases being herein
called the "Leases" and the above described interest
in such wells being herein called the "Wells"),
subject to any restrictions, exceptions,
reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to
the Leases and the Wells, and excluding such portion
of the Leases and the Wells which were not conveyed
to Assignor because of Defective Interests or which
were determined to be Excluded Assets (as such terms
are defined in the Purchase and Sale Agreement
between Assignor and Assignee dated May 21, 1996 (the
"Purchase Agreement");
B. The right, title and interest of Assignor in and to
overriding royalty interests in the Leases insofar
and only insofar as the Leases cover the wellbores
associated with the Wells from the producing
intervals identified in Exhibit B;
C. To the extent affected, the right, title and interest
of Assignor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization,
pooling, operating and communitization agreements,
declarations and orders affecting the Leases and
Wells, and in and
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<PAGE> 150
to the properties covered and the units created
thereby;
D. To the extent affected, the right, title and interest
of Assignor in and to the personal property and
fixtures that are appurtenant to the Wells, including
all wells, casing, tubing, pumps, separators, tanks,
lines and other personal property and oil field
equipment appurtenant to such Wells; provided,
however, that Assignor shall remain co-owner of any
personal property appurtenant to any property owned
by Assignor that is not exclusively part of the
Wells;
E. To the extent affected, the right, title and interest
of Assignor in and to and under, or derived from, the
presently existing and valid gas sales, purchase,
gathering and processing contracts and operating
agreements, joint venture agreements, partnership
agreements, rights- of-way, easements, permits and
surface leases and other contracts, agreements and
instruments (but specifically excluding any
management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the
Leases, Wells and the units referred to in Paragraph
C above; provided, however, that Assignor shall
remain co-owner of any agreements, including
unitization and pooling agreements, if they pertain
to any property owned by Assignor that is not
exclusively part of the Leases or Wells.
All of the foregoing leases, interests, rights and properties
described in Paragraphs A through E, above, are herein called the "Properties"
and are located in the various counties identified in Exhibits A and B.
To have and to hold the Properties forever, subject to the
following:
1. THIS ASSIGNMENT IS MADE WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, EXCEPT AS TO PARTIES CLAIMING BY,
THROUGH OR UNDER ASSIGNOR.
2. Assignor shall execute such forms of assignment
conveying Assignor's interest in the Properties as may be required by any
governmental authority to conform to governmental regulation and such
assignments shall not serve to enlarge or diminish the rights herein conveyed.
3. This Assignment shall be binding upon and inure to
the benefit of Assignee and Assignor and their respective successors and
assigns.
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<PAGE> 151
Executed and effective as of the day and year first above
written.
WATTENBERG GAS INVESTMENTS, LLC
By:
-----------------------------------
Name: Thomas H. McCarthy, Jr.
Title: Attorney-in-Fact
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this ____
day of ______________ by Thomas H. McCarthy, Jr. as Attorney-in-Fact of
WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited liability company, on
behalf of such company.
Witness my hand and official seal.
My Commission Expires:
-----------------------------------
Notary Public
- - ---------------------- Name:
Address:
[seal]
V-8
<PAGE> 1
================================================================================
PURCHASE AND SALE AGREEMENT
BETWEEN
ORION ACQUISITION, INC.
AND
WATTENBERG GAS INVESTMENTS, LLC
DATED: JUNE 14, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Leases and Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Incidental Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Apportionment of Production, Revenues, Taxes and other Expenses . . . . . . . . . . . . . . . . . . . . . 2
6. Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.5 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.6 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Seller's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.6 Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.8 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.9 Preferential Purchase Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.10 No Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.11 Gas Balancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.12 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.13 Operations in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.14 Hydrocarbon Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.15 Proceeds of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.17 Bills in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.18 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.21 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.22 Tax Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.23 Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Opinion of Tax Counsel, Right to Request Ruling . . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.3 Escrow in the Event of Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.4 Settlements Resulting from a Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Cooperation and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.1 Seller's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.2 Buyer's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.1 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.2 Section 15.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.3 Notice of Preferential Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.4 Release of Mortgages and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.5 Assignment; Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.6 Non-Foreign Ownership Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.7 Ratification of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.8 Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.9 Seller's Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.10 Opinion on Behalf of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.11 Buyer's Manager's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.12 Opinions on Behalf of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.13 Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.14 Performance Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.15 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.16 Consent to Amendments of LLC Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.17 Additional Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Sales Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.3 Purchase Price Rebates for Defective Interests . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.4 Purchase Price and Other Rebates for Exercised Preferential Purchase Rights, Failure to
Obtain Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.5 Reconveyance of Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.6 Allocation of Commingled Production and Costs . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.7 Performance of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.8 Overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.9 Review of Aggregate Credit Payment Amount Figure . . . . . . . . . . . . . . . . . . . . . . . . 25
12.10 Representations of Seller and Buyer to Survive Closing . . . . . . . . . . . . . . . . . . . . . 25
13. Apportionment of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.1 Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.2 Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.1 Buyer's Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.2 Seller's Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.4 HS Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.6 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.9 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.10 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
(iii)
<PAGE> 5
EXHIBITS
Exhibit A Leases (Weld, Adams, Boulder County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Officer's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
(iv)
<PAGE> 6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement"), dated June 14,
1996, is between Orion Acquisition, Inc., a Delaware corporation ("Seller" or
"Orion") and Wattenberg Gas Investments, LLC, a Delaware limited liability
company ("Buyer" or "WGI").
RECITALS
A. Seller is the owner of certain oil and gas leasehold
interests in Weld, Adams and Boulder County, Colorado, as more specifically
described below in Section 2 (the "Assets").
B. Seller desires to sell and Buyer desires to purchase
the Assets pursuant to the terms and conditions of this Agreement.
AGREEMENT
IN CONSIDERATION of the Purchase Price set forth below in
Section 4, the reservation of the "Production Payment" (defined below) and the
grant of the "Option" (defined below), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
1. Purchase and Sale. Seller agrees to convey the
Assets to Buyer and Buyer agrees to purchase the Assets from Seller, all
pursuant to the terms and conditions of this Agreement. Seller will convey the
Assets subject to (i) a production payment (the "Production Payment"), a
reversionary interest (the "Reversion Interest") and other reservations and
obligations as specifically set forth in the Wellbore Assignment of Oil and Gas
Leases With Reservation of Production Payment in a form substantially similar
to Exhibit C (the "Assignment"), and (ii) the Option To Purchase Oil and Gas
Interests to be granted to Seller in a form substantially similar to Exhibit D
(the "Option").
2. The Assets. The "Assets" shall be all of the
following:
2.1 Leases and Wells. Seller's right, title
and interest in and to the oil and gas leases and mineral interests described
in Exhibit A, including any and all overriding royalty interests owned by
Seller in such leases, but insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B from the intervals referenced
in Section 7.23 and identified in Exhibit B in such wells as of the Effective
Date (the above described interest in such leases being herein called the
"Leases" and the above described interest in such wells being herein called the
"Wells"), and subject to any
<PAGE> 7
restrictions, exceptions, reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to such Leases and Wells.
2.2 Incidental Rights. All of Seller's right,
title and interest in and to the following insofar and only insofar as same are
attributable to the Leases and the Wells:
(a) Unitization and Pooling
Agreements. All presently existing and valid oil, gas or mineral
unitization, pooling, operating and communitization agreements,
declarations and orders affecting the Leases and Wells, and in and to
the properties covered and the units created thereby;
(b) Personal Property. The personal
property and fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and other
personal property and oil field equipment appurtenant to such Wells;
(c) Agreements. All presently
existing and valid oil and gas sales, purchase, production swap,
gathering and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way, easements,
permits, surface leases and other contracts, agreements and
instruments, but specifically excluding any management agreements.
Seller shall remain co-owner of any "Agreements," "Personal Property" and
"Unitization and Pooling Agreements" to the extent they pertain to any property
or formation owned by Seller that is not exclusively part of the Wells.
3. Effective Date. The purchase and sale of the Assets
shall be effective, for all purposes, including allocation of revenue, expenses
and taxes, as of June 1, 1996 at 7:00 a.m. local time at the site of the Assets
(the "Effective Date").
4. Purchase Price. The purchase price for the Assets
shall be $1,110,000 (the "Purchase Price"). Buyer shall pay the Purchase Price
to Seller in immediately available funds at Closing.
5. Apportionment of Production, Revenues, Taxes and
other Expenses. Buyer shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells on or after the Effective Date, subject to
the Production Payment, Reversion Interest and the Option. Buyer shall pay for
costs and expenses incurred with respect to the Assets on or after the
Effective Date. Seller shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells before the Effective Date, and shall pay
for costs and expenses incurred with respect to the Assets prior to the
Effective Date. Taxes relating to the Assets, including
-2-
<PAGE> 8
ad valorem, property, production, severance and other taxes (other than income
taxes) shall be allocated in the same manner as other expenses. Taxes that are
measured by or that relate to production shall be treated as expenses in
connection with such production regardless of the period for which such taxes
are assessed.
6. Buyer's Representations and Warranties. Buyer makes
the following representations and warranties as of the date of execution of
this Agreement:
6.1 Existence. Buyer is a limited liability
company, duly organized, validly existing and formed under the laws of the
State of Delaware, and Buyer is duly qualified to carry on its business, and is
duly qualified and in good standing, in each of the states in which the nature
of its business and activities requires it to be so qualified.
6.2 Power and Authority. Buyer has all
requisite power and authority to carry on its business as presently conducted,
to enter into this Agreement and each of the documents contemplated to be
executed by Buyer at Closing, and to perform its obligations under this
Agreement and under such documents. The consummation of the transactions
contemplated by this Agreement and each of the documents contemplated to be
executed by Buyer at Closing will not violate, nor be in conflict with, (i) any
provision of Buyer's organizational or governing documents, (ii) any material
agreement or instrument to which Buyer is a party or is bound, or (iii) any
judgment, decree, order, statute, rule or regulation applicable to Buyer.
6.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Buyer at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action on the
part of Buyer.
6.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Buyer, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Buyer shall have been duly executed and delivered. This Agreement
does, and such documents and instruments shall, constitute legal, valid and
binding obligations of Buyer enforceable in accordance with their terms,
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application with respect to creditors, (ii)
general principles of equity and (iii) the power of a court to deny enforcement
of remedies generally based upon public policy.
6.5 Securities Laws. Buyer is purchasing the
Assets for Buyer's own account, not for public distribution thereof, and Buyer
shall not sell or transfer all or any part of, or any interest in, the Assets
in violation of the Securities Act
-3-
<PAGE> 9
of 1933, as amended, and the rules and regulations thereunder, or the
securities laws of any state.
6.6 Brokers' Fees. Buyer has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Seller shall have any
responsibility whatsoever.
7. Seller's Representations and Warranties. Seller
makes the following representations and warranties as of the date of this
Agreement:
7.1 Existence. Seller is a corporation duly
organized and validly existing under the laws of the State of Delaware, and
Seller is duly qualified to carry on its business, and is in good standing in
the State of Colorado.
7.2 Power and Authority. Seller has all
requisite authority to carry on its business as presently conducted, to enter
into this Agreement and each of the documents contemplated to be executed by
Seller at Closing, and to perform its obligations under this Agreement and
under such documents. The consummation of the transactions contemplated by
this Agreement and each of the documents contemplated to be executed by Seller
at Closing will not violate, nor be in conflict with, (i) any provision of
Seller's Certificate of Incorporation, bylaws or other governing documents,
(ii) any material agreement or instrument to which Seller is a party or is
bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to Seller; provided that, the representations and warranties
contained in clauses (ii) and (iii) of this Section 7.2 are subject to (a)
consents of or filings with the United States Department of Interior or the
applicable state agencies or authorities in connection with the assignment of
any federal or state leases or any interest therein to the extent such consents
are typically received or filings typically made subsequent to such assignment
("Governmental Consents"), (b) preferential rights to purchase all or any
portion of the Assets and consent to or notices of assignment necessary to
convey all or any portion of the Assets which are not Governmental Consents,
(c) any violation of any maintenance of uniform interest provision in any
applicable operating agreement, and (d) the consent of the banks and other
required actions as set forth in Sections 10.1(d) and 10.2(d).
7.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Seller at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate action
on the part of Seller.
7.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Seller, and at the
-4-
<PAGE> 10
Closing all documents, instruments and schedules required hereunder to be
executed and delivered by Seller will be duly executed and delivered. This
Agreement does, and such documents and instruments shall, constitute legal,
valid and binding obligations of Seller enforceable in accordance with their
terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy.
7.5 Brokers' Fees. Seller has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever.
7.6 Reserve Report. The term "Reserve Report"
shall mean the reserve report prepared by Seller and dated as of June 1, 1996,
which is based on reserves as of December 31, 1995, as adjusted by estimated
production from January 1, 1996 through June 1, 1996, and attached hereto as
Exhibit E. To Seller's best knowledge, the average price for sales of
hydrocarbons (based on contract prices for existing effective contracts and
estimates of regional spot prices adjusted for regional transportation costs),
historical costs of operations, production volumes, and payout data used by
Seller in the preparation of the Reserve Report were, on the dates so used,
accurate in all material respects.
7.7 Liens. Except for the burdens and
obligations created by or arising under the Leases and except for Permitted
Encumbrances, the Assets are free and clear of all Encumbrances. As used
herein, the term "Encumbrances" shall mean all royalties, overriding royalties,
production payments, debts, liens, mortgages, security interests, and
encumbrances. As used herein, the term "Permitted Encumbrances" shall mean the
following:
(i) the burdens, encumbrances and
obligations attributable to mortgages and liens held on or against the
Assets, or any portion thereof, as of the date of this Agreement by
The Chase Manhattan Bank, N.A., for itself and as agent on behalf of
those banks that are or become a party to that certain Credit
Agreement with Seller's corporate affiliate, HS Resources, Inc., a
Delaware corporation ("HS"), dated as of July 15, 1994 (as it has or
may be amended or supplemented from time to time, the "Credit
Agreement"), which mortgages and liens will be released with respect
to the Assets conveyed pursuant to the Assignment on or before the
Closing;
(ii) the burdens, encumbrances and
obligations created by or arising under the Wells and other agreements
affecting the Assets, and all royalties, overriding royalties, net
profits interests, carried
-5-
<PAGE> 11
interests, reversionary interests, back-in rights and other burdens
taken into account in computing the net revenue interests ("NRI") and
working interests ("WI") set forth on Exhibit B for the Wells;
(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 the Assets if
the same are customarily obtained subsequent to such sale or
conveyance;
(iv) rights of reassignment upon
surrender of the Leases held by predecessors in interest to Seller;
(v) easements, rights-of-way,
servitudes, permits, licenses, surface leases and other rights in
respect of surface use to the extent these do not materially interfere
with operations or production on or from the Assets;
(vi) rights and regulatory powers
reserved to or vested in any municipality or governmental, statutory
or public authority;
(vii) all Material Contracts to the
extent same do not reduce Seller's interest in the production from the
Wells to less than the NRI set forth on Exhibit B;
(viii) any (a) undetermined or
inchoate liens or charges constituting or securing the payment of
expenses which were incurred incidental to maintenance, development,
production or operation of the Assets or for the purpose of
developing, producing or processing oil, gas or other hydrocarbons
therefrom or therein and (b) materialman's, mechanics', repairman's,
employees', contractors', operators' or other similar liens, security
interests or charges for liquidated amounts arising in the ordinary
course of business incidental to construction, maintenance,
development, production or operation of the Assets or the production
or processing of oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary course of
business or, if delinquent, that are being contested in good faith;
(ix) any liens for taxes not yet
delinquent or, if delinquent, that are being contested in good faith
in the ordinary course of business;
(x) any liens or security interests
created by law or reserved in Leases for royalty, bonus or rental or
for compliance with the terms of the Leases;
-6-
<PAGE> 12
(xi) any prohibitions or restrictions
similar to the Maintenance of Uniform Interest Provisions contained in
Article VIII.D. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement and any contribution obligations under provisions similar to
Article VII.B of such Model Form Operating Agreement;
(xii) all preferential rights to
purchase all or any portion of the Assets and consents to or notices
of assignment necessary to convey all or any portion of the Assets
which are not described in item (iii) of this definition of Permitted
Encumbrances;
(xiii) all agreements and obligations
relating to imbalances with respect to the production, transportation
or processing of gas or calls or purchase options on oil or gas
production;
(xiv) all agreements and obligations
relating to gathering, transportation or processing of gas or oil
production;
(xv) all treating, processing, sales
or marketing agreements which have a fee which is based on a
percentage of proceeds or an obligation to transfer certain volumes of
gas or oil production in-kind;
(xvi) all obligations by virtue of a
prepayment, advance payment or similar arrangement under any contract
for the sale of gas production, including by virtue of "take or pay"
or similar provisions, to deliver gas produced from or attributable to
the Wells after the Effective Date without then or thereafter being
entitled to receive full payment therefor;
(xvii) all liens, charges,
encumbrances, contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting any Asset which
individually or in the aggregate will not interfere materially with
the operation, value or use of such Asset;
(xviii) the burdens, encumbrances and
obligations created by or arising under this Agreement, the
Assignment, Option or Management Agreement.
7.8 Title. Seller has Defensible Title to the
Assets. The term "Defensible Title" means such title of Seller in the Leases
that, subject to and except for the Permitted Encumbrances, entitles Seller to
receive an interest in production from the Wells not less than the respective
NRIs in the Wells as set forth on Exhibit B, and entitles Seller to own the
respective WIs in the Wells as set forth on Exhibit B under applicable state
law and for federal income tax purposes. Any Well or Lease for which Seller
has less than Defensible Title as
-7-
<PAGE> 13
of the date of this Agreement shall be called a "Defective Interest." Buyer's
exclusive remedy for Seller's breach of this representation and warranty is set
forth in Section 12.3. Buyer and Seller shall cooperate fully and consult in
good faith with each other in the litigation of any matter identified in this
Section 7.8
7.9 Preferential Purchase Rights and Consents.
To Seller's best knowledge, except as set forth in Exhibit F, there do not
exist any preferential rights to purchase all or any portion of the Assets. To
Seller's best knowledge, except for consents from its lender banks,
Governmental Consents and other matters as set forth in Exhibit F, there are no
consents or waivers necessary to convey any material portion of the Assets
pursuant to this Agreement. Buyer's exclusive remedy for Seller's breach of
this representation and warranty (other than for consents from the lender
banks) is set forth in Section 12.4.
7.10 No Prepayments. To Seller's best knowledge,
except as set forth in Exhibit G, Seller is not obligated, by virtue of a
prepayment arrangement, a "take or pay" arrangement, a production payment,
hedging or any other arrangement, to deliver any material portion of
hydrocarbons produced from the Wells at some future time without then or
thereafter receiving full payment therefor.
7.11 Gas Balancing. To Seller's best knowledge,
except as set forth in Exhibit H, no material portion of hydrocarbons produced
from the Wells are subject to a gas imbalance or other arrangement requiring
delivery of hydrocarbons after the Effective Date without receiving full
payment therefor.
7.12 Leases. To Seller's best knowledge, all
royalties, rentals and other payments due by Seller under the Leases have been
properly and timely paid except where the failure to pay same will not have a
material adverse effect on the value of the particular Asset. To Seller's best
knowledge, all Leases are presently in full force and effect. To Seller's best
knowledge, Seller has not received a written notice of material default under
any Lease that could result in cancellation of the Lease. Any Lease which is
not presently in full force and effect, or for which Seller has not paid all
royalties, rentals or other payments due by Seller, or for which Seller is in
material default as of the date of this Agreement shall be treated as a
Defective Interest. Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3.
7.13 Operations in Progress. Except for
operations disclosed on Exhibit I and normal daily operating expenses, as of
the date of this Agreement there are no operations in progress with respect to
the Assets which are reasonably expected to exceed $35,000 in cost net to
Seller's
-8-
<PAGE> 14
interest and which shall be payable in whole or in part on or after the
Effective Date.
7.14 Hydrocarbon Sales Contracts. Except as
specifically indicated in Exhibit J and for calls on production, options to
purchase or similar rights with respect to production from the Wells, no
material portion of the hydrocarbons produced from the Wells is subject to a
sales contract or other agreement relating to the production, gathering,
transporting, processing, treating or marketing of hydrocarbons except those
which can be terminated by Seller upon not more than three months notice.
7.15 Proceeds of Production. To Seller's best
knowledge, Seller is currently receiving from all purchasers of production from
the Wells at least the NRI set forth in Exhibit B without suspense or any
indemnity other than the normal division order warranty of title, except where
the failure to receive same would not have a material adverse effect on the
value of the Assets.
7.16 Material Contracts. To Seller's best
knowledge, and subject to the execution of new contracts in the ordinary course
of business if a contract has expired or has been terminated, all contracts
material to the Assets are in full force and effect (the "Material Contracts").
Seller has not received written notices of material default under the Material
Contracts that remain uncured, or that Seller has not made provisions for so
that such event of default will not have a material adverse effect on the
Assets.
7.17 Bills in the Ordinary Course. In the
ordinary course of business and to Seller's best knowledge, Seller is current
on its payments for all costs and expenses pertaining to the Assets, except
where such payments are being contested with good faith or except where the
failure to make such payments would not have a material adverse effect on the
Assets.
7.18 Legal Proceedings. Except as set forth on
Exhibit K, no suit, action or other proceeding is pending against Seller or, to
Seller's best knowledge, threatened in writing against Seller before any court,
governmental agency, arbitrator or other panel that relates to the Assets or
the transaction contemplated by this Agreement that might (i) impair Seller's
ability to consummate the transaction contemplated by this Agreement or (ii)
cause the impairment or loss of Seller's title to any material portion of the
Assets or the value thereof or (iii) hinder or impede the operation or
enjoyment of the Leases in any material respect insofar as they relate to the
Assets.
7.19 Compliance with Laws. To Seller's best
knowledge, all laws, rules, regulations, ordinances and orders (of all
governmental and regulatory bodies having authority over
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the Assets) material to the operation of the Assets have been complied with in
all material respects.
7.20 Environmental Matters. To Seller's best
knowledge, no conditions exist on the Assets that would subject Seller or Buyer
to any damages, remedial action, injunctive relief or other liability under any
Environmental Laws, including without limitation, all costs associated directly
or indirectly with cleanup, removal, closure or other response actions;
provided that Seller or Buyer may be subject to such matters which are (i)
routine in the operation of the Assets and (ii) in the aggregate not material
to the value of the Assets as a whole. Seller and its predecessors have
obtained and are in material compliance with all material permits, licenses and
approvals affecting the Assets and required under Environmental Laws.
As used herein, the term "Environmental Laws" shall
mean any and all existing laws (common or statutory), rules, regulations,
codes, or ordinances issued or promulgated by any federal, state or local
governmental entity relating to the management and disposal of waste materials,
the protection of public or employee health and safety, the cleanup,
remediation or prevention of pollution, or the protection of the environment.
7.21 Payment of Taxes. To Seller's best
knowledge, all ad valorem, property, production, severance, excise and similar
taxes and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on the Assets
which are currently due and payable have been properly and timely paid, except
to the extent such taxes are being contested in good faith in the ordinary
course of business.
7.22 Tax Partnerships. Except as set forth in
Exhibit L, no portion of the Assets (i) has been contributed to and is
currently owned by a tax partnership; (ii) is subject to any form of agreement
(whether formal or informal, written or oral) deemed by any state or federal
tax statute, rule or regulation to be or to have created a tax partnership; or
(iii) otherwise constitutes "partnership property" (as that term is used
throughout Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code
of 1986, as amended (the "IRC")) of a tax partnership. Seller retains all
liability and responsibility, if any, to make all payments to appropriate
parties under the tax partnerships identified on Exhibit L. In addition to all
other remedies available to Buyer, Seller agrees to indemnify Buyer for all
costs, losses, damages, penalties or expenses incurred by Buyer as a result of
any of the Assets having been contributed to or currently owned by a tax
partnership, and Buyer may elect, with a proportionate rebate in the Purchase
Price in accordance with the procedures of Section 12.3 and the provisions of
Section 12.4, to reassign such Assets to Seller. For purposes of this Section
7.22, a "tax partnership" is any entity, organization or group deemed to be a
partnership within the meaning of IRC Section 761
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or any similar state or federal statute, rule or regulation, and that is not
excluded from the application of the partnership provisions of IRC Subchapter K
of Chapter 1 of Subtitle A and of all similar provisions of state tax statutes
or regulations by reason of elections made, pursuant to IRC Section 761(a) and
all such similar state or federal statutes, rules and regulations, to be
excluded from the application of all such partnership provisions. With respect
to any tax partnership identified on Exhibit L, Seller and Buyer have the power
to elect a basis adjustment under IRC Section 754 in connection with the
transaction contemplated by this Agreement, and the consummation of the
transaction contemplated by this Agreement will not (i) result in a termination
of such tax partnership, nor (ii) result in the reduction of any "Tax Credits"
(as that term is defined in the definition of "Credit Payment Amount" in the
Assignment) attributable to the Assets.
7.23 Other Tax Matters.
(a) NGPA Determination.
(i) Applications. Except for the
Wells listed on Exhibit M, Seller or its predecessor in interest has
filed or caused to be filed with the applicable state and federal
agencies "Applications" for well determination(s) for each Well under
the Natural Gas Policy Act of 1978, as amended (the "NGPA") and the
rules and regulations of the Federal Energy Regulatory Commission (the
"FERC") under such act (the "NGPA Regulations") requesting a
determination that all or a quantifiable portion of the gas produced
from a particular Well is "natural gas produced from designated tight
formations" as defined in 18 C.F.R. Section 274.205(e). Each such
application has been approved by the indicated state and federal
agency and by the FERC and has been finally approved under and in
accordance with Section 503 of the NGPA. Such applications comply
with the requirements of the NGPA and the NGPA Regulations and do not
(1) contain any untrue statement of material fact or (2) omit any
statement of material fact necessary to make the statements therein
not misleading. No further applications are required under the NGPA
and the NGPA Regulations to allow the legal sale of all gas produced
from the Wells at a price equal to the price for such gas currently
being received.
(ii) Wells For Which Applications
Were Not Filed. With respect to the Wells listed on Exhibit M,
Seller, its predecessor in interest, or the operator of such Wells has
not to Seller's knowledge filed or caused to be filed with the
applicable state and federal agencies "Applications" for well
determinations under the NGPA and the rules and regulations of the
FERC. With respect to the Wells listed on Exhibit M, all such Wells
were (x) drilled (or recompleted in accordance with private letter
rulings issued by the Internal Revenue Service ("IRS") to third
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parties, or will be recompleted in an uphole formation in accordance
with Situation 1 of Revenue Ruling 93-54) into a "qualifying
formation" (tight formation or other qualifying formation) within the
time frames set forth in subsection (b) below or (y) drilled within
the time frames set forth in subsection (b) below but no certificate
was obtained from either the state agency or the FERC or both stating
that the Well is qualified and but for the absence of such certificate
the Well is qualified under IRC Section 29, and as to both (x) and
(y) the hydrocarbons produced and sold from such Wells qualify for the
Tax Credit.
(iii) Wells Where Commingling With
Non-Qualified Production Is Conducted. For Wells, if any, where
production from a qualifying formation and production from a non-
qualifying formation are commingled, the production has been allocated
to each producing formation on a reasonable basis, consistent with
industry standards and in accordance with procedures, if any, that
have been approved by appropriate state and federal agencies.
(b) Wells. Each Well (1) has been
timely drilled under (1) IRC Section 29(f)(1)(A) (drilled after December 31,
1979 but before January 1, 1993), or administrative interpretations thereof,
and (2) has been timely drilled under IRC Section 29(c)(2)(B)(ii) or
administrative interpretations thereof, or was committed to interstate commerce
(as defined in Section 2(18) of the Natural Gas Policy Act of 1978, as in
effect on November 5, 1990) as of April 20, 1977.
(c) No Qualified Production prior to
January 1, 1980. Prior to January 1, 1980, there was no production of oil or
gas from, nor were any wells drilled or completed on, the "property" (within
the meaning of IRC Section 29) on which any Well is located nor was any
portion of any such "property" included within a unit from which oil or gas was
produced or in which any wells were drilled or completed prior to such date.
(d) No Enhanced Oil Recovery Credit. No
oil or gas produced from the Wells qualifies or has qualified for (i) the
enhanced oil recovery credit or any other credit under IRC Section 43 and none
has been claimed or taken on such oil or gas, or (ii) the credit allowed under
IRC Section 38 by reason of the energy percentage with respect to property
used in the project.
(e) No Government Financing. No portion
of any drilling, equipping, seismic or other development costs of the Assets
paid by Seller were financed by any state, local or federal agency, directly or
indirectly, including by way of grant, loan, expenditure or loan guaranty.
(f) Seller Status. Seller is not a
non-resident alien, foreign corporation, foreign partnership, foreign
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trust or foreign estate (as those terms are defined in the IRC and the rules
and regulations promulgated thereunder), and Seller shall deliver to Buyer an
affidavit of non-foreign ownership in the form of Exhibit N.
8. Certain Tax Matters.
8.1 Opinion of Tax Counsel, Right to Request
Ruling. At Closing, Buyer at its sole cost, shall provide Seller a copy of the
opinion which Buyer has requested from Arthur Andersen LLP ("AA") regarding the
tax consequences of the transaction contemplated by this Agreement (the "Tax
Opinion"). Notwithstanding the Tax Opinion, Buyer shall have the right, but
not the obligation, to request a "private letter ruling" from the IRS to the
effect that (i) Buyer's interest in the Assets constitutes an economic interest
in minerals in place, and (ii) the Production Payment will be treated as a
mortgage loan under IRC Section 636 (a "Ruling"). Should Buyer elect to
request a Ruling, Buyer shall have no right to terminate or rescind this
Agreement if the Ruling is not acceptable to Buyer. Seller shall, in good
faith, amend this Agreement and the documents contemplated hereunder in order
that Buyer may obtain a favorable Ruling, if, in Seller's sole and reasonable
discretion, such amendments will not have a material adverse effect on Seller.
8.2 Tax Status. Seller and Buyer intend that,
for tax purposes only, the Production Payment will be treated as a mortgage
loan and not as an "economic interest" in the Assets. Buyer shall have no
recourse against Seller in the event that the Production Payment is not so
treated until the commencement of a Tax Audit, in which event the provisions of
Section 8.3 shall control.
8.3 Escrow in the Event of Tax Audit. Promptly
following the earlier to occur of (1) the date which is 90 days following
receipt by a member of Buyer of a notice from the IRS of the commencement of an
administrative proceeding at the partnership level pursuant to IRC Section
6223(a)(1) (a "Tax Audit"), or (2) the date of issuance by the IRS of either
(i) a notice of proposed adjustment with respect to any audit proceedings or
(ii) a so- called "60 day letter" (such earlier date, the "Escrow Commencement
Date"), Seller and Buyer shall enter into an Escrow Agreement with an escrow
agent, substantially in the form of Exhibit U; provided, however, that Buyer
may waive its rights to enter into such an Escrow Agreement, in which event the
provisions of Sections 8.3(a) through 8.3(e) shall not apply. If Buyer does
not waive its rights to an Escrow Agreement, the Escrow Agreement and the funds
in the "Escrow Account" established pursuant thereto shall be administered in
accordance with the following provisions:
(a) Beginning with the Payment Period
(as that term is defined in the Assignment) in which the Escrow
Commencement Date occurs and continuing for each Payment
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Period until the "Conclusion of a Tax Audit" (as that term is defined
below, with such period of time being the "Escrow Period"), Buyer
shall deposit into the Escrow Account the Expense Amount (as that term
is defined in Section 2.2(b) of the Management Agreement) for each
Payment Period (the "Escrow Amount" and the sum of all Escrow Amounts
being the "Escrowed Funds"). The Escrowed Funds shall not include any
funds which were due from Buyer to Seller prior to the Escrow
Commencement Date, but which were not paid to Seller. During the
Escrow Period, Buyer and Seller agree that (i) the Escrow Amount for a
particular Payment Period will be deducted from the Production
Payment, and (ii) the Expense Amount plus Gross Proceeds and Other
Income (as contemplated in the Assignment) will be sufficient to
perform all of the Services under the Management Agreement. If the
Production Payment for a given Payment Period is not equal to or
greater than the Escrow Amount, Buyer shall deposit the full amount of
the Production Payment into the Escrow Account for such Payment Period
and Seller shall deposit the excess of the Escrow Amount over the
amounts deposited by Buyer for such Payment Period into the Escrow
Account, provided that such deposit by Seller shall not exceed the
portion of the Expense Amount under the Management Agreement paid by
Buyer. For tax purposes only, Buyer shall be treated as the owner of
the Escrowed Funds.
(b) A Tax Audit will be deemed to have
concluded upon the earliest to occur of the following events: (i) the
receipt by Buyer of written notice from the IRS that it will not
assert any adjustments with respect to the transactions contemplated
by this Agreement; (ii) Buyer entering into a settlement agreement
with the IRS which resolves the open federal income tax issues in
connection with such transactions; (iii) a judgment of a court of law
or a decision in an administrative proceeding becoming non- appealable
with respect to the federal income tax issues in connection with such
transactions; or (iv) the expiration of the applicable period of
limitations for making assessments with respect to the years under
examination in the Tax Audit if the IRS has made no assessments within
such period with respect to such transactions (such earliest event
being deemed the "Conclusion of a Tax Audit").
(c) At the Conclusion of a Tax Audit,
Buyer and Seller agree to recalculate, pursuant to the provisions of
the second paragraph of this Section 8.3(c), any amounts due Buyer and
Seller pursuant to the terms of this Agreement for the Escrow Period,
taking into account the reduction, if any, in the Credit Payment
Amounts (as that term is defined in the Assignment) due for each
Payment Period during the Escrow Period resulting from the Tax Audit
(including any settlement described in Section 8.4). Buyer shall
receive from the Escrowed Funds an amount equal to 70% of the total
dollar amount of any reduction in Tax Credits available to
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Buyer with respect to hydrocarbon production from the Wells as a
result of the application of the preceding sentence, or Sections
8.3(d) and (e) as applicable, including interest thereon, for the
periods on or after the Escrow Commencement Date. Seller shall
receive all remaining Escrowed Funds, including interest thereon.
Except for such adjustment, there is no other obligation of Seller to
make any other payment to Buyer with respect to the Tax Audit, subject
to Section 12.8 below.
If, at the Conclusion of a Tax Audit, payments have been made into the
Escrow Account with respect to any Open Period, distributions from the
Escrow Account with respect to the Open Period (whether or not another
Tax Audit has commenced and remains outstanding with respect to such
period) shall, subject to Section 8.3(e), be shared under this Section
8.3(c) in accordance with the principles of any "no-change letter,"
binding settlement or final court decision or administrative
determination with respect to the Tax Audit or, if the statute of
limitations with respect to the Tax Audit expired without an IRS
adjustment having been imposed, in accordance with the terms of this
Agreement (in either case, the "Audit Terms"). An "Open Period" shall
mean any period not covered by a Tax Audit if there has been a
Conclusion of such Tax Audit.
Credit Payment Amounts which are credited or paid to Seller other than
from Escrowed Funds with respect to Open Periods shall, subject to the
second paragraph of Section 8.3(e), be computed in accordance with the
Audit Terms.
(d) If a new Tax Audit (the "New Tax Audit")
is commenced with respect to an Open Period before the expiration of
the applicable statute of limitations and after the Conclusion of a
Tax Audit, then a new Escrow Account shall not be established in
accordance with Section 8.3(a) with respect to such New Tax Audit, and
Credit Payment Amounts for the Open Period shall, subject to Section
8.3(e), continue to be computed in accordance with the applicable
Audit Terms.
(e) Upon the Conclusion of a New Tax Audit
with respect to an Open Period, the Credit Payment Amounts with
respect to the Open Period shall be recomputed in accordance with any
no-change letter, binding settlement or final court or administrative
decision resulting from the New Tax Audit.
If the statute of limitations for any Open Period expires without an
IRS adjustment having been imposed for such Open Period, the Credit
Payment Amounts with respect to such Open Period shall be recomputed
in accordance with the terms of this Agreement without regard to the
result of any Tax Audit, provided that such treatment is consistent
with
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Buyer's federal income tax returns (as amended) for such Open Period.
Buyer shall make reasonable efforts to claim all the Tax Credits
arising from the sale of production from the Assets during each Open
Period.
Promptly following a recomputation of Credit Payment Amounts pursuant
to the first two paragraphs of this Section 8.3(e), Buyer shall pay to
Seller (or Seller shall pay to Buyer) any amount to which Seller (or
Buyer) is entitled under such recomputation.
8.4 Settlements Resulting from a Tax Audit. If
Buyer elects to enter into a negotiated settlement with the IRS of any Tax
Audit adjustments, Buyer shall, in good faith, consult with Seller regarding
the suggested terms of such settlement; provided, however, that Buyer shall be
under no obligation to comply with any suggestion of Seller. Buyer shall
provide to Seller copies of all correspondence or pleadings between Buyer and
the IRS regarding any Tax Audit. Seller shall be entitled to monitor all
hearings and meetings with the IRS associated with such settlement
negotiations. Notwithstanding the foregoing, Section 12.8 shall govern
Seller's rights to monitor or control whether Tax Credits are available for
natural gas liquids.
9. Covenants.
9.1 Cooperation and Access. Seller shall fully
cooperate with Buyer's post-Closing due diligence efforts, both at Seller's
offices and at the site of the Assets.
9.2 Insurance. At or prior to the Closing,
Seller shall cause Buyer to be named as an additional insured on all insurance
policies Seller has that pertain in any way to the ownership and operation of
the Assets. At Closing, Seller will provide Buyer with Certificates of
Insurance naming Buyer as an additional insured, or other evidence,
satisfactory to Buyer, of compliance with this Section 9.2.
10. Closing Conditions.
10.1 Seller's Closing Conditions. The obligation
of Seller to consummate the transactions contemplated hereby is subject, at the
option of Seller, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Buyer contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Buyer to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
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(b) Closing Documents. Buyer shall have
executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Seller or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Seller resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
10.2 Buyer's Closing Conditions. The obligation
of Buyer to consummate the transactions contemplated hereby is subject, at the
option of Buyer, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Seller contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Seller to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Seller shall
have executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Buyer or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Buyer resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions
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contemplated hereby, without violating the terms of the Credit
Agreement.
(e) Engineering Confirmation.
Williamson Petroleum Consultants, Inc., using the same cost and
pricing assumptions as used in the Reserve Report, shall confirm that
Seller's estimates of the amount of reserves and estimated annual
production rates with respect to the Assets are, in the aggregate,
reasonable.
(f) Tax Opinion. On or before the
Closing Date, Buyer shall have received the Tax Opinion described in
Section 8.1.
11. Closing. The consummation of the transactions
contemplated hereby (the "Closing") shall occur, either in person or by
facsimile, at the offices of Davis, Graham & Stubbs LLP on the date of this
Agreement (the "Closing Date") or at such other time and place as the parties
may agree to in writing. At 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 (except where the documents involved
indicate otherwise):
11.1 Payment of Purchase Price. Buyer shall
deliver the Purchase Price by wire transfer to Seller's account in accordance
with written instructions supplied by Seller at least three days prior to the
Closing Date.
11.2 Section 15.2 Payment. Seller and Buyer shall
pay to the other, in cash or its equivalent, the amount due pursuant to Section
15.2, if any, as reimbursement for the expenses incurred in connection with
this transaction.
11.3 Notice of Preferential Rights and Consents.
Seller shall deliver to Buyer a copy of the notices sent to and any responses
received from third parties regarding preferential rights to purchase and
consents affecting the Assets with respect to the transactions contemplated by
this Agreement.
11.4 Release of Mortgages and Liens. Seller shall
deliver to Buyer releases of mortgages and other liens held by the banks and
other lending institutions to which Seller is obligated under the Credit
Agreement.
11.5 Assignment; Option. Seller and Buyer shall
execute and deliver the Assignment and the Option. In addition, Seller shall
prepare and Seller and Buyer shall execute such other conveyances on official
forms and related documentation necessary to transfer the Assets to Buyer in
accordance with requirements of governmental regulations; provided, however,
that any such separate or additional conveyances required pursuant to this
Section 11.5 or pursuant to Section 15.1 (i) shall evidence the conveyance and
assignment of the Assets made or intended to
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be made in the Assignment, (ii) shall not modify or be deemed to modify any of
the terms, reservations, covenants and conditions set forth in the Assignment,
and (iii) shall be deemed to contain all of the terms, reservations and
provisions of the Assignment, as though the same were set forth at length in
such separate or additional conveyance.
11.6 Non-Foreign Ownership Affidavits. Seller
shall deliver to Buyer the affidavits of non-foreign ownership substantially in
the form of Exhibit N, one stating that Seller is a non-foreign entity for
federal income tax purposes, and the other stating that there is no obligation
for Colorado withholding tax under C.R.S. Section 39-22-604.5.
11.7 Ratification of Obligations. Buyer shall
cause its members (Fontenelle, Inc., Bald Prairie, Inc. and SSB Investments,
Inc.), FMR Corp. and State Street Boston Corporation to execute and deliver to
Seller a ratification of their respective obligations under the Contribution
Agreements and Guaranty Agreements contemplated in that Purchase and Sale
Agreement dated December 1, 1995 between Buyer and HS. The ratification shall
be substantially in the form of the Ratification of Obligations attached hereto
as Exhibit O.
11.8 Evidence of Insurance. Seller shall provide
Buyer with certificates from Seller's insurers or other evidence that Buyer has
been named an additional insured on Seller's policies affecting the Assets.
11.9 Seller's Officer's Certificate. Seller shall
execute and deliver to Buyer the Officer's Certificate, substantially in the
form attached as Exhibit P.
11.10 Opinion on Behalf of Seller. Seller shall
deliver to Buyer the opinion substantially in the form set forth in Exhibit Q.
11.11 Buyer's Manager's Certificate. Buyer shall
execute and deliver to Seller the Manager's Certificate substantially in the
form attached as Exhibit R.
11.12 Opinions on Behalf of Buyer. Buyer shall
deliver to Seller the following opinions, substantially in the respective forms
of opinion set forth in Exhibit S:
(a) Opinion of Morris, Nichols, Arsht &
Tunnell regarding Wattenberg Gas Investments, LLC.
(b) Opinion of counsel for FMR Corp.
(c) Opinion of counsel for State Street
Boston Corporation and SSB Investments, Inc.
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(d) Opinion of Davis, Graham & Stubbs
LLP regarding Wattenberg Gas Investments, LLC.
11.13 Management Agreement. Buyer shall execute
and deliver, and Seller shall cause HS to execute and deliver the Management
Agreement (the "Management Agreement") and Memorandum of Management Agreement
and Power of Attorney substantially in the forms set forth in Exhibit T.
11.14 Performance Power of Attorney. Buyer shall
execute and deliver to Seller counterparts of a Limited Power of Attorney,
substantially in the form of Exhibit V.
11.15 Tax Opinion. Buyer shall deliver to Seller
a copy of the Tax Opinion of AA.
11.16 Consent to Amendments of LLC Agreement.
Seller shall deliver its consent and shall cause HS and Wattenberg Resources
Land, L.L.C. to deliver to Buyer their respective consent to the amendments to
Sections 2.8, 3.2(a) and 9.2 of Buyer's Limited Liability Company Operating
Agreement, amended and restated as of April 25, 1996, May 21, 1996 and June 14,
1996.
11.17 Additional Instruments. Seller and Buyer
shall execute, acknowledge and deliver to each other such additional
instruments as are reasonable and customary to accomplish the purposes of this
Agreement.
12. Post-Closing Matters.
12.1 Files and Records. Following Closing, Seller
shall retain physical possession of all lease files, land files, division order
files, production marketing files and production records in Seller's possession
relating to the Assets (the "Records"). However, except to the extent that
Buyer's inspection thereof would violate legal constraints or legal
obligations, Buyer shall have the right to inspect the Records in Seller's
offices at any reasonable time. At Buyer's request in writing (which written
request may be delivered by facsimile), to the extent that Seller's delivery
thereof would not violate legal constraints or legal obligations, Seller shall
make copies of the Records or materials in the Records at Seller's expense and
shall deliver said copies to Buyer at Seller's expense, provided that Seller
may charge Buyer the actual costs for such copies and delivery if such costs
exceed $250 per request. If Buyer requires copies of the Records for its own
account, Seller will permit Buyer, at Buyer's own expense, to make copies of
pertinent material contained in the Records to the extent such action would not
violate legal constraints or legal obligations.
12.2 Sales Taxes and Recording Fees. Seller shall
be responsible for making the payment to the proper authorities
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of all taxes and fees occasioned by the sale of the Assets, including without
limitation, any transfer fees and sales taxes (which are to be apportioned
one-half to Seller and one-half to Buyer), and any documentary, filing and
recording fees required in connection with the filing and recording of any
assignments or conveyances delivered hereunder in the appropriate county,
federal and/or state records.
12.3 Purchase Price Rebates for Defective
Interests. In addition to the remedy provisions of Section 12.8, Buyer shall
be entitled to the following rebate if Seller does not have Defensible Title to
the Assets. At any time and from time to time if Buyer discovers that Seller
breached the representation and warranty set forth in Section 7.8 or 7.12,
Buyer may give Seller a Notice of Defective Interests, which notice shall
describe the Defective Interest and the basis for the Defective Interest.
Buyer shall be entitled to a rebate in the Purchase Price for a Defective
Interest which shall equal the difference between the Purchase Price and the
product of the Purchase Price multiplied by a fraction, the numerator of which
is the volume of reserves (net to Buyer) allocated to the Wells not affected by
the Defective Interest and the denominator of which is the total volume of
reserves (net to Buyer) allocated to all of the Wells in the Reserve Report;
provided, however, that if the Defective Interest does not remain in effect
during the entire productive life of the subject Well, such fact shall be taken
into account in determining the amount of the rebate in the Purchase Price.
The rebate of the Purchase Price calculated above shall be
paid from Seller to Buyer if and only if the aggregate amount to be rebated
with respect to all Defective Interests exceeds a threshold of $35,000, and if
such amount is exceeded, the rebate shall be made for all Defective Interests.
In addition to rebating a portion of the Purchase Price on account of Defective
Interests, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, by multiplying such amount or number,
as the case may be, by a fraction, the numerator of which is the aggregate
volume of reserves associated with the Assets without such Defective Interest
and the denominator of which is the total volume of reserves allocated to all
of the Assets.
12.4 Purchase Price and Other Rebates for
Exercised Preferential Purchase Rights, Failure to Obtain Consents. If the
holder of any preferential purchase right exercises such right and Seller
cannot validly convey the affected Asset to Buyer, or if a required consent
(except for Governmental Consents) to assign is not obtained or deemed obtained
within 45 days following Closing and the affected Asset cannot be validly
conveyed to Buyer, a portion of the Purchase Price shall be rebated for the
value of such affected Asset and such affected Asset shall be excluded from the
Assets conveyed to
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Buyer pursuant to the terms hereof (collectively the "Excluded Assets"). The
amount of the rebate in the Purchase Price for an Excluded Asset shall be
determined in accordance with the provisions of Section 12.3. In addition to
rebating a portion of the Purchase Price on account of Excluded Assets, Buyer
and Seller agree that all other express dollar amounts, numbers or volumes set
forth in this Agreement, the Assignment and Option, shall each be decreased, as
appropriate, for the Excluded Assets in accordance with the provisions of
Section 12.3.
12.5 Reconveyance of Excluded Assets. Seller
shall provide to Buyer, within 45 days following Closing, copies of all
responses from third parties regarding the notices sent to such third parties
pursuant to Section 11.3. Upon written request from Seller, Buyer shall
reconvey to Seller all Excluded Assets, free and clear of any burdens, liens
and encumbrances created by, through or under Buyer.
12.6 Allocation of Commingled Production and
Costs. Seller may have interests in the lands covered by the Leases that are
not part of the Assets ("Seller's Interests"), which are producing hydrocarbons
into a Well and such hydrocarbons are commingled with the hydrocarbons produced
from the Assets. Seller shall use reasonable efforts to ensure that
hydrocarbon production from the Wells is allocated between Seller's Interests
and the Assets on a reasonable basis, consistent with industry standards and in
accordance with procedures, if any, that have been approved by appropriate
state and federal agencies. Costs and expenses shall be allocated between the
Seller's Interests and the Assets in accordance with the allocation of
production between the Seller's Interests and the Assets; provided that costs
and expenses directly attributable to Seller's Interests shall be allocated to
such Seller's Interests, and costs and expenses directly attributable to the
Assets shall be allocated to and debited against the Net Profits Account under
the Assignment.
12.7 Performance of Buyer. Seller shall be
entitled to the remedy of specific performance of Buyer's obligations under
this Agreement in order to be assured of the benefits contemplated under this
Agreement, the Assignment, Option or Management Agreement. Should Buyer fail
to perform any obligation under this Agreement, the Assignment, Option or
Management Agreement, which if unremedied would have a material adverse effect
on Seller, then Seller may give written notice to Buyer of such failure to
perform. If Seller gives such notice and Buyer does not remedy such failure
within 60 days of receipt of such notice, in addition to the remedy of specific
performance, Seller shall have the right to cause the attorney-in-fact of Buyer
identified in the Limited Power of Attorney to execute an Assignment, Bill of
Sale and Conveyance in a form substantially similar to that set forth in
Exhibit V covering any or all of the Assets which are adversely affected by
such failure. Seller and Buyer expressly waive any and all claims
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against the attorney-in-fact named in the Limited Power of Attorney and any
right to enjoin such attorney-in-fact.
12.8 Overpayments. For purposes of this Section 12.8, the
term "Payment Period" shall have the meaning given it in the Assignment.
(i) If at any time Buyer is determined to have
paid Seller more than the amount then due with respect to any Credit
Payment Amount as a result of a breach by Seller of its
representations and warranties in Section 7, then as Buyer's exclusive
remedy, Seller shall be obligated to return any such overpayment,
limited to amounts actually paid to Seller by Buyer, after Buyer
notifies Seller of the amount of such overpayment and provides Seller
substantiation thereof. Alternatively, Buyer may elect to offset the
amount of any such overpayment against future Credit Payment Amounts.
(ii) The Credit Payment Amount shall include
payments for credits attributable to natural gas liquids produced from
the Subject Hydrocarbons until Buyer provides Seller with (a) a copy
of a published or private ruling, court decision or other authority
which supports the position that IRC Section 29 credits are not
available for such natural gas liquids (the "IRS Position"), and (b)
an opinion reasonably satisfactory to Seller from a "big-six"
accounting firm (or other accounting or law firm acceptable to both
Seller and Buyer) that, in its view, there is not "substantial
authority" under IRC Section 6662 for taking a position that is
contrary to the IRS Position.
(iii) After Buyer provides Seller with an authority
and an opinion in accordance with Section 12.8(ii), the Credit Payment
Amount shall no longer include payments for Tax Credits which are
inconsistent with the IRS Position until Seller provides Buyer with
(a) a copy of a published or private ruling, court decision or other
authority which is contrary to the IRS Position, and (b) an opinion
reasonably satisfactory to Buyer from a "big-six" accounting firm (or
other accounting or law firm acceptable to both Seller and Buyer)
that, in its view, there is "substantial authority" under IRC Section
6662 for taking a position that is contrary to the IRS Position.
(iv) After Seller provides Buyer with a copy of an
authority and an opinion in accordance with Section 12.8(iii), (a) the
Credit Payment Amount shall thereafter include payments for Tax
Credits based upon the position of such opinion (unless and until
Buyer again provides Seller with a copy of an authority and an opinion
in accordance with Section 12.8(ii) with respect to such position),
and (b) the Credit Payment Amount for the first Payment Period
following the receipt of such opinion shall include an
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amount equal to the increase in prior Credit Payment Amounts that
would result from recomputing the prior Credit Payment Amounts in
accordance with the position of such opinion.
(v) If the IRS asserts in a Tax Audit that IRC
Section 29 credits are not available for portions of production (the
"Disputed Production") from the Subject Hydrocarbons on the ground
that IRC Section 29 credits are not available for natural gas
liquids, then (a) the computation of the Credit Payment Amount shall
continue to include Tax Credits from the sale of natural gas liquids
subject to Sections 12.8(ii) and (iii) above; (b) Expense Amounts
attributable to the production from the Subject Hydrocarbons shall be
escrowed and distributed as required by, and in accordance with, the
provisions of Section 8.3 (if Buyer has not waived its rights to have
such amounts escrowed pursuant to Section 8.3); and (c) Seller shall
have the right to participate, in accordance with the provisions of
Section 12.8(vii), in challenging the IRS Position that natural gas
liquids do not qualify for IRC Section 29 credits.
(vi) Should Buyer receive either a 90-day letter
or final partnership administrative adjustment (either, an
"Adjustment") holding that Tax Credits are not available for Disputed
Production, then Seller shall pay Buyer within 60 days of the receipt
by Seller of a copy of the Adjustment, an amount equal to 70% of the
amount of all IRC Section 29 credits with respect to Disputed
Production prior to the applicable Escrow Commencement Date which were
disallowed in the Adjustment, such payment not to exceed the Expense
Amount previously paid by Buyer with respect to such Disputed
Production. Upon the Conclusion of the applicable Tax Audit, Buyer
shall repay to Seller any portion of the amount paid pursuant to the
preceding sentence that would not have been payable if the Adjustment
had conformed to the determinations reached in the Conclusion of the
Tax Audit.
(vii) Buyer agrees to keep Seller fully and
promptly informed of all administrative and court proceedings with
respect to the qualification of natural gas liquids for IRC Section
29 credits. Upon the commencement of any such proceeding, Seller
shall have the right to participate, at its own expense, in
challenging the IRS Position that natural gas liquids do not qualify
for IRC Section 29 credits. Buyer shall fully cooperate in any such
challenge, including without limitation the execution of protests,
petitions and complaints if requested by Seller in the course of such
challenge, and the determination of the nature, method, timing, forum,
strategy, issuances of and response to settlement proposals, counsel
and issues in connection with such challenge shall be at the
discretion of Seller. Seller shall indemnify and hold harmless Buyer
with respect to any liability incurred in connection with providing
such cooperation, and shall reimburse Buyer for all costs
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incurred (as incurred and in no event less frequently than quarterly)
in doing so, including reimbursement for a reasonable amount of
internal overhead, and reasonable attorneys' and accountants' fees.
If, in connection with requests for cooperation with respect to such a
challenge, Buyer determines that it is likely to incur an expense to a
third party other than its own attorneys and accountants, then, before
incurring the expense, Buyer shall promptly give notice to Seller. If
Seller declines to reimburse Buyer for the actual amount to be
expended in complying with such request, then Buyer shall be excused
from complying with such request.
For purposes of this Section 12.8, the term "Expense Amount" shall have the
meaning given it in Section 2.2(b) of the Management Agreement.
12.9 Review of Aggregate Credit Payment Amount
Figure. From time to time, at the written request of either Seller or Buyer,
Seller and Buyer shall in good faith reevaluate the aggregate Credit Payment
Amount figure of $5,910,000 set forth in the definition of that term in the
Assignment and in Paragraph 1.a(vii) of the Option to determine if such figure
should be reduced in exchange for Seller's identification of alternative
qualified leases and wells ("Alternative Assets") and the assignment of such
Alternative Assets to Buyer in accordance with an agreement having terms
substantially similar to the terms of this Agreement. If a determination is
made to reduce such figure, Seller and Buyer shall enter into a written
agreement regarding the terms of the reduction, Seller shall assign the
Alternative Assets to Buyer, and Buyer shall grant to Seller an option to
repurchase the Alternative Assets under terms substantially similar to those
set forth in the Option.
12.10 Representations of Seller and Buyer to
Survive Closing. The representations of Seller under Section 7 above, and the
representations of Buyer under Section 6 above, shall survive Closing.
13. Apportionment of Liabilities and Obligations.
13.1 Buyer. Upon Closing, Buyer shall assume and
pay for all costs, expenses, liabilities and obligations accruing or relating
to the owning, operating or maintaining of the Assets or the producing,
transporting and marketing of hydrocarbons from the Assets, relating to periods
on and after the Effective Date, including without limitation, environmental
obligations and liabilities, off-site liabilities associated with the Assets,
the obligation to plug and abandon all Wells and reclaim all Well sites and all
obligations arising under agreements covering or relating to the Assets
(collectively, the "Post-Effective Date Liabilities").
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13.2 Seller. Upon Closing, Seller shall retain,
assume and pay for all costs, expenses, liabilities and obligations accruing or
relating to the owning, operating or maintaining of the Assets or the
producing, transporting and marketing of hydrocarbons from the Assets, relating
to periods before the Effective Date, including without limitation,
environmental obligations and liabilities, the obligation to plug and abandon
wells (to the extent relating to periods prior to the Effective Date), off site
liabilities associated with the Assets, and all obligations arising under
agreements covering or relating to the Assets (collectively, the "Pre-Effective
Date Liabilities").
14. Indemnification. For the purposes of this Agreement,
"Losses" shall mean any actual loss, cost and expense (including reasonable
fees and expenses of attorneys, technical experts and expert witnesses),
liability, and damage (including those arising out of demands, suits, sanctions
of every kind and character); provided, however, that in no event shall
"Losses" be deemed to include consequential damages of a party to this
Agreement.
14.1 Buyer's Indemnification of Seller. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Buyer shall indemnify and hold harmless Seller, its officers,
directors, shareholders, employees, representatives, agents, successors and
assigns, forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Post-Effective Date Liabilities, and (ii)
Buyer's breach of its representations, warranties and covenants in this
Agreement.
14.2 Seller's Indemnification of Buyer. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Seller shall indemnify and hold harmless Buyer; its officers;
directors; members; employees; representatives; agents; successors and assigns;
and the employees, representatives, agents, successors and assigns of such
members forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Pre-Effective Date Liabilities, and (ii)
Seller's breach of its representations, warranties and covenants in this
Agreement regardless of Seller's knowledge if such representations or
warranties are knowledge qualified, provided that the matters contemplated in
this clause (ii) shall not apply to the representations set forth in Section
7.6. Buyer and Seller shall cooperate fully and consult in good faith with
each other in the litigation of any matter identified in this Section 14.2.
Notwithstanding any of the foregoing provisions of this Section 14.2,
Buyer shall be entitled to payment for matters indemnified under this Section
14.2 only after a court of competent jurisdiction makes a final determination
regarding the matter litigated; provided that such payment shall cover only
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Losses incurred by Buyer which have not been remedied by Seller under the
escrow provisions of Section 8.3 above and/or the overpayment provisions of
Section 12.8 above.
14.3 Third Party Claims. If a claim by a third
party is made against Seller or Buyer (an "Indemnified Party"), and if such
party intends to seek indemnity with respect thereto under this Section 14,
such Indemnified Party shall promptly notify Buyer or Seller, as the case may
be (the "Indemnitor"), of such claim. The Indemnitor shall have 30 days after
receipt of such notice to undertake, conduct and control, through counsel of
its own choosing and at its own expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with it in connection therewith; provided
that the Indemnitor shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified Party,
however, the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as the Indemnitor, at its cost and expense, (1) has
undertaken the defense of, and assumed full responsibility for all Losses with
respect to, such claim, and (2) is reasonably contesting such claim in good
faith, by appropriate proceedings, the Indemnified Party shall not pay or
settle any such claim. Notwithstanding compliance by the Indemnitor with the
preceding sentence, the Indemnified Party shall have the right to pay or settle
any such claim, provided that in such event it shall waive any right to
indemnity therefor by the Indemnitor for such claim. If, within 30 days after
the receipt of the Indemnified Party's notice of a claim of indemnity
hereunder, the Indemnitor does not notify the Indemnified Party that it elects,
at Indemnitor's cost and expense, to undertake the defense thereof and assume
full responsibility for all Losses with respect thereto, or gives such notice
and thereafter fails to contest such claim in good faith, the Indemnified Party
shall have the right to contest, settle or compromise the claim but shall not
thereby waive any right to indemnity therefor pursuant to this Agreement.
14.4 HS Guarantee. HS hereby unconditionally
guarantees the punctual payment and performance by Seller of all obligations
due Buyer under this Agreement and under all instruments contemplated hereunder
to which Seller is a party, and agrees to pay all costs, expenses (including
reasonable attorneys' fees and expenses associated with claims made by Buyer
against HS, but not against Seller), liabilities and obligations incurred by
Buyer in enforcing any rights under this Agreement and the instruments
contemplated hereby with respect to owning, operating or maintaining the Assets
or producing, transporting and marketing of hydrocarbons from the Assets (all
such obligations being referred to herein as the "Obligations"). Without
limiting the generality of the foregoing, HS' liability hereunder shall extend
to all amounts which constitute part of the Obligations and would be owed by
Seller under this Agreement or the instruments contemplated hereunder but for
the fact that they are unenforceable or limited due to the existence of a
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bankruptcy, reorganization or similar proceeding involving Seller.
(a) Guarantee Absolute. HS guarantees
that the Obligations will be paid or performed, as appropriate, strictly in
accordance with the terms of this Agreement and any instrument contemplated
hereby to which Seller is a party, and any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of Buyer with respect thereto. The obligations of HS under this
guarantee are independent of the Obligations, and a separate action or actions
may be brought and prosecuted against HS to enforce this guarantee,
irrespective of whether any action is brought against Seller or whether Seller
is joined in any action or actions.
(b) Notice. HS hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations and this guarantee and any requirement that Buyer
exhaust any right or take any action against Seller or any other person.
(c) Representation and Warranties. HS
hereby represents and warrants as follows:
(i) There are no conditions precedent to the
effectiveness of this guarantee that have not been satisfied or
waived.
(ii) HS is a corporation duly organized and in good
standing under the laws of the State of Delaware.
(iii) This guarantee has been duly authorized by all
necessary corporate action; is binding upon and enforceable against HS
in accordance with its terms; and will not violate or constitute a
default under its Certificate of Incorporation or by-laws, or any
agreements or indentures to which HS is a party or by which HS or its
properties are bound.
(d) Amendments, Consents. No amendment
or waiver of any provision of this guarantee, and no consent to any departure
by HS herefrom, shall in any event be effective unless the same shall be in
writing and signed by Buyer, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(e) Continuing Guarantee. This
guarantee by HS is a continuing guarantee and shall (1) remain in full force
and effect until the later of (i) the payment or performance in full of the
Obligations, and (ii) the termination of both this Agreement and the Management
Agreement contemplated hereunder; (2) be binding upon HS, its successors and
assigns; and (3) inure to the benefit of, and be enforceable by, Buyer and its
successors and assigns.
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15. Miscellaneous.
15.1 Further Assurances. After Closing, Seller
and Buyer shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and take such other action as may
be reasonably necessary or advisable to carry out the purposes and intents of
this Agreement and any document, certificate or other instrument delivered
pursuant hereto.
15.2 Expenses. Seller and Buyer each agree to pay
one-half of the reasonable costs and expenses of Williamson Petroleum
Consultants, Inc., Arthur Andersen LLP and Davis, Graham & Stubbs LLP incurred
in connection with this transaction, subject to receipt of evidence and
substantiation thereof. Such costs and expenses shall not include any costs or
expenses associated with the Tax Opinion. Seller and Buyer shall pay their
respective amount of taxes and fees, apportioned to each under Section 12.2.
15.3 Notices. All notices under this Agreement
shall be in writing and addressed as set forth below. Any communication or
delivery hereunder shall be deemed to have been duly made and the receiving
party charged with notice (i) if personally delivered or telecopied, when
received, (ii) if mailed, three business days after mailing, certified mail,
return receipt requested, or (iii) if sent by overnight courier, one day after
sending. All notices shall be addressed as follows:
If to Seller:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Buyer:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
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<PAGE> 35
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Any party may, by written notice so delivered to the other party, change the
address or individual to which delivery shall thereafter be made.
15.4 Survival. The representations, warranties,
covenants, agreements and indemnities included or provided in this Agreement
shall survive the Closing. The doctrine of merger shall not cause any
representation, warranty, covenant, agreement or indemnity under this Agreement
to terminate as a result of Buyer and Seller entering into the Assignment,
Option or any other instrument contemplated hereunder.
15.5 Confidentiality. Buyer and Seller shall keep
this Agreement confidential except to the extent each may be required to
disclose the contents hereof by recording the Assignment, Option, and
Memorandum of Management Agreement and Power of Attorney in the real property
records in the counties where the Assets are located or filing the official
forms of conveyances covering the Assets with appropriate governmental
authorities, the IRS or to the extent required in the operation of the Assets,
pursuant to the Management Agreement, by law, regulation or order, in
connection with obtaining third party consents and waivers of preferential
purchase rights and other matters, or in connection with any public
announcement issued in accordance with Section 15.6 hereof.
15.6 Announcements. Seller and Buyer shall
consult with each other regarding all press releases and other public
announcements issued at, prior to or following Closing concerning this
Agreement or the transactions contemplated hereby and except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange. Neither Buyer nor Seller shall issue any such press
release or other public announcement without the prior written consent of the
other party, which consent will not be unreasonably withheld. In all such
press releases and other
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public announcements, Seller shall refer to Buyer as being affiliated with
large east coast financial institutions.
15.7 Assignment. Neither Buyer nor Seller may
assign its rights or delegate its duties or obligations under the terms of this
Agreement without the prior written consent of the other party, provided that
either Buyer or Seller may assign its rights, but not its obligations under
this Agreement, to any party (including any affiliated or nonaffiliated party)
as long as such assignment does not relieve the assigning party of its
obligations to the other party hereto, and provided further that Buyer may not
cause or permit an assignment, transfer, sale, alienation or other disposition
of all or any portion of the Assets which would result in the transferred
Assets becoming "plan assets" under the Employee Retirement Income Security Act
of 1974, as amended. Notwithstanding the foregoing provisions of this Section
15.7, Seller shall be entitled without prior consent, but upon written notice
within a reasonable time thereafter, to assign or otherwise convey to HS or to
Wattenberg Resources Land, L.L.C. ("WRL") all or any portion of the Production
Payment, Reversion Interest or Seller's obligations to Buyer under this
Agreement, the Assignment or the Option. Such an assignment or conveyance of
obligations to HS (but not to WRL) shall serve to release Seller from any such
obligations and to substitute HS as the obligor under such obligations.
15.8 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
successors and, subject to Section 15.7 hereof, their assigns.
15.9 Complete Agreement. When executed by the
authorized representative of Seller and Buyer, this Agreement, the Exhibits
hereto and the documents to be delivered pursuant hereto shall constitute the
complete agreement between the parties. This Agreement may be amended only by
a writing signed by both parties.
15.10 Knowledge. As used in this Agreement, the
term "knowledge," "best knowledge" or any variations thereof shall mean the
actual knowledge of any fact, circumstance or condition by the officers or
employees at a manager or higher level of the party involved as such knowledge
has been obtained in the performance of their duties in the ordinary course of
business after making reasonable and appropriate inquiries.
15.11 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF COLORADO
WITHOUT REFERENCE TO THE CONFLICT OF LAW PROVISIONS THEREOF.
15.12 Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective
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when one or more counterparts have been signed by each party and delivered to
the other party.
EXECUTED as of the date first above mentioned.
BUYER:
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
SELLER:
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - --------------------------- Vice President
Name: James M. Piccone
Title: Secretary
HS Resources, Inc., a Delaware corporation, is a signatory to this Agreement
for the purpose of confirming its obligations under Section 14.4 above.
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - --------------------------- Vice President
Name: James M. Piccone
Title: Secretary
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<PAGE> 38
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
------------------------------
Notary Public
My commission expires:
--------------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
------------------------------
Notary Public
My commission expires:
--------------------
(SEAL)
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<PAGE> 39
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me
this 17th day of June, 1996 by Gary L. Greenstein, Vice President of
Fontenelle, Inc., a Delaware corporation, Manager of Wattenberg Gas
Investments, LLC, a Delaware limited liability company on behalf of the
company.
Witness my hand and official seal.
------------------------------
Notary Public
My commission expires:
--------------------
(SEAL)
<PAGE> 40
EXHIBITS
Exhibit A Leases (Weld, Adams, Boulder County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Officer's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
<PAGE> 41
EXHIBIT C
WELLBORE ASSIGNMENT OF OIL AND GAS LEASES
WITH RESERVATION OF PRODUCTION PAYMENT
THIS WELLBORE ASSIGNMENT OF OIL AND GAS LEASES WITH
RESERVATION OF PRODUCTION PAYMENT (this "Assignment") is made effective as of
June 1, 1996 (the "Effective Date") by and between Orion Acquisition, Inc., a
Delaware corporation, 1999 Broadway, Suite 3600, Denver, Colorado 80202 (herein
called "Grantor"), and Wattenberg Gas Investments, LLC, a Delaware limited
liability company, 82 Devonshire Street, R22C, Boston, Massachusetts 02109
(herein called "Grantee").
ARTICLE 1
CERTAIN DEFINITIONS AND REFERENCES
1.1 CERTAIN DEFINED TERMS. When used in this Assignment, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Affiliate" shall mean (a) any person directly or indirectly
owning, controlling or holding with power to vote 50% or more of the
outstanding voting securities of Grantee, (b) any person 50% or more
of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by Grantee, (c) any
person directly or indirectly controlling, controlled by or under
common control with Grantee, and (d) any officer, director or partner
or member of Grantee or any person described in clause (c) of this
definition.
"Assignment" is defined in the first paragraph above.
"Business Day" shall mean a day on which commercial banks are
open for business in both the Commonwealth of Massachusetts and the
State of Colorado.
"Credit Payment Amount" shall mean, for any Payment Period, an
amount equal to $0.70 of each dollar of tax credits (the "Tax
Credits") available to Buyer under Section 29 of the IRC, as a result
of the sale of Subject Hydrocarbons by or on behalf of Buyer, to the
extent that such Subject Hydrocarbons (i) constitute "qualified fuels"
within the meaning of IRC Section 29(c), (ii) meet the requirements
of IRC Sections
29(d)(1), 29(d)(4) and 29(f), during (x) such Payment Period and (y)
any earlier Payment Period to the extent the dollar amount of Tax
Credits attributable thereto was not taken into account in a Credit
Payment Amount for a previous Payment Period, and (iii) are produced
from the Wells. For
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purposes of the preceding sentence, Tax Credits available to Buyer
under IRC Section 29 shall be determined after taking into account
any phase-out of Tax Credits under IRC Section 29(b)(1) and any
applicable inflation adjustment under IRC Section 29(b)(2), but shall
be determined without regard to limitations on Buyer's or its
affiliate's use of Tax Credits imposed by IRC Section 29(b)(6) and
without regard to whether Buyer or its affiliates actually utilize
such Tax Credits. The Credit Payment Amount for any given Payment
Period shall initially be based on estimated Subject Hydrocarbon
production and sales data available at the time of the calculation of
such amount and later corrected when actual data is available. The
Credit Payment Amount shall be determined on the assumption that (i)
the Production Payment is treated as a production payment for federal
income tax purposes, and (ii) Buyer is treated as owning the economic
interest in minerals in place in the Assets. Credit Payment Amounts
shall be calculated and, unless otherwise provided, will be due and
payable with respect to gas produced and sold from June 1, 1996 until
the earlier of (x) the aggregate of all Credit Payment Amounts paid
pursuant to this Agreement equals $5,910,000, (y) December 31, 2002,
or (z) the first day on which Tax Credits are no longer permitted for
gas attributable to the Subject Hydrocarbons and produced and sold
from the Wells. The Credit Payment Amount shall include payments for
Tax Credits attributable to natural gas liquids produced from the
Subject Hydrocarbons and for Tax Credits attributable to Wells that
were recompleted between November 5, 1990 and December 31, 1992,
subject to the provisions of Sections 7.23 and 12.8 of the Purchase
Agreement. If for any reason the Tax Credits are repealed by
Congressional statute or resulting regulation, no Credit Payment
Amount shall be due with respect to Subject Hydrocarbons subject to
such repeal. If for any reason the amount of Tax Credits contemplated
under this Agreement are reduced by Congressional statute or resulting
regulation, the Credit Payment Amounts due under this Agreement shall
be reduced commensurate with such reduction in Tax Credits.
"Effective Date" is defined in the first paragraph.
"Full Production Date" shall mean the date on which the total
volume of gas attributable to the Subject Hydrocarbons produced, saved
and sold from and after the Effective Date equals a volume equivalent
to 29,207,386 MCF (wellhead gas, net to Grantee); provided that such
volume shall be decreased by an amount, if any, equal to the aggregate
volume of reserves allocated to properties on which Grantor has
exercised the Option.
"Grantee" shall mean Grantee as defined in the first paragraph
of this Assignment, and its successors and assigns and, unless the
context in which used shall otherwise
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require, such term shall mean any successor-owner at the time in
question of any or all of the Subject Interests.
"Grantor" shall mean Grantor as defined in the first paragraph
and its successors and assigns; and, unless the context in which used
shall otherwise require, such term shall mean any successor-owner at
the time in question of any or all of the Production Payment.
"Gross Proceeds" shall have the meaning assigned to it in
Section 4.2(a).
"IRC" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Leases" is defined in Section 2.1(a).
"Management Agreement" means the Management Agreement between
an affiliate of Grantor and Grantee dated effective as of June 1,
1996.
"Measurement Amount" is defined in Section 4.5.
"Net Profits" for any Payment Period shall mean the net
balance, positive or negative, resulting after application of the
credits and debits as provided in Sections 4.2 and 4.3 for such
period.
"Net Profits Account" shall have the meaning assigned to it in
Section 4.1.
"Non-Affiliate" shall mean any Person who is not an Affiliate.
"Option" shall mean that Option to Purchase Oil and Gas
Interests between Grantee and Grantor dated effective as of June 1,
1996.
"Other Income" is defined in Section 4.2(b).
"Payment Period" shall mean a calendar quarter, provided that
the first Payment Period shall mean the period from the Effective Date
until the end of the calendar quarter during which the Effective Date
occurs, and the last Payment Period shall mean the portion of the
calendar quarter during which the Termination Date occurs from the
beginning of such calendar quarter until and including the Termination
Date.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation or other legal
entity.
"Production Payment" is defined in Section 3.1.
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"Production Payment Period" shall mean the period from the
Effective Date until and including the Termination Date.
"Production Sales Contracts" shall mean all contracts,
agreements and arrangements for the sale or disposition of Subject
Hydrocarbons that may be produced from or attributable to the Subject
Interests, whether presently existing or hereafter created.
"Purchase Agreement" means the Purchase and Sale Agreement
between Grantor and Grantee dated June 14, 1996.
"Reversion Interest" is defined in Section 3.3.
"Subject Hydrocarbons" shall mean that portion of the oil, gas
and other minerals in and under and that may be produced, from and
after the Effective Date, from or attributable to the Subject
Interests and after deducting the appropriate share of all royalties
and any overriding royalties (other than those overriding royalties
conveyed herein), production payments (except the Production Payment)
and other similar charges burdening the Subject Interests on the
Effective Date or additional burdens created under the Management
Agreement. There shall not be included in the Subject Hydrocarbons
any oil, gas or other minerals unavoidably lost in production or used
by Grantee in conformity with good oil field practices for production
operations (including without limitation, fuel, secondary or tertiary
recovery) conducted solely for the purpose of producing Subject
Hydrocarbons from the Subject Interests, but only so long as such
Subject Hydrocarbons are so used.
"Subject Interests" is defined in Section 2.1.
"Termination Date" shall mean the day on which the total
volume of gas attributable to Subject Hydrocarbons produced, saved and
sold from and after the Effective Date equals 22,773,965 MCF (wellhead
gas, net to Grantee); provided that such volume shall be decreased by
an amount, if any, equal to the aggregate volume of Subject
Hydrocarbons on which Grantor has exercised the Option, multiplied by
the ratio of 22,773,965 to 29,207,386.
"Wells" is defined in Section 2.1(a).
1.2 REFERENCES AND TITLES. All references in this Assignment to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Assignment
unless expressly provided otherwise. Titles appearing at the beginning of any
of such subdivisions are for convenience only and shall not constitute part of
such subdivisions and shall be disregarded in construing the language contained
in such subdivisions. The words "this Assignment", "this instrument",
"herein", "hereof",
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"hereby", "hereunder" and words of similar import refer to this Assignment (and
reservation of Production Payment) as a whole and not to any particular
subdivision unless expressly so limited. Words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires. All references in this Assignment to Exhibits or Schedules refer to
exhibits or schedules to this Assignment unless expressly provided otherwise,
and all such Exhibits or Schedules are hereby incorporated herein by reference
and made a part hereof for all purposes.
ARTICLE 2
ASSIGNMENT
2.1 For and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, TRANSFER,
ASSIGN, and CONVEY unto Grantee, its successors and assigns, all of the
following (the "Subject Interests"):
(a) The right, title and interest of Grantor in and to
the oil and gas leases described in Exhibit A (attached hereto and
made a part hereof for all purposes) insofar and only insofar as said
leases cover the right to produce from the wellbores of the wells
described in Exhibit B (attached hereto and made a part hereof for all
purposes) from the intervals in such wells identified in Exhibit B as
of the Effective Date (the above described interest in such leases
being herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions, limitations,
burdens, contracts, agreements and other matters applicable to the
Leases and the Wells, and excluding such portion of the Leases and the
Wells which are not conveyed to Grantee because of Defective Interests
or which were determined to be Excluded Assets (as such terms are
defined in the Purchase Agreement);
(b) The right, title and interest of Grantor in and to
overriding royalty interests in the Leases insofar and only insofar as
the Leases cover the wellbores associated with the Wells from the
producing intervals identified in Exhibit B;
(c) To the extent affected, the right, title and interest
of Grantor in and to, or derived from, the following insofar and only
insofar as same are attributable to the Leases and the Wells:
(i) The presently existing and valid oil,
gas or mineral unitization, pooling, operating and communitization
agreements, declarations and orders
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affecting the Leases and Wells, and in and to the properties covered
and the units created thereby;
(ii) The personal property and fixtures that
are appurtenant to the Wells, including all wells, casing, tubing,
pumps, separators, tanks, lines and other personal property and oil
field equipment appurtenant to such Wells; provided, however, that
Grantor shall remain co-owner of any personal property appurtenant to
any property owned by Grantor that is not exclusively part of the
Wells;
(iii) The presently existing and valid gas
sales, purchase, production swap, gathering and processing contracts
and operating agreements, joint venture agreements, partnership
agreements, rights-of- way, easements, permits and surface leases and
other contracts, agreements and instruments (but specifically
excluding any management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in (c)(i) above; provided, however, that
Grantor shall remain co-owner of any agreements, including unitization
and pooling agreements, if they pertain to any property owned by
Grantor that is not exclusively part of the Leases and Wells;
reserving to Grantor, however, the Production Payment, the Reversion Interest
and the other rights reserved herein, all as provided in Article 3 below; to
have and to hold the Subject Interests forever.
ARTICLE 3
RESERVATIONS
3.1 PRODUCTION PAYMENT. Grantor reserves unto itself, and its
successors and assigns, from this Assignment a production payment payable out
of and only from Subject Hydrocarbons equal to 100% of the Net Profits derived
from the Subject Hydrocarbons; such production payment to be effective during
the Production Payment Period and such payment, in any Payment Period, not to
exceed the Gross Proceeds during such Payment Period, (the "Production
Payment"); and subject to the terms and conditions contained herein.
3.2 SURFACE AND OTHER USE. Grantor reserves unto itself, and its
successors and assigns, from this Assignment the right to use as much of the
surface of the acreage covered by the Leases as well as the wellbores conveyed
hereunder as may be necessary in the conduct of operations in those zones,
formations and depths not assigned to Grantee herein and on other property
owned or leased by Grantor. Grantor further reserves the right to drill
through the depths, zones and formations herein assigned to Grantee in
conducting any operations in the depths, zones and formations not assigned
herein or on other property owned or
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leased by Grantor, and also the right to drill, produce, operate and maintain
infill wells as permitted by regulatory agencies having jurisdiction over such
matters. Grantor reserves the right to jointly use any easements and
rights-of- way for its operations on the land covered hereby or on other lands
in the area.
3.3 REVERSION INTEREST AFTER FULL PRODUCTION DATE. Grantor
reserves unto itself, and its successors and assigns, an undivided 75% interest
in and to the Subject Interests from and after the Full Production Date (the
"Reversion Interest"); provided, however, that this reservation will not take
effect if the estimated net cash flow from operations and production of the
Subject Hydrocarbons remaining after the Full Production Date, when taken as a
whole, is not reasonably expected by Grantor in good faith to exceed the
estimated cost to plug and abandon the Wells. If the Full Production Date is
reached and this reversion becomes effective, Grantor and Grantee agree to
enter into a mutually acceptable Joint Operating Agreement to govern operation
of the Subject Interests after the Full Production Date, in form and substance
similar to the Model Form Operating Agreement typically used by Grantor at the
Full Production Date, naming Grantor as Operator. For the purposes of this
Section 3.3, net cash flow from operations and production means the excess of
revenue from production of Subject Hydrocarbons over the aggregate of operating
expenses, overhead costs and capital costs required to produce such Subject
Hydrocarbons.
3.4 SIDETRACK WELLBORE DRILLING RIGHTS. Grantor reserves unto
itself, and its successors and assigns, the right to drill sidetrack wellbores
and to produce oil, gas and other hydrocarbons from completions in such
sidetrack wellbores from the Wells with respect to the Leases, insofar and only
insofar as (i) such drilling operations are in accordance with local, state and
federal governmental authorities having jurisdiction over such operations, and
(ii) such drilling operations are conducted primarily to exploit oil and gas
reserves which cannot be economically or efficiently produced from the
wellbores of the Wells conveyed hereunder (the "Drilling Rights").
This reservation includes a corresponding right, title, interest and
estate in and to the property and rights incident to the Drilling Rights and
the lands covered thereby or unitized therewith, including, without limitation:
(1) A corresponding right to the presently existing oil, gas or
mineral unitization, pooling and communitization agreements,
declarations and orders relating to the Leases and the units
associated therewith (including, without limitation, all units formed
under orders, regulations, rules or other official acts of any
federal, state or other governmental agency having jurisdiction),
which relate to any of the Leases.
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(2) A corresponding right to the presently existing oil and gas,
sales, purchase, exchange and processing contracts, casinghead gas
contracts, operating agreements, joint venture agreements, area of
mutual interest agreements, farmout and farmin agreements and all
other contracts, agreements and instruments which relate to any of the
Leases or Wells and to the production of oil, gas and other minerals
from or attributable to the Leases or Wells, but only insofar as such
contracts, agreements and instruments relate to the rights conveyed
herein.
(3) A corresponding right to all personal property, improvements,
lease and well equipment, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or useful or held for future use
in connection with the exploration, development or operation or
maintenance of the Leases or Wells, or any unit or units or operation
or maintenance of the Leases or Wells, or any unit or units in which
part or parts of the Leases or Wells may be included.
(4) A corresponding right, title, interest and estate, whether
real, personal or mixed, of every nature and description in and to the
lands described on Exhibit A, whether such right, title, claim or
interest be under and by virtue of an oil, gas and mineral lease, an
operating agreement, a unitization, pooling or communitization
agreement, declaration or order, a division order, a transfer order or
any type of contract, conveyance or instrument, or under and by virtue
of any type of claim or title, legal or equitable recorded or
unrecorded, and even though Grantor's interests therein be incorrectly
described in or a description of such interest be omitted from the
exhibit thereto.
(5) A corresponding and concurrent right of ingress and egress to
and from the lands covered by the Leases for the purpose of exploring
for, drilling for, producing and marketing the hydrocarbons owned by
each of them at their respective depths and locations under the terms
of the Leases. Further, each party shall own and hold proportionally
any and all rights granted in the Leases or otherwise relating thereto
pursuant to any agreements, surface leases, permits, rights-of-way,
pooling declarations, licenses, governmental regulations or other
grant or instrument as incident to and for the purpose of exploring
for, drilling for and producing the minerals owned by them in their
respective depths and locations including the right to drill pursuant
to this Assignment, lay and maintain pipelines and waterlines, dig
pits, erect structures and to perform any and all other operations
incident to the rights and interests therein.
Grantor shall not be entitled to exercise the Drilling Rights as to
any well if such exercise would likely result in a
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termination of production from the associated Well for a period exceeding 90
days. Grantor shall promptly give Grantee reasonable notice concerning such
exercise, provided that such notice may be given either before or after the
commencement of the drilling of a sidetrack wellbore in a Well. All exercises
of the Drilling Rights must be conducted in accordance with the provisions of
the Sidetrack Wellbore Terms attached hereto as Schedule 1.
ARTICLE 4
PRODUCTION PAYMENT ACCOUNTING AND PAYMENT
4.1 ESTABLISHMENT OF NET PROFITS ACCOUNT. Grantee shall establish
and maintain a Net Profits Account (herein called the "Net Profits Account") in
accordance with the various provisions of this Assignment and at all times
during the Production Payment Period shall keep true and correct books and
records with respect thereto. Such books and records shall be open for
inspection, copying and audit by Grantor and its accountants and
representatives.
4.2 CREDITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Credit Payment Amounts, Gross Proceeds and Other Income.
(a) "Gross Proceeds" shall mean, on an accrual basis, all
consideration, direct or indirect, from sales of Subject Hydrocarbons,
subject to the following:
(1) If a controversy exists (whether by reason of
any statute, order, decree, rule, regulation, contract, or
otherwise) as to the correct or lawful sales price of any
Subject Hydrocarbons, then at Grantor's sole election, Grantor
may choose to treat amounts and affected by such controversy
(i) as Gross Proceeds of Grantee, or (ii) not as Gross
Proceeds of Grantee and require Grantee to promptly deposit
such amounts with an escrow agent pending settlement of such
controversy, provided that all amounts, excluding any interest
or other income, thereafter paid to Grantee by such escrow
agent out of or on account of such escrow shall be considered
to be amounts from the sale of Subject Hydrocarbons. Amounts
of Grantee not deposited with an escrow agent shall be
considered Gross Proceeds;
(2) Gross Proceeds relating to any non-consent
operations conducted with respect to all or any part of the
Subject Hydrocarbons after the Effective Date shall be subject
to Section 5.8;
(3) Gross Proceeds shall not include any amount
which Grantee shall receive as a bonus for any lease or
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payments made to Grantor in connection with adjustment of the
cost of any Well and leasehold equipment upon unitization or
revision of participating areas under federal divided-type
units covering any of the Subject Hydrocarbons;
(4) Cash settlements and cash make-ups with
respect to the Subject Hydrocarbons under gas balancing or
similar agreements shall be considered derived from the sale
of Subject Hydrocarbons;
(5) The proceeds from (i) all insurance and (ii)
all judgments, claims and settlements, which are used to
remedy, replace or repair losses or damages actually incurred,
to the extent such proceeds relate to the production of
Subject Hydrocarbons; and
(6) Gross Proceeds shall not include Other Income.
(b) "Other Income" shall mean, on an accrual basis, the following:
(1) Proceeds after the Effective Date from (i)
the sale of any materials, supplies, equipment and other
personal property or fixtures, or any part thereof or interest
therein, used in connection with the Subject Hydrocarbons,
(ii) delay rentals, (iii) lease bonuses, and (iv) rentals from
reservoir use or storage; including without limitation all
amounts attributable thereto by way of conformance of
investment in personal property and equipment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from
time to time unitized or are affected by the revision of a
participating area in a federal divided-type unit;
(2) Proceeds from all insurance, other than to
remedy or repair losses or damages actually incurred, to the
extent such proceeds relate to the production of Subject
Hydrocarbons, (i) the cost of which is charged to the Net
Profits Account, directly or indirectly, and/or (ii) that
accrue to Grantee as a consequence of the loss or damage to
any one or more of the following which occurs after the
Effective Date: the Subject Hydrocarbons, or any part thereof
or interest therein, the interest of Grantee in any materials,
supplies, equipment or other personal property or fixtures
used in connection with any of the Subject Hydrocarbons;
except to the extent such amounts are used to repair or
replace the items damaged or lost giving rise to the receipt
of such amounts;
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(3) Amounts from a purchaser of Subject
Hydrocarbons (i) as a prepayment of any portion of the sales
price for such Subject Hydrocarbons, (ii) as advance gas
payments or (iii) as payments pursuant to contractual
provisions providing for "take-or-pay" payments (including
amounts awarded by a court or agreed to by the parties in any
settlement of a claim (net of costs and attorneys' fees
incurred in connection therewith) as damages for the failure
or refusal of the purchaser to take Subject Hydrocarbons
pursuant to the contract which contains such provisions) shall
be considered to be from the sale of Subject Hydrocarbons;
provided that such amounts shall not be considered to be from
the sale of Subject Hydrocarbons at a later date when Subject
Hydrocarbons are delivered in respect of any such payments
under "make-up" or similar provisions;
(4) Proceeds from (i) all insurance and (ii) all
judgments, claims and settlements, for damages to one or more
of the following which occurs after the Effective Date: to
the extent such proceeds relate to the production of Subject
Hydrocarbons, or any part thereof or interest therein; any
materials, supplies, equipment or other personal property or
fixtures, or any part thereof or interest therein, used in
connection with any of the Subject Hydrocarbons; except to the
extent such amounts are used to repair, replace or remedy
losses or damages actually incurred, which gave rise to the
receipt of such amounts;
(5) Any interest, penalty or other amounts which
are attributable to the Subject Hydrocarbons and are not
derived from the sale of Subject Hydrocarbons;
(6) Any interest or other income earned on funds
deposited into an escrow account in accordance with the
provisions of Section 4.2(a)(1) above; and
(7) All other monies and things of value
attributable to ownership after the Effective Date of the
Subject Hydrocarbons and the materials, supplies, equipment
and other personal property and fixtures used in connection
with the Subject Hydrocarbons.
4.3 DEBITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be debited (without duplication), on an
accrual basis, with the following amounts:
(a) All direct costs which are attributable to production
of the Subject Hydrocarbons (i) for all direct labor (including fringe
benefits), other services and expenses necessary for developing,
operating, producing,
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reworking (including recompleting) and maintaining the Subject
Hydrocarbons after the Effective Date, (ii) for dehydration,
compression, separation, gathering, transportation and marketing of
the Subject Hydrocarbons after the Effective Date, and (iii) for all
materials, supplies, equipment and other personal property and
fixtures purchased for use in connection with the Subject Hydrocarbons
after the Effective Date (including without limitation (A) all amounts
necessary for conformance of investment if the Subject Hydrocarbons or
any part or parts thereof are hereafter from time to time unitized or
if any participating area in a federal divided-type unit is changed,
and (B) the cost of secondary recovery, pressure maintenance,
repressuring, recycling and other operations conducted for the purpose
of enhancing production);
(b) Costs (including without limitation outside legal,
accounting and engineering services) attributable to the Subject
Hydrocarbons and allocated in accordance with revenues therefrom of
(i) handling, investigating and/or settling litigation, administrative
proceedings and claims (including without limitation lien claims other
than liens for borrowed funds) and (ii) payment of judgments,
penalties and other liabilities (including interest thereon), paid by
Grantee (and not reimbursed under insurance maintained by Grantee or
others) and involving any of the Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date, or requiring the payment or restitution of
any proceeds of Subject Hydrocarbons, or arising from tax or royalty
audits, except that there shall not be debited to the Net Profits
Account any expenses incurred by Grantee in litigation of any claim or
dispute arising hereunder between Grantee and Grantor or amounts paid
by Grantee to Grantor pursuant to a final order entered by a court of
competent jurisdiction resolving any such claim or dispute or amounts
paid by Grantee to Grantor in connection with the settlement of any
such claim or dispute;
(c) All taxes (except income, transfer, inheritance,
estate, franchise and like taxes) attributable to the ownership of the
Subject Hydrocarbons or the extraction of the Subject Hydrocarbons
after the Effective Date, including without limitation production,
severance, and/or excise and other similar taxes assessed against,
and/or measured by, the production of (or the proceeds or value of
production of) Subject Hydrocarbons (without regard to the period of
ownership for which such taxes are assessed), occupation taxes, sales
and use taxes, and ad valorem taxes assessed against or attributable
to the Subject Hydrocarbons or any equipment located on any of the
Subject Interests, as such equipment is required for the production of
Subject Hydrocarbons;
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(d) Insurance premiums attributable to the ownership or
operation of the Subject Hydrocarbons for insurance actually carried
for periods after the Effective Date, or any equipment located on any
of the Subject Interests, as such equipment is required for the
production of Subject Hydrocarbons, or incident to the development,
operation or maintenance of the Subject Hydrocarbons after the
Effective Date;
(e) All amounts attributable to the Subject Hydrocarbons
(to the extent attributable to periods after the Effective Date) and
consisting of (i) rent and other consideration attributable to the use
or damage to the surface and (ii) delay rentals, shut-in well
payments, minimum royalties and similar payments pursuant to the
provisions of agreements in force and effect before the Effective
Date;
(f) Amounts attributable to the Subject Hydrocarbons (to
the extent attributable to periods after the Effective Date) and
charged by the relevant operator as overhead charges specified in
applicable operating agreements (including applicable COPAS charges);
(g) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject
Hydrocarbons any amounts previously included in Gross Proceeds or
Other Income are reclaimed from Grantee or its representative, then
the amounts reclaimed as promptly as practicable following Grantee's
payment thereof;
(h) The Management Fee (as defined in the Management
Agreement) paid pursuant to the Management Agreement;
(i) If Grantee shall be a party as to any non-consent
operations conducted with respect to all or any of the Subject
Hydrocarbons after the Effective Date, all costs to be debited to the
Net Profits Account with respect thereto shall be governed by Section
5.8;
(j) Except as otherwise provided elsewhere in this
Assignment, all other direct expenditures attributable to the Subject
Hydrocarbons paid by Grantee after the Effective Date for the
necessary or proper development, operation, maintenance and
administration, after the Effective Date, of the Subject Hydrocarbons,
if reasonably incurred; provided, however, that notwithstanding
anything herein provided to the contrary, the Net Profits Account
shall not be debited with any cost or expense which is deducted or
taken into account in determining Gross Proceeds or Other Income,
including, without limitation, the value of any component of Gross
Proceeds or Other Income.
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4.4 ACCOUNTING FOR NET PROFITS. All debits to the Net Profits
Account calculated pursuant to Section 4.3 which are attributable to costs and
expenses incurred during a Payment Period, up to and including the last day of
such Payment Period, shall be debited against the Net Profits Account as of the
last day of such period. All credits to the Net Profits Account calculated
pursuant to Section 4.2 which are attributable to the sale of Subject
Hydrocarbons during a Payment Period, shall be credited to the Net Profits
Account as of the last day of such Payment Period.
4.5 MEASUREMENT AMOUNT AND PAYMENT. As of the end of each Payment
Period, Grantee shall calculate an amount (the "Measurement Amount"), equal to
the sum of (a) any Measurement Amount carried forward from a prior Payment
Period and (b) the Net Profits for the then current Payment Period. Not more
than 75 days following a Payment Period, Grantee shall pay Grantor the lesser
of (i) the Measurement Amount for such Payment Period or (ii) Gross Proceeds
for the Payment Period in question. If the Measurement Amount for a Payment
Period is a negative amount, no payment shall be due and payable by Grantee to
Grantor hereunder for such Payment Period, and the negative amount shall be
carried forward for the next and succeeding Payment Periods until such deficit
is wiped out and liquidated. If the Measurement Amount for the Payment Period
is a positive amount and exceeds Gross Proceeds for the Payment Period, the
excess Measurement Amount shall be carried forward to the next Payment Period.
Grantee shall send to Grantor at the same time set for the payment a
statement showing the calculation of the Measurement Amount, the reason for any
nonpayment, the condition of the Net Profits Account as of the close of
business on the last day of the relevant Payment Period and clearly showing
(with sufficient description so that Grantor can identify such items and the
particular Subject Hydrocarbons involved) those items which gave rise to debits
and credits to the Net Profits Account during such Payment Period and clearly
showing for each Subject Interest the quantities of Subject Hydrocarbons
produced therefrom during the Payment Period covered by such statement, the
volumes of such production sold, the prices at which such volumes were sold,
and the taxes paid with respect to such sales.
Although the books for the Net Profits Account shall be kept on an
accrual basis, for purposes of this Section 4.5, Net Profits will be
tentatively computed and paid in accordance with Grantor's standard billing and
disbursement procedures, which shall be consistent with standard industry
practices, until the Termination Date. Within 90 days following the
Termination Date, the Net Profits Account shall be reconciled to the accrual
method and Grantor and Grantee shall make such payments or refunds to each
other as are necessary to effect such reconciliation.
4.6 ACCOUNTING FOR INTEREST EXPENSE. For federal income tax
purposes, interest with respect to payments under the
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Production Payment shall be taken into account under the noncontingent bond
method of Prop. Treas. Reg. Section 1.1275-4(b)(2) (or any successor provision
of final Treasury Regulations) in accordance with the projected payment
schedule attached as Schedule 2.
4.7 ALLOCATION OF COSTS AND EXPENSES. Costs and expenses shall be
allocated in accordance with Section 12.6 of the Purchase Agreement, if
applicable.
ARTICLE 5
OPERATION OF SUBJECT INTERESTS
5.1 RIGHTS AND DUTIES OF GRANTEE. Grantee (subject to the terms
and provisions of any applicable operating agreements and subject to the other
provisions of this Assignment and the Management Agreement) as between Grantor
and Grantee, has exclusive charge, management and control of all operations to
be conducted on the Subject Interests and may take any and all actions which a
reasonably prudent operator would deem necessary or advisable in the
management, operation and control thereof. Grantee shall promptly (and, unless
the same are being contested in good faith and by appropriate proceedings,
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
developing, operating and maintaining the Subject Interests. Grantee shall be
obligated to operate and maintain the Subject Interests as would a reasonable
and prudent operator under similar circumstances in accordance with good oil
field practices. For the Subject Interests which Grantee does not operate,
Grantee shall take all such action and exercise all such rights and remedies as
are reasonably available to it to cause the operator to so maintain and operate
such Subject Interests. Grantee shall be deemed to have fully discharged all
of its obligations under this Section 5.1, and shall have no liability to
Grantor under this Section 5.1 during any period when the Management Agreement
is in effect and Grantee is in compliance with the Management Agreement.
5.2 SALES OF SUBJECT HYDROCARBONS. Grantee shall have the
obligation to market or cause to be marketed the Subject Hydrocarbons in
accordance with its good faith business judgment and sound oil field practices.
Grantee shall fully discharge its obligations to Grantor under this Section 5.2
during any period when the Management Agreement is in effect and Grantee is not
in default thereunder. As to any third parties, all acts of Grantee in
marketing the Subject Hydrocarbons and all Production Sales Contracts executed
by Grantee shall be binding on Grantor and the Production Payment; it being
understood that the right and
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obligation to market the Subject Hydrocarbons is at all times vested in Grantee
and Grantor does not have any such right or obligation or any possessory
interest in all or part of the Subject Hydrocarbons, except as may be granted
by separate agreement or instrument. Accordingly, it shall not be necessary
for Grantor to join in any new Production Sales Contracts or any amendments to
existing Production Sales Contracts.
5.3 INSURANCE. Grantee shall obtain or cause to be obtained (and
maintain or cause to be maintained during the economic life of the Subject
Interests) the types of insurance as in its reasonable good faith business
judgment a reasonable and prudent operator would carry under similar
circumstances. Grantee shall fully discharge all of its obligations under this
Section 5.3, and shall have no liability to Grantor under this Section 5.3
during any period when the Management Agreement is in effect and Grantee is in
compliance with the Management Agreement.
5.4 CONTRACTS WITH AFFILIATES. To the extent not provided for in
any applicable operating agreement, Grantee may perform services and furnish
supplies and equipment with respect to the Subject Interests, provided that the
amount of compensation, price or rental that can be charged to the Net Profits
Account therefor must be no less favorable than those available from
Non-Affiliates in the area engaged in the business of rendering comparable
services or selling or leasing comparable equipment and supplies which could
reasonably be made available to the Subject Interests.
5.5 GOVERNMENT REGULATION. All obligations of Grantee hereunder
shall be subject to and limited by all applicable federal, state and local
laws, rules, regulations and orders (including those of any applicable agency,
board, official or commission having jurisdiction).
5.6 ABANDONMENTS. Prior to releasing, surrendering or abandoning
any portion of the Subject Interests, Grantee shall first offer in writing to
reassign such interest to Grantor, with Grantor assuming all liability and
obligations for such interest after such assignment. If Grantor does not
accept the offer to reassign within 60 days from such offer, Grantee shall have
the right without the joinder of Grantor to release, surrender and/or abandon
its interest in the Subject Interests, or any part thereof, or interest therein
even though the effect of such release, surrender or abandonment will be to
release, surrender or abandon the Production Payment the same as though Grantor
had joined therein insofar as the Production Payment covers the Subject
Interests, or any part thereof or interest therein, so released, surrendered or
abandoned by Grantee.
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5.7 POOLING AND UNITIZATION.
(a) Certain of the Subject Interests may have been pooled
or unitized for the production of oil, gas and/or minerals prior to
the Effective Date or, after the Effective Date, may be so pooled or
unitized pursuant to Section 5.7(b). Such Subject Interests are and
shall be subject to the terms and provisions of such pooling and
unitization agreements, and the Production Payment in each such
Subject Interest shall apply to (and the term "Subject Hydrocarbons"
shall include) the production from such units which is attributable to
such Subject Interest (and the Net Profits Account shall be computed
giving consideration to such production and costs, expenses, charges
and credits attributable to such Subject Interest) under and by virtue
of the applicable pooling and unitization agreements.
(b) Grantee shall have the right and power to unitize,
pool or combine the lands covered by the Subject Interests, or any
portion or portions thereof, with any other land or lease or leases so
as to create one or more unitized areas (or, with respect to unitized
or pooled areas theretofore created, to dissolve the same or to amend
and/or reconfigure the same to include additional acreage or
substances or to exclude acreage or substances). If pursuant to any
law, rule, regulation or order of any governmental body or official,
any of the Subject Interests are pooled or unitized in any manner, the
Production Payment insofar as it affects such Subject Interest shall
also be deemed pooled and unitized, and in any such event the
Production Payment shall apply to (and the term "Subject Hydrocarbons"
shall include) the production which accrues to such Subject Interest
under and by virtue of such pooling and unitization arrangements and
the Net Profits Account shall be computed giving consideration to such
production and costs, expenses, charges and credits attributable to
such Subject Interest under and by virtue of such pooling and
unitization arrangement. Notwithstanding the foregoing provisions of
this Section 5.7(b), Grantee shall have no right or interest in any
well that is not specifically described on Exhibit B or in the
production from any such well.
5.8 NON-CONSENT OPERATIONS.
(a) If Grantee elects (subject to Section 5.1) to be a
non-participating party (whether pursuant to an operating agreement or
other agreement or arrangement, including without limitation,
non-consent rights and obligations imposed by statute or regulatory
agency) with respect to any operation on any Subject Interest or
elects to be an abandoning party with respect to a Well located on any
Subject Interest, the consequence of which election is that Grantee's
interest in such Subject Interest or part thereof is temporarily
(i.e., during a recoupment period) or
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permanently forfeited to the parties participating in such operations,
or electing not to abandon such Well, then the costs and proceeds
attributable to such forfeited interest shall not, for the period of
such forfeiture (which may be a continuous and permanent period), be
debited or credited to the Net Profits Account and such forfeited
interest shall not, for the period of such forfeiture, be subject to
the Production Payment.
(b) If Grantee elects (subject to Section 5.1) to be a
participating party to such an operation, or elects to be a
non-abandoning party with respect to such a Well, and any other party
or parties have elected not to participate in such operation (or have
elected to abandon such Well) with the result that (pursuant to an
operating agreement or other agreement or arrangement, including
without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) Grantee becomes entitled to receive,
either temporarily (i.e., through a period of recoupment) or
permanently, interests belonging to such other party or parties, then
the costs and proceeds attributable to such non-participating parties'
interests to which Grantee becomes so obligated and entitled shall be
debited and credited to the Net Profits Account as though such
interests were part of the Subject Interests.
5.9 RENEWALS AND EXTENSIONS OF LEASES. The Production Payment
and the Reversion Interest shall apply to all renewals, extensions and other
similar arrangements (and/or interests therein) of or with respect to any Lease
which is included in the Subject Interests, whether or not such renewals,
extensions or arrangements have heretofore been obtained by Grantor, or
Grantor's predecessors in title, or are hereafter obtained by Grantee as well
as to each new lease covering any minerals covered by one or more of the Leases
if same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
ARTICLE 6
GRANTOR LIABILITY AND EQUIPMENT
6.1 NO PERSONAL LIABILITY OF GRANTOR. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS ASSIGNMENT, GRANTOR SHALL NOT, BY VIRTUE OF THE
PRODUCTION PAYMENT OR REVERSION INTEREST RESERVED IN THIS ASSIGNMENT,
PERSONALLY BE RESPONSIBLE FOR PAYMENT OF ANY PART OF THE COSTS, EXPENSES OR
LIABILITIES INCURRED IN CONNECTION WITH EXPLORING, DEVELOPING, OPERATING,
OWNING AND/OR MAINTAINING THE SUBJECT INTERESTS; PROVIDED, HOWEVER, ALL SUCH
COSTS, EXPENSES AND LIABILITIES SHALL, TO THE EXTENT THE SAME RELATE TO PERIODS
AFTER THE EFFECTIVE DATE, NEVERTHELESS BE CHARGED AGAINST THE NET PROFITS
ACCOUNT AS AND TO THE EXTENT HEREIN PERMITTED.
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6.2 OWNERSHIP OF EQUIPMENT. The Production Payment does not
include any right, title or interest in and to any of the personal property,
fixtures, structures or equipment now or hereafter placed on, or used in
connection with, the Subject Interests.
ARTICLE 7
TRANSFERS
7.1 ASSIGNMENTS BY GRANTEE. Upon prior written notice to Grantor,
but under no circumstance requiring Grantor's consent, Grantee shall have the
right to transfer all or any portion of the Subject Interests; provided,
however, that (i) the Subject Interests shall at all times be subject to this
Assignment, the Production Payment, the Reversion Interest, the Purchase
Agreement and the Limited Power of Attorney contemplated thereunder, the Option
and the Management Agreement, (ii) if such transfer or transfers result in less
than all of the Subject Interests being transferred to and held by the same
Person, Grantee shall retain the obligation to administer and pay the
Production Payment in accordance with the provisions hereof in the same manner
as if the Production Payment was held by a single Person, and (iii) Grantee may
not make an assignment, transfer, sale, alienation or other disposition of any
Subject Interests, which would result in any of the Subject Interests becoming
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended. An assignment of the Subject Interests by Grantee shall not
release Grantee from any obligation to Grantor under this Assignment, the
Purchase Agreement, the Management Agreement or the Option.
7.2 ASSIGNMENTS BY GRANTOR. Upon prior written notice to Grantee,
Grantor shall have the right to transfer, pledge, or mortgage at any time and
from time to time all or any portion of the Production Payment, Reversion
Interest or Option. Any such assignment shall not release Grantor from any
obligation to Grantee under this Assignment, the Purchase Agreement or the
Option, except to the extent provided for in such agreements. Notwithstanding
the foregoing provisions of this Section 7.2, but subject to Section 7.3,
Grantor shall be entitled without any prior written notice or consent to assign
or otherwise convey to HS Resources, Inc., a Delaware corporation ("HS"), all
or any portion of the Production Payment, Reversion Interest or Grantor's
obligations to Grantee under this Assignment, the Purchase Agreement or the
Option. Such an assignment or conveyance of obligations to HS shall serve to
release Grantor from any such obligations and to substitute HS as the obligor
under such obligations.
7.3 CHANGE IN OWNERSHIP OF PRODUCTION PAYMENT, REVERSION INTEREST
OR OPTION. No change of ownership or right to receive payment of the
Production Payment or the Reversion Interest, or of any part thereof, or change
in the ownership of the Option,
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however accomplished shall be binding upon Grantee until notice thereof has
been furnished by the person claiming the benefit thereof, and then only with
respect to payments thereafter made. Notice of the sale or assignment shall
consist of a copy of the recorded instrument accomplishing the same or if there
be no recorded instrument then a copy of the applicable document accomplishing
same; notice of change of ownership or right to receive payment accomplished in
any other manner (for example by reason of incapacity, death or dissolution)
shall consist of copies of recorded documents and complete proceedings legally
binding and conclusive of the rights of all parties. Until such notice has
been furnished to Grantee as provided above, the payment or tender of all sums
payable on the Production Payment and delivery of all notices may be made in
the manner provided herein precisely as if no such change in interest or
ownership or right to receive payment had occurred. The kind of notice herein
provided shall be exclusive, and no other kind, whether actual or constructive,
shall be binding on Grantee.
ARTICLE 8
MISCELLANEOUS
8.1 GOVERNING LAW. The validity, effect and construction of this
Assignment shall be governed by the law of the State of Colorado, exclusive of
the conflict of laws provisions thereof.
8.2 INTENTIONS OF THE PARTIES. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income
tax purposes, the parties elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A of the IRC, and agree not to take any
position inconsistent with such election. In addition, the parties hereto
intend that the Production Payment reserved hereby by Grantor shall at all
times be treated as an incorporeal (i.e., a non-possessory) interest in real
property or land and as a production payment under Section 636 of the IRC,
payable out of Gross Proceeds (rather than as a working or any other interest).
8.3 NOTICES. All notices and other communications required or
permitted under this Assignment shall be in writing and, unless otherwise
specifically provided, shall be delivered personally, by prepaid telecopy or
similar means (with signed confirmed copy to follow by mail in the manner
provided below), or (except for quarterly statements provided for under Section
4.5 above which may be sent by regular mail) by registered or certified mail,
postage prepaid, or by delivery service for which a receipt is obtained, at the
following addresses for Grantor and Grantee, and shall be deemed delivered on
the date of receipt.
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If to Grantor:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Grantee:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Either party may specify an alternative address by giving notice to the other
party, in the manner provided in this Section 8.3.
8.4 FURTHER ASSURANCES. Grantor and Grantee agree to execute and
deliver to the other all such other and additional instruments, notices,
division orders, transfer orders and other documents and to do all such other
and further acts and things as may be necessary to more fully and effectively
grant, convey and assign to Grantee and to reserve to Grantor the rights,
titles, interests and estates conveyed to Grantee and reserved by Grantor
hereby or intended to be so conveyed and reserved.
8.5 COUNTERPARTS. This Assignment may be executed in multiple
originals, all of which are identical except that, for the convenience of
recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A and Exhibit B which include descriptions of
properties located in the
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recording jurisdiction in which the particular counterpart is being recorded.
All of such counterparts together shall constitute one and the same instrument.
8.6 BINDING EFFECT. All the covenants and agreements of Grantor
and Grantee herein contained shall be deemed to be covenants running with
Grantor's and Grantee's interest in the Subject Interests and the lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be binding upon, each of the parties hereto and their respective
successors and, subject to the provisions of this Section 8.6, their assigns.
Any sale, conveyance, assignment, sublease or other transfer of the Subject
Interests, or any interest therein or any part thereof, shall provide that the
assignee assume all of the obligations of the assignor with respect to the
interest so transferred, and unless the non-assigning party otherwise expressly
consents in writing, the assigning party shall also remain liable for the
discharge of its obligations.
8.7 PARTITION. Grantor and Grantee acknowledge that Grantor and
Grantee have no right or interest that would permit either to partition any
portion of the Subject Interests, and Grantor and Grantee waive any such right.
8.8 SPECIFIC PERFORMANCE. In addition to any other remedy which
Grantor may enjoy under this Agreement, at law or in equity, Grantor shall have
the right to seek and enforce the remedy of specific performance by Grantee of
its obligations under this Agreement.
8.9 EFFECTIVE DATE. This Assignment shall become effective for
all purposes as of 7:00 a.m. (at the respective locations of the Subject
Interests) on the Effective Date.
[the remainder of this page is intentionally blank]
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IN WITNESS WHEREOF, the parties have executed this Assignment
effective as of the Effective Date.
GRANTOR:
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
Vice President
- - ----------------------------
Name: James M. Piccone
Title: Secretary
GRANTEE:
WATTENBERG GAS INVESTMENTS, LLC,
By its Manager, Fontenelle, Inc.
[CORPORATE SEAL]
Attest: By:
----------------------------------
Gary L. Greenstein
Vice President
- - ----------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
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STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-------------------------------------------
Notary Public
My commission expires:
-------------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc. in
its capacity as Manager of Wattenberg Gas Investments, LLC, a Delaware limited
liability company on behalf of the company.
Witness my hand and official seal.
------------------------------------------
Notary Public
My commission expires:
------------------
(SEAL)
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SCHEDULE 1
SIDETRACK WELLBORE TERMS
1. DEFINITIONS:
"Sidetrack Wellbore" as used in this agreement shall mean and
include all down hole operations performed in an existing well (a "Well") in an
attempt to establish production through a sidetrack wellbore from a formation
in which the Well may or may not currently be completed.
2. EXPENSES OF SIDETRACK WELLBORES:
The costs and expenses of all Sidetrack Wellbore operations
shall be borne in accordance with the provisions of Section 12.6 of the
Purchase Agreement.
3. OWNERSHIP OF WELL AND EQUIPMENT:
The wellhead equipment and down hole equipment through the
depth where the Sidetrack Wellbore commences shall be owned equally by the
owners of the Sidetrack Wellbore and the Wellbore. The tubing and equipment
run on or in the tubing string shall be owned by the owners of the Well and/or
Sidetrack Wellbore being served by the tubing. The casing in the Well below
the depth where the Sidetrack Wellbore commences shall be owned by the owners
of the Well. The lease facilities shall be owned by the owners of the Well or
Sidetrack Wellbore being served thereby, and if both the Well and Sidetrack
Wellbore are being served, they shall be owned equally by such owners.
4. OPERATING RIGHTS OF OWNERS:
The rights, duties and obligations of the owners of Wells
containing a Sidetrack Wellbore, as set out in the operating or other
agreements governing the operation of such wellbores, are not changed, altered
or amended by these terms except as specifically provided herein.
(a) Subject to the further provisions hereof, the owners of a
Well and the owners of the associated Sidetrack Wellbore each have the right to
enter the Well. If the owners of a Sidetrack Wellbore desire to drill, operate
and maintain a Sidetrack Wellbore in the Well and such work will necessitate
the shutting in of the existing production in the Well, the owners of the Well
shall be given reasonable notice of such Sidetrack Wellbore and the estimated
number of days required to complete such work. Such notice shall be given
promptly, either before or after Sidetrack Wellbore drilling or rework
operations commence.
(b) Should a blowout, explosion, fire or other sudden
emergency occur during the course of drilling or rework of any
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Sidetrack Wellbore, the owners drilling such Sidetrack Wellbore shall, at their
expense, take such steps as are necessary to deal with the emergency and to
safeguard life and property, and shall, as promptly as possible, report the
emergency and the action taken to the owners of the Well.
(c) Should a blowout, explosion, fire or other sudden
emergency occur at any time other than during the course of drilling or rework
of a Sidetrack Wellbore, the cost of dealing with any such emergency shall be
borne equally by the owners of the Well and the Sidetrack Wellbore.
5. LIABILITIES OF THE OWNERS:
If a Sidetrack Wellbore is drilled in a Well, the liabilities
of the owners of the Well and the Sidetrack Wellbore shall be as follows:
(a) No liability shall be incurred by the owners of the
Sidetrack Wellbore for causing production to cease from the Well during the
time drilling or rework operations are being conducted on the Sidetrack
Wellbore, as long as such operations are conducted with diligence and without
unreasonable delay; provided, however that if the number of days required to
complete Sidetrack Wellbore operations results in a cessation of production
from the Well for a period greater than 90 days, the owners of the Sidetrack
Wellbore shall pay to the owners of the Well an amount equal to the lesser of
(i) the product of $0.15 multiplied by the average daily production rate from
the Well (in MMBTU/day) prior to the cessation of production for each day that
the Well does not produce after such 90-day period, or (ii) an amount equal to
the fair market value of the last 5% of the reserves associated with the Well
as of the date the Well was acquired by the owners of the Well, based on a
reserve evaluation conducted in accordance with the procedures of the
Securities and Exchange Commission and using an annual discount rate of 10%.
Such payment shall be made within 60 days of the date such obligation accrues.
As an alternative to making a payment under (i) or (ii) immediately above, the
owners of the Sidetrack Wellbore may exercise their rights under the Option to
Purchase Oil and Gas Interests between Orion Acquisition, Inc. and Wattenberg
Gas Investments, LLC and such exercise may be made without an obligation to
make any penalty payment thereunder.
(b) If the Sidetrack Wellbore drilling or rework operations
are continued for a period which might cause the termination of a lease being
maintained by production from the Well and any such lease terminates because of
the Sidetrack Wellbore operations, the owners of the Sidetrack Wellbore shall
be liable to the owners of the Well for an amount equal to the fair market
value of the last 5% of the reserves associated with the Well as of the date
the Well was acquired by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities and Exchange
Commission and
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using an annual discount rate of 10%. Such payment shall be made within 60
days of the date such obligation accrues. As an alternative to making a
payment under the foregoing provisions of this Section 5(b), the owners of the
Sidetrack Wellbore may exercise their rights under the Option to Purchase Oil
and Gas Interests between Orion Acquisition, Inc. and Wattenberg Gas
Investments, LLC and Wattenberg Gas Investments, LLC and such exercise may be
made without an obligation to make any penalty payment thereunder.
(c) If the Sidetrack Wellbore drilling operations disturb or
remove the means of separation of the reserves in the Well from the reserves to
be exploited from the Sidetrack Wellbore, or otherwise cause a permanent
cessation or reduction of production from the Well, the Operator shall, before
and after the operation, conduct a test of the Well for the purpose of
determining whether or not the producing capacity of the formation completed in
the Well has been impaired, by employing the procedure set forth as follows:
(1) The producing capacity of the Well shall be
determined by comparing the actual production before and after
the Sidetrack Wellbore drilling operations during the thirty
(30) days in which there was actual production immediately
before and after such operations, with the Well producing
under similar pressure differential and other conditions. If
the producing conditions or equipment size are different, an
appropriate applicable method as jointly agreed to by owners
of the Sidetrack Wellbore and the owners of the Well will be
utilized to determine the effect on deliverabilities which the
Sidetrack Wellbore drilling operations caused.
(2) If the producing capacity of the Well has been
reduced in excess of fifty percent (50%), and there is no
cause for such reduction other than the Sidetrack Wellbore
operations, damages will be deemed to have occurred. If
damage has occurred, the rights and liabilities between the
owners of the Sidetrack Wellbore and the owners of the Well
shall be adjusted in accordance with the following provisions
of this Section 5(c)(2), which adjustments shall constitute
the sole and exclusive remedies of the owners of the Well for
damage to the producing Well(s).
The owners of the Sidetrack Wellbore may, at their sole cost,
risk and expense, attempt to restore the Well to 50% or more
of its former capacity. If the attempt is unsuccessful, or if
no attempt is made, the owners of the Sidetrack Wellbore shall
pay damages to the owners of the Well in an amount equal to
the fair market value of the last 5% of the reserves
associated with the Well as of the date the Well was acquired
by the owners of
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the Well, based on a reserve evaluation conducted in
accordance with the procedures of the Securities and Exchange
Commission and using an annual discount rate of 10%. Such
payment shall be made within 60 days of the date such
obligation accrues. As an alternative to making a payment
under the foregoing provisions of this Section 5(c)(2), the
owners of the Sidetrack Wellbore may exercise their rights
under the Option to Purchase Oil and Gas Interests between
Orion Acquisition, Inc. and Wattenberg Gas Investments, LLC
and Wattenberg Gas Investments, LLC and such exercise may be
made without an obligation to make any penalty payment
thereunder.
6. CLASSIFICATION OF PAYMENTS
Any payment under Section 5 above, received by the owners of
the Well(s), shall not be considered as Gross Proceeds or Other Income for
purposes of the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated June 14, 1996 between Orion Acquisition, Inc. and
Wattenberg Gas Investments, LLC.
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SCHEDULE 2
PAYMENT SCHEDULE OF THE PRODUCTION PAYMENT
Date Payment Interest
- - --------------------------------------------------------------------------------
<PAGE> 70
EXHIBIT D
OPTION TO PURCHASE OIL AND GAS INTERESTS
This Option to Purchase Oil and Gas Interests (this "Option")
is granted effective as of June 1, 1996 (the "Effective Date") by Wattenberg
Gas Investments, LLC, a Delaware limited liability company, 82 Devonshire
Street, R22C, Boston, Massachusetts 02109 ("Grantor") to Orion Acquisition,
Inc., a Delaware corporation, 1999 Broadway, Suite 3600, Denver, Colorado 80202
("Grantee").
For $10.00 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Grantor grants and
conveys to Grantee the exclusive and irrevocable option to purchase from time
to time all or any portion of the following (the "Subject Interests") upon the
terms and conditions set forth herein (the "Option"):
A. All of Grantor's right, title and interest
in and to the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the right to
produce the wells described in Exhibit B from the intervals in
such wells identified in Exhibit B as of the Option Effective
Date (the above described interests in such leases being
herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions,
limitations, burdens, contracts, agreements and other matters
applicable to the Leases and the Wells, and excluding such
portion of the Leases and the Wells which were not conveyed to
Grantor because of Defective Interests or which were
determined to be Excluded Assets (as such terms are defined in
the Purchase and Sale Agreement between Grantor and Grantee
dated June 14, 1996 (the "Purchase Agreement"), and such
exclusions being referred to herein as the "Reserve
Reductions");
B. The right, title and interest of Grantor in
and to overriding royalty interests in the Leases insofar and
only insofar as the Leases cover the wellbores associated with
the Wells from the producing intervals identified in Exhibit
B;
C. To the extent affected, the right, title and
interest of Grantor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization, pooling,
operating and communitization agreements, declarations and
orders affecting the Leases and Wells, and in and to the
properties covered and the units created thereby;
D-1
<PAGE> 71
D. To the extent affected, the right, title and
interest of Grantor in and to the personal property and
fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and
other personal property and oil field equipment appurtenant to
such Wells; provided, however, that Grantor shall remain
co-owner of any personal property appurtenant to any property
owned by Grantor that is not exclusively part of the Wells;
E. To the extent affected, the right, title and
interest of Grantor in and to and under, or derived from, the
presently existing and valid gas sales, purchase, gathering
and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way,
easements, permits and surface leases and other contracts,
agreements and instruments (but specifically excluding any
management agreements), only in relevant part to the extent
and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in item C above; provided, however,
that Grantor shall remain co-owner of any agreements,
including unitization and pooling agreements, if they pertain
to any property owned by Grantor that is not exclusively part
of the Leases or Wells.
1. EXERCISE OF THE OPTION. The Option may be exercised
as follows:
a. PRIOR TO JANUARY 1, 2003. From the date
of this Option until January 1, 2003, Grantee has the right to exercise the
Option, without penalty, one or more times to purchase up to a cumulative total
of 15% of the Subject Interests (by volume of the sum of the estimated reserves
for such Subject Interests under the Reserve Report, less Reserve Reductions,
if any (such difference, the "Total Reserves")). If Grantee exercises the
Option to purchase a portion of the Subject Interests and such portion by
itself, or when added to any other portion of the Subject Interests previously
purchased by Grantee pursuant to an earlier exercise of the Option, exceeds 15%
of the Subject Interests by volume of the Total Reserves then, in addition to
the Option Price, Grantee shall pay to Grantor a penalty payment as set forth
below, subject to certain exceptions. At the time Grantee exercises the Option
and for the first time a cumulative total of more than 15% of the Subject
Interests have been or are to be repurchased, then the penalty payment shall be
determined based on the cumulative total of the Subject Interests purchased.
If the Grantee exercises the Option again for an additional incremental group
of Subject Interests, then the penalty payment shall be determined based on the
incremental Subject Interests purchased.
D-2
<PAGE> 72
(1) Penalty Payment Before 2000.
If the Option Effective Date is on or before December 31,
1999, Grantee shall pay to Grantor an amount equal to the
product obtained by multiplying $640,000 by a fraction, the
numerator of which is the sum of the volume of estimated
reserves for the Subject Interests (as set forth in the
Reserve Report, less applicable Reserve Reductions) which
Grantee desires to purchase and the denominator of which is
the volume of Total Reserves (the "Reserve Fraction").
(2) Penalty Payment, 2000 through
2002. If the Option Effective Date is between January 1, 2000
and December 31, 2002, Grantee shall pay to Grantor an amount
equal to the product obtained by multiplying $430,000 by the
applicable Reserve Fraction.
The foregoing penalty payment amounts shall not be payable if Grantee exercises
the Option on or before December 31, 2002 in its entirety with respect to
paragraphs (i) through (vii) below, or in part with respect to paragraphs (vi)
and (vii) below, in each case which it may do from time to time, because:
(i) Credit Payment Amounts (as defined in the
Purchase Agreement) are no longer paid or
credited to Grantee;
(ii) a Tax Audit (as defined in the Purchase
Agreement) has commenced and Grantor has not
waived its right to an escrow pursuant to
Section 8.3 of the Purchase Agreement;
(iii) the Management Agreement dated effective as
of the Effective Date between an affiliate of
Grantor and Grantee, or any successor
agreement (the "Management Agreement") is
terminated (other than by, or on account of a
breach thereof by, Grantee), is held invalid
or void, or Grantor's affiliate or its
successors or assigns fails to perform
thereunder;
(iv) Grantor breaches the Purchase Agreement or
any agreement contemplated thereunder (other
than any obligation of Grantor to pay
Expense Amounts in excess of Credit Payment
Amounts (as such terms are defined in the
Management Agreement)), which breach if
uncured would have a material adverse effect
on Grantee and which has not been cured by
Grantor within 60 days of receipt of a
written notice from Grantee of such breach;
D-3
<PAGE> 73
(v) payments remain unsatisfied for a period
exceeding 60 days under one or both of the
Contribution Agreements or one or both of
the Guaranty Agreements contemplated by the
Ratification of Obligations under the
Purchase Agreement;
(vi) Grantor denies approval of certain
operations on the Subject Interests in
accordance with Section 2.1(p) or (q) of the
Management Agreement and Grantee elects to
exercise the Option on the properties
affected by the proposed operations rejected
by Grantor; and
(vii) an aggregate of $5,910,000 in Credit
Payment Amounts under the Purchase Agreement
has been credited or paid to Grantee.
Exercises of the Option by Grantee pursuant to paragraph (vi) or (vii) above
shall not be counted towards the cumulative total of 15% of the Subject
Interests in Paragraph 1.a.
Notwithstanding anything herein provided to the contrary, prior to December 31,
1997, Grantee agrees that it will not exercise the Option and purchase the
Subject Interests so that Grantee may enter into a transaction with a third
party under a substantially similar arrangement as the transaction contemplated
by the Purchase Agreement for the primary purpose of monetizing the tax credits
under Section 29 of the Internal Revenue Code, as amended from time to time
(the "Code"), attributable to production from the Subject Interests at a more
favorable rate. If Grantee breaches its agreement set forth in the immediately
preceding sentence, Grantee shall be obligated to pay Grantor all profits
received by Grantee from such third party as a result of the consummation of
such transaction with the third party.
b. ON OR AFTER JANUARY 1, 2003 UNTIL
JANUARY 1, 2005. From January 1, 2003 until January 1, 2005, Grantee has the
right to exercise the Option one time to purchase the remaining Subject
Interests as an entirety without penalty for the associated Option Price.
c. PARTIAL EXERCISE LIMITED. Grantee may
not exercise the Option to purchase in the aggregate more than 25% of the Total
Reserves unless Grantee exercises the Option as to all of the Subject
Interests; provided, however that this limitation shall not apply to exercises
of the Option contemplated by Paragraphs 1.a.(vi) and (vii) above.
d. MINIMUM PAYMENT. If the Option is
exercised by Grantee, from time to time, on or prior to December 31, 1998,
Grantee shall pay to Grantor a payment equal to (i) $1,110,000, if the Option
is exercised in full, or (ii)
D-4
<PAGE> 74
$1,110,000 multiplied by the Reserve Fraction if the Option is exercised in
part, which amount shall apply to, and be a direct off-set of, the Option Price
for all purchased Subject Interests. In no event shall the aggregate of
payments under the immediately preceding sentence ever exceed $1,110,000. The
penalties set forth in Paragraph 1.a. are in addition to the minimum payment
set forth in the immediately preceding sentence.
2. OPTION TERM. The Option shall terminate on January
1, 2005 (the "Option Term").
3. METHOD OF EXERCISE. To exercise the Option within
the Option Term, Grantee must deliver written notice of such exercise,
delivered personally, by prepaid telecopy or similar means (with signed
confirmed copy to follow by mail in the manner provided below), or by
registered or certified mail, postage prepaid, or by delivery service for which
a receipt is obtained, at the addresses set forth below, and shall be deemed
delivered on the date of receipt.
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Grantor may specify an alternative address by giving written notice to Grantee
of such change.
4. OPTION EFFECTIVE DATE. The effective date of a
purchase of all or any portion of the Subject Interests pursuant to the Option
(the "Option Effective Date") shall be the first day of the month following the
date Grantor receives the notice of exercise of the Option specifying the
Subject Interests which
D-5
<PAGE> 75
Grantee desires to purchase pursuant to such exercise of the Option.
5. OPTION PRICE. The purchase price (the "Option
Price") for the Subject Interests, or any portion thereof, shall be the
appraised current fair market value of the Subject Interests in question as of
the Option Effective Date. Unless Grantor and Grantee agree otherwise, the
appraised fair market value of the Subject Interests in question shall be the
present value as of the Option Effective Date of the future net revenue
estimated to be received therefrom, determined in accordance with generally
accepted engineering principles in effect at the time, by Williamson Petroleum
Consultants, Inc. or some other nationally recognized petroleum engineering
firm agreed upon by Grantor and Grantee. The price of natural gas used in the
forecast shall be based on an unescalated average gas price for the most recent
12-month period, as quoted in the first monthly publication of Inside FERC's
Gas Market Report for the Colorado Interstate Gas Co. ("CIG") Index (or a
mutually agreeable substitute index if such index is no longer published), less
an unescalated average gathering and transportation cost from wellhead to the
CIG mainline for the most recent 12-month period, multiplied by a BTU/SCF
factor appropriate to the affected properties; the price of hydrocarbon liquids
used in the forecast shall be based on the unescalated actual price received on
the Subject Interests during the most recent 12- month period; and the costs
used in the forecast shall be the unescalated average of the monthly costs
attributable to the Subject Interests in question during the most recent
12-month period preceding the Option Effective Date. The discount rate to be
applied shall be the 6-month London Interbank Offered Rate in effect on the
date on which the fair market value determination is made plus 6%.
6. TERMS OF PURCHASE. Upon the closing of the purchase
of all or any portion of the Subject Interests pursuant to an exercise of the
Option, Grantee shall be entitled to receive the proceeds, accounts receivable,
income, revenues, monies and other items attributable to the Subject Interests
in question from and after the Option Effective Date in question and same shall
be paid over to Grantee, and Grantee shall be liable to pay the expenses
attributable to the Subject Interests in question from and after the Option
Effective Date in question. Subject to the terms of the Assignment, Grantor
shall be entitled to receive the production from the Subject Interests in
question prior to the Option Effective Date in question and shall be liable to
pay the expenses attributable to the Subject Interests in question prior to the
Option Effective Date in question. Upon the closing of the purchase of all or
any portion of the Subject Interests pursuant to an exercise of the Option,
Grantee shall assume all obligations and liabilities attributable to the
ownership or operation of the Subject Interests in question on and after the
Option Effective Date in question, including the contractual and regulatory
obligations in connection with the Subject Interests in question, and Grantee
shall defend,
D-6
<PAGE> 76
indemnify and hold harmless Grantor (and its successors, assigns, members,
officers, managers (including the employees, representatives, agents,
successors and assigns of such members), employees, representatives, agents and
consultants) from and against all claims, demands, actions, obligations,
liabilities and expenses (including reasonable attorney, consultant and expert
witness fees) arising from such obligations and liabilities assumed by Grantee
hereunder.
7. PAYMENT AND CLOSING. The closing of a purchase
pursuant to an exercise of the Option shall occur at the offices of Grantee at
9:00 a.m., on a mutually agreed upon business day no later than 30 days from
the date Grantor receives the notice of an exercise of the Option. At the
closing, Grantee shall deliver by wire transfer of immediately available U.S.
funds, to the account designated by Grantor, the Option Price for the Subject
Interests in question, and Grantor shall deliver to Grantee an assignment fully
executed and in recordable form of the Subject Interests in question dated
effective as of the Option Effective Date in question and in form and substance
reasonably satisfactory to Grantee with warranty of title as to all matters
arising by, through or under Grantor, but not otherwise.
8. GOVERNING LAW. The validity, effect and construction
of this Option shall be governed by the law of the State of Colorado, without
reference to its conflict of laws provisions.
9. SPECIFIC PERFORMANCE. In addition to any other
remedy which Grantee may enjoy under this Option, at law or in equity, Grantee
shall have the right to seek and enforce the remedy of specific performance by
Grantor of its obligations under this Option.
10. FURTHER ASSURANCES. Grantor and Grantee agree to
execute and deliver to the other all such other and additional instruments,
notices, division orders, transfer orders and other documents and to do all
such other and further acts and things as may be necessary to more fully and
effectively grant, convey and assign to Grantee the rights, titles, interests
and estates conveyed to Grantee hereby or intended to be so conveyed.
11. COUNTERPARTS. This Option may be executed in
multiple originals, all of which are identical except that, for the convenience
of recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A which include descriptions of properties located
in the recording jurisdiction in which the particular counterpart is being
recorded. All of such counterparts together shall constitute one and the same
instrument.
D-7
<PAGE> 77
IN WITNESS WHEREOF, the parties have executed this Option
effective as of the Effective Date.
GRANTOR:
Wattenberg Gas Investments, LLC
By: its Manager, Fontenelle, Inc.
Attest: By:
------------------------------------
Name: Gary L. Greenstein
Title: Vice President
- - -------------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
GRANTEE:
Orion Acquisition, Inc.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
- - -------------------------------
Name: James M. Piccone
Title: Secretary
D-8
<PAGE> 78
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, in her capacity as Vice President of
Orion Acquisition, Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-------------------------------------
Notary Public
My commission expires:
--------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware Corporation, in its capacity as Manager of Wattenberg Gas Investments,
LLC, a Delaware limited liability company on behalf of the company.
Witness my hand and official seal.
-------------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
D-9
<PAGE> 79
EXHIBIT E
RESERVE REPORT
SEE ATTACHED
E-1
<PAGE> 80
EXHIBIT F
PREFERENTIAL RIGHTS AND CONSENTS
WELL NAME AGREEMENT RESPONSE
--------- --------- --------
F-1
<PAGE> 81
EXHIBIT G
PREPAYMENTS
NONE
G-1
<PAGE> 82
EXHIBIT H
GAS IMBALANCES
WELL NAME MONTH WI OVER(UNDER) PRODUCED(MCF)
--------- ----- -- -------------------------
Schimpf 11-23 C/N 12/95 .4296635 (190)
Schimpf 11-23 J 12/95 .286875 2450
H-1
<PAGE> 83
EXHIBIT I
OPERATIONS IN PROGRESS
NONE
I-1
<PAGE> 84
EXHIBIT J
HYDROCARBON SALES CONTRACTS
1. Gas Purchase and Sale Agreement, No. 122585, dated 1-1-89,
with Amoco Production Company.
2. Gas Purchase and Sale Agreement, No. 146740 (NIE Prospect),
dated 2-19-92, with Amoco Production Company.
3. Gas Purchase and Processing Agreement, No. GPA.001.S (SPI
Prospect), dated 11-8-91, with PanEnergy Field Services
(formerly ANGI).
4. Gas Purchase and Processing Agreement, No. GPA.005.EV (SUN
Prospect), dated 5-12-86, with PanEnergy Field Services
(formerly ANGI).
5. Gas Purchase and Processing Agreement, No. GPA.014.KP, dated
1-18-84, with PanEnergy Field Services (formerly ANGI).
6. Gas Purchase and Processing Agreement, No. GPA.015.K, dated
1-18-84, with PanEnergy Field Services (formerly ANGI).
7. Gas Purchase and Processing Agreement, No. GPA.020.S (SPI
Prospect), dated 7-28-93, with PanEnergy Field Services
(formerly ANGI).
8. Gas Purchase and Processing Agreement, No. GPA.021.L, dated
10-18-84, with PanEnergy Field Services (formerly ANGI).
9. Gas Purchase and Processing Agreement, No. GPA.024.S (MARTIN
Prospect), dated 12-1-92, with PanEnergy Field Services
(formerly ANGI).
10. Gas Purchase and Processing Agreement, No. GPA.025.L (SUN
Prospect), dated 7-18-83, with PanEnergy Field Services
(formerly ANGI).
11. Gas Purchase and Processing Agreement, No. GPA.027.BT (SUN
Prospect), dated 7-24-85, with PanEnergy Field Services
(formerly ANGI).
12. Gas Purchase and Processing Agreement, No. GPA.035.BT, dated
10-23-85, with PanEnergy Field Services (formerly ANGI).
J-1
<PAGE> 85
13. Gas Purchase and Processing Agreement, No. GPA.046.K (SUN
Prospect), dated 1-30-85, with PanEnergy Field Services
(formerly ANGI).
14. Gas Purchase and Processing Agreement, No. GPA.047.E (SUN
Prospect), dated 8-20-85, with PanEnergy Field Services
(formerly ANGI).
15. Gas Purchase and Processing Agreement, No. GPA.053.E (SUN
Prospect), dated 10-31-85, with PanEnergy Field Services
(formerly ANGI).
16. Gas Purchase and Processing Agreement, No. GPA.055.E (SUN
Prospect), dated 10-30-85, with PanEnergy Field Services
(formerly ANGI).
17. Gas Purchase and Processing Agreement, No. GPA.057.K, dated
1-23-85, with PanEnergy Field Services (formerly ANGI).
18. Gas Purchase and Processing Agreement, No. GPA.079.K, dated
10-23-85, with PanEnergy Field Services (formerly ANGI).
19. Gas Purchase and Processing Agreement, No. GPA.094.K (SUN
Prospect), dated 8-20-85, with PanEnergy Field Services
(formerly ANGI).
20. Gas Purchase and Processing Agreement, No. GPA.106.K (SUN
Prospect), dated 10-31-85, with PanEnergy Field Services
(formerly ANGI).
21. Gas Purchase and Processing Agreement, No. GPA.111.K dated
1-7-86, with PanEnergy Field Services (formerly ANGI).
22. Gas Purchase and Processing Agreement, No. GPA.186.K (SUN
Prospect), dated 3-13-89, with PanEnergy Field Services
(formerly ANGI).
23. Gas Purchase and Processing Agreement, No. GPA.187.K (SUN
Prospect), dated 3-13-89, with PanEnergy Field Services
(formerly ANGI).
24. Gas Purchase and Processing Agreement, No. GPA.232.K (NIE
Prospect), dated 10-12-90, with PanEnergy Field Services
(formerly ANGI).
25. Gas Purchase and Processing Agreement, No. GPA.233.K (BYR
Prospect), dated 10-12-90, with PanEnergy Field Services
(formerly ANGI).
J-2
<PAGE> 86
26. Gas Purchase and Processing Agreement, No. GPA.289.K (ALA
Prospect), dated 11-30-93, with PanEnergy Field Services
(formerly ANGI).
27. Gas Purchase and Sale Agreement (ALA Prospect), dated
10-29-93, with PanEnergy Field Services (formerly ANGI).
28. Gas Purchase and Sale Agreement (NIE Prospect), dated
11-10-78, with KN Gas Marketing (formerly PEPL).
29. Gas Purchase and Sale Agreement (NIE Prospect), dated 8-1-87,
with Vessels Oil and Gas Company.
30. Gas Processing Agreement (MAR Prospect), dated 3-13-75, with
Amoco Production Company.
31. Gas Processing Agreement (unsigned) with Vessels Oil and Gas
Company.
32. Spot Sales Agreement to 2-28-96 (unsigned) with VESGAS.
33. Crude Oil Purchase Agreement, No. P-930116, dated 1-5-93, with
PanEnergy Trading & Transportation (ATTCO).
34. Crude Oil Purchase Agreement (STR Prospect), dated 10-20-94,
with Scurloch Permian Corporation.
35. Master Swap Agreement dated 3-26-96 between Wattenberg
Resources Land, L.L.C.
J-3
<PAGE> 87
EXHIBIT K
LEGAL PROCEEDINGS
1. During 1994, HS Resources, Inc. (the "Company") was named as a
defendant, in addition to three other companies, in an action brought by
certain landowners in Colorado. The action challenges certain mineral
reservations of one of the Company's assignor in its original surface
conveyance involving two small tracts of the Company's minerals.
2. In February of 1995, the Company was named as one of many
defendants in a suit brought by several royalty owners in Northeast Colorado
seeking royalty payments on certain deductions from gas sales.
3. Potential claims of royalty owners in wells in the Spindle
Field for underpayment of royalty during the period of ownership of the
Company's assignor, based on the differential in price paid for gas produced
from the Spindle Field and gas produced from other fields or properties in the
area.
4. Participation in Joint Defense Agreement, and potential
participation in clean-up or payment of costs, damages or penalties related to
claims made by the United States Environmental Protection Agency against Weld
County Waste Disposal et al.
5. Potential claims of Northern Natural Gas or Gerrity Oil and
Gas Corporation against one of the Company's assignors for ceasing operation of
the natural gas pipeline located in Superior, Colorado based on a determination
that the line was no longer safe or economic.
6. Audit by Rockport-Essex relative to payment of royalties in
Spindle Field.
While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of any of these matters will have a material impact on its
financial condition or the results of operations.
K-1
<PAGE> 88
EXHIBIT L
TAX PARTNERSHIPS
NONE
L-1
<PAGE> 89
EXHIBIT M
NO NGPA CERTIFICATE FILED
<TABLE>
<CAPTION>
=================================================================================================
WELL NAME WELL NUMBER
=================================================================================================
<S> <C>
Achziger 11-33
- - -------------------------------------------------------------------------------------------------
Anderson 22-32
- - -------------------------------------------------------------------------------------------------
Barclay [IS THIS A TAX PTRSHIP WELL?] 42-27-1
- - -------------------------------------------------------------------------------------------------
Bass 41-12-1
- - -------------------------------------------------------------------------------------------------
Beebe DR 31-09-1
- - -------------------------------------------------------------------------------------------------
Beebe DR 31-17-2
- - -------------------------------------------------------------------------------------------------
Beebe DR 42-05-3
- - -------------------------------------------------------------------------------------------------
Beebe DR 42-09-4
- - -------------------------------------------------------------------------------------------------
Bryant 34-30
- - -------------------------------------------------------------------------------------------------
Bucklin 11-31
- - -------------------------------------------------------------------------------------------------
Bunting 5-35
- - -------------------------------------------------------------------------------------------------
Camp 41-25-1
- - -------------------------------------------------------------------------------------------------
Christensen 02-19
- - -------------------------------------------------------------------------------------------------
Clement 14-11
- - -------------------------------------------------------------------------------------------------
Dry Creek 13-23-1
- - -------------------------------------------------------------------------------------------------
Eckhardt 2
- - -------------------------------------------------------------------------------------------------
Ehler 34-11-1
- - -------------------------------------------------------------------------------------------------
Ehrlich 03-18
- - -------------------------------------------------------------------------------------------------
Ewing 41-14
- - -------------------------------------------------------------------------------------------------
Ewing 43-10
- - -------------------------------------------------------------------------------------------------
Ewing R 24-11-1
- - -------------------------------------------------------------------------------------------------
Fiolkoski 2
- - -------------------------------------------------------------------------------------------------
Flack 7-19
- - -------------------------------------------------------------------------------------------------
Francen 11-30
- - -------------------------------------------------------------------------------------------------
Frank 31-21-1
- - -------------------------------------------------------------------------------------------------
Frank 42-21-2
- - -------------------------------------------------------------------------------------------------
Garcia 31-05
- - -------------------------------------------------------------------------------------------------
Glendenning 13-03
- - -------------------------------------------------------------------------------------------------
</TABLE>
M-1
<PAGE> 90
WELLS NOT LISTED IN THE FERC NGPA CERTIFICATION FILE
<TABLE>
<CAPTION>
=================================================================================================
WELL NAME WELL NUMBER
=================================================================================================
<S> <C>
Gun Club 41-03-1
- - -------------------------------------------------------------------------------------------------
Hatch 31-11-3
- - -------------------------------------------------------------------------------------------------
Hatch 31-19-2
- - -------------------------------------------------------------------------------------------------
Hatch 42-11-1
- - -------------------------------------------------------------------------------------------------
Herbster 3-35
- - -------------------------------------------------------------------------------------------------
Hoshiko 03-33
- - -------------------------------------------------------------------------------------------------
Hoshiko 07-02
- - -------------------------------------------------------------------------------------------------
Ione 31-35-1
- - -------------------------------------------------------------------------------------------------
Johnson 32-30
- - -------------------------------------------------------------------------------------------------
Kawata 02-16
- - -------------------------------------------------------------------------------------------------
Keenan 31-15
- - -------------------------------------------------------------------------------------------------
Keenan 41-15-1
- - -------------------------------------------------------------------------------------------------
Kern 41-05-1
- - -------------------------------------------------------------------------------------------------
Kugel 32-33-1
- - -------------------------------------------------------------------------------------------------
Ludwig 31-05-1
- - -------------------------------------------------------------------------------------------------
Luhman 32-13-1
- - -------------------------------------------------------------------------------------------------
Luhman 41-13-2
- - -------------------------------------------------------------------------------------------------
McCarthy 11-12
- - -------------------------------------------------------------------------------------------------
Miller 1-21
- - -------------------------------------------------------------------------------------------------
Miller 42-29-2
- - -------------------------------------------------------------------------------------------------
Moser Farms 31-27-1
- - -------------------------------------------------------------------------------------------------
Moser Inc. 31-33-1
- - -------------------------------------------------------------------------------------------------
Neale 32-15-1
- - -------------------------------------------------------------------------------------------------
Nelson 13-22
- - -------------------------------------------------------------------------------------------------
Nelson M H UT H1
- - -------------------------------------------------------------------------------------------------
Nelson M H UT I1
- - -------------------------------------------------------------------------------------------------
Nelson M H UT K1
- - -------------------------------------------------------------------------------------------------
Nelson M H UT M1
- - -------------------------------------------------------------------------------------------------
Phelps 08-18
- - -------------------------------------------------------------------------------------------------
Printz 2-31
- - -------------------------------------------------------------------------------------------------
Rasmussen 44-29
- - -------------------------------------------------------------------------------------------------
</TABLE>
M-2
<PAGE> 91
WELLS NOT LISTED IN THE FERC NGPA CERTIFICATION FILE
<TABLE>
<CAPTION>
=================================================================================================
WELL NAME WELL NUMBER
=================================================================================================
<S> <C>
Sarchet 41-23-1
- - -------------------------------------------------------------------------------------------------
Shaw 12-29
- - -------------------------------------------------------------------------------------------------
Spomer 02-32
- - -------------------------------------------------------------------------------------------------
Stout 03-03
- - -------------------------------------------------------------------------------------------------
Stromberger 44-12
- - -------------------------------------------------------------------------------------------------
Stromquist Arthur 2
- - -------------------------------------------------------------------------------------------------
Uni-UPRC 15-03
- - -------------------------------------------------------------------------------------------------
Wardell 31-07-1
- - -------------------------------------------------------------------------------------------------
Wardell 32-29
- - -------------------------------------------------------------------------------------------------
Wardell 41-07
- - -------------------------------------------------------------------------------------------------
Wardell 42-29-4
- - -------------------------------------------------------------------------------------------------
Webber 32-03-2
- - -------------------------------------------------------------------------------------------------
Webber 41-03-1
- - -------------------------------------------------------------------------------------------------
Webber 42-03-3
- - -------------------------------------------------------------------------------------------------
Webster 9-32
- - -------------------------------------------------------------------------------------------------
Webster 15-32
- - -------------------------------------------------------------------------------------------------
Weninger 31-01-1
- - -------------------------------------------------------------------------------------------------
Weninger 42-01-2
- - -------------------------------------------------------------------------------------------------
Yamaguchi 33-27
=================================================================================================
</TABLE>
M-3
<PAGE> 92
EXHIBIT N
NON-FOREIGN OWNERSHIP AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a
buyer of a United States real property interest must withhold tax if the seller
is a foreign person. To inform Wattenberg Gas Investments, LLC (the "Buyer")
that withholding of tax is not required upon the disposition of a United States
real property interest owned by Orion Acquisition, Inc. (the "Seller"), the
undersigned hereby certifies the following on behalf of Seller:
1. The Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, or
foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The United States employer/taxpayer identification
number of the Seller is 93-1200453; and
3. Seller's address is:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Seller understands that this affidavit may be disclosed to the Internal Revenue
Service by the Buyer and any false statement contained herein may be punished
by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
affidavit and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of Seller.
By:
----------------------------------
Name: Annette Montoya
Title: Vice President
N-1
<PAGE> 93
Subscribed and sworn before me this 14th day of June, 1996.
--------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - -----------------------
N-2
<PAGE> 94
NON-FOREIGN OWNERSHIP AFFIDAVIT
SEE ATTACHED FORM - DR 1083
REGARDING
COLORADO REAL PROPERTY WITHHOLDING TAX
N-3
<PAGE> 95
EXHIBIT O
RATIFICATION OF OBLIGATIONS
THIS RATIFICATION OF OBLIGATIONS (this "Ratification") dated
June 14, 1996, but effective June 1, 1996 is entered into by FMR Corp., a
Massachusetts corporation ("FMR"), State Street Boston Corporation, a
Massachusetts corporation ("State Street"), Fontenelle, Inc., a Delaware
corporation and affiliate of FMR ("Fontenelle"), Bald Prairie, Inc., a Delaware
corporation and affiliate of FMR ("Bald Prairie"), and SSB Investments, Inc., a
Massachusetts corporation and affiliate of State Street ("SSBI"). FMR, State
Street, Fontenelle, Bald Prairie and SSBI are collectively referred to herein
as the "Parties," and singularly as a "Party."
Recitals
A. Fontenelle, Bald Prairie and SSBI are members (the
"Members") of Wattenberg Gas Investments, LLC, a Delaware limited liability
company ("WGI"), in accordance with the terms of the Operating Agreement of WGI
dated as of November 8, 1995, and amended and restated April 25, 1996, May 21,
1996 and June 14, 1996 (the "LLC Agreement").
B. Pursuant to Article 3 of the LLC Agreement, the
Members are obligated to make certain capital contributions with respect to
WGI.
C. WGI entered into (i) that certain Purchase and Sale
Agreement dated December 1, 1995 with HS Resources, Inc. ("HS") (the "Original
Purchase Agreement"), as amended by that First Amendment to Purchase and Sale
Agreement, Assignment, Option, Management Agreement, Gas Purchase Agreement and
Limited Power of Attorney dated April 25, 1996 (the "First Amendment"), and
(ii) that certain Purchase and Sale Agreement dated May 21, 1996 with
Wattenberg Resources Land, L.L.C. (the "WRL Agreement"), whereby WGI acquired
certain oil and gas interests located in Colorado. WGI has negotiated a
Purchase and Sale Agreement dated June 14, 1996 (including all exhibits,
schedules, related documents and conveyances, the "Agreement") with Orion
Acquisition, Inc., a Delaware corporation ("Orion") to acquire certain
additional oil and gas interests located in Colorado, as further described on
the attached Exhibit A and Exhibit B (the "Assets").
D. Pursuant to the Original Purchase Agreement,
Fontenelle and Bald Prairie executed a Contribution Agreement with WGI dated
December 14, 1995 (the "FMR Contribution Agreement"), wherein they agreed to
contribute funds to WGI in accordance with the LLC Agreement. FMR entered into
a Guaranty Agreement with WGI dated December 14, 1995 (the "FMR Guaranty")
O-1
<PAGE> 96
to guarantee the payment and performance of the obligations of Fontenelle and
Bald Prairie under the FMR Contribution Agreement.
E. Pursuant to the Original Purchase Agreement, SSBI
executed a Contribution Agreement with WGI dated December 14, 1995 (the "SS
Contribution Agreement"), wherein it agreed to contribute funds to WGI in
accordance with the LLC Agreement. By an Assignment of Contribution
Obligations dated December 14, 1995, SSBI acknowledged an assignment of the SS
Contribution Agreement from WGI to HS. State Street entered into a Guaranty
Agreement with WGI dated December 14, 1995 (the "SS Guaranty") to guarantee the
payment and performance of SSBI's obligations under the SS Contribution
Agreement. By an Assignment of Guaranty Rights dated December 14, 1995, State
Street acknowledged an assignment of the SS Guaranty from WGI to HS.
F. The Parties entered into a Ratification of
Obligations dated April 25, 1996 regarding matters covered by the First
Amendment and providing for certain amendments to the FMR Contribution
Agreement. The Parties also entered into a Ratification of Obligations dated
May 21, 1996 regarding matters covered by the WRL Agreement.
G. To induce WGI to enter into the Agreement, the
Parties desire to ratify and amend their respective obligations under the FMR
Contribution Agreement, as amended, the FMR Guaranty, the SS Contribution
Agreement and the SS Guaranty which were given with respect to the Original
Purchase Agreement, the First Amendment and the WRL Agreement and to provide
that the Assets will be covered by the terms of such documents. The Parties
desire to provide for an Assignment of Contribution Obligations and an
Assignment of Guaranty Rights, and their respective acknowledgments, if any,
thereunder, to assign such obligations and rights with respect to the Assets to
Orion and to allow for the assignment of such obligations and rights to HS.
NOW THEREFORE, in consideration of the mutual benefits the
Parties will each receive as a result of WGI entering into the Agreement, the
Parties each respectively agree as follows:
1. Ratification. The Parties hereby ratify and amend
their respective individual and joint, if any, obligations under (i) the FMR
Contribution Agreement, as amended, (ii) the FMR Guaranty, (iii) the SS
Contribution Agreement, and (iv) the SS Guaranty, as such documents apply to
the Agreement, in the same manner and to the same extent as such documents
apply to (1) the Original Purchase Agreement, as amended by the First
Amendment, and (2) the WRL Agreement.
2. Assignment of Rights. To the extent and in the
capacity so provided, the Parties agree to execute and acknowledge, as
appropriate, the Assignment of Contribution Obligations and the Assignment of
Guaranty Rights attached hereto (the "Assignments").
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3. No Conditions. Each Party represents as to itself
that (i) there are no conditions precedent to the effectiveness of this
Ratification and the Assignments that have not been satisfied or waived, (ii)
this Ratification and the Assignments have been duly authorized by all
necessary corporate action, (iii) this Ratification, and the Assignments if
applicable, is/are binding upon and enforceable against the Party, and (iv)
that the undersigned officer of the Party has determined that this
Ratification, and the Assignments if applicable, may reasonably be expected to
benefit, directly or indirectly, the Party.
4. Counterparts. This Ratification may be executed in
one or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each Party.
5. Governing Law. This Ratification shall be governed
by and construed in accordance with the law of the Commonwealth of
Massachusetts, without reference to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the Parties have caused this Ratification
to be duly executed and delivered by their respective duly authorized
representatives as of the date first written above.
FMR CORP. STATE STREET BOSTON CORPORATION
By: By:
----------------------------- -----------------------------
Name: Gary L. Greenstein Name: William M. Reghitto
Title: Vice President Title: Vice President
FONTENELLE, INC. SSB INVESTMENTS, INC.
By: By:
----------------------------- -----------------------------
Name: Gary L. Greenstein Name: Susan A. Feig
Title: Vice President Title: Vice President
BALD PRAIRIE, INC.
By:
-----------------------------
Name: Gary L. Greenstein
Title: Vice President
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<PAGE> 98
ASSIGNMENT OF CONTRIBUTION OBLIGATIONS
This Assignment of Contribution Obligations (this
"Assignment") dated June 14, 1996, and effective as of June 1, 1996, is by and
between Wattenberg Gas Investments, LLC, a Delaware limited liability company
("WGI") and Orion Acquisition, Inc., a Delaware corporation ("Orion").
1. As used herein, the term "Contribution Agreement"
shall mean the Contribution Agreement by and between SSB Investments, Inc., a
Massachusetts corporation ("SSBI") and WGI dated December 14, 1995, setting
forth the obligation of SSBI to contribute funds to WGI subject to the limits
as provided therein.
2. WGI has incurred or will incur certain obligations to
Orion under the Purchase and Sale Agreement dated June 14, 1996 between Orion
and WGI (the "Purchase Agreement").
3. WGI hereby assigns to Orion all of WGI's right, title
and interest under the Contribution Agreement with respect to the Assets
contemplated under the Purchase Agreement. SSBI hereby acknowledges the
foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of Orion and WGI and their respective successors and assigns.
Orion may assign all of its right, title and interest under this Assignment to
HS Resources, Inc., a Delaware corporation, provided that such an assignment
shall not be effective until WGI and SSBI are given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
ORION ACQUISITION, INC.
By:
-----------------------------------
Annette Montoya
Acknowledged: Vice President
SSB INVESTMENTS, INC.
By:
-------------------------------
Susan A. Feig, Vice President
O-4
<PAGE> 99
ASSIGNMENT OF GUARANTY RIGHTS
This Assignment of Guaranty Rights (this "Assignment") dated
June 14, 1996, and effective as of June 1, 1996, is by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company ("WGI") and Orion
Acquisition, Inc., a Delaware corporation ("Orion").
1. As used herein, the term "Guaranty Agreement" shall
mean the Guaranty Agreement by and between State Street Boston Corporation, a
Massachusetts corporation ("SSBC") and WGI dated December 14, 1995, setting
forth the guarantee by SSBC of the performance of the obligations of SSB
Investments, Inc., a Massachusetts corporation, under the Contribution
Agreement dated as of December 14, 1995 between SSB Investments, Inc. and WGI.
2. WGI hereby assigns to Orion all of WGI's right, title
and interest to the Guaranty Agreement with respect to the Assets covered by
the Purchase and Sale Agreement dated June 14, 1996 between WGI and Orion.
3. SSBC hereby acknowledges the foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of Orion and WGI and their respective successors and assigns.
Orion may assign all of its right, title and interest under this Assignment to
HS Resources, Inc., a Delaware corporation, provided that such an assignment
shall not be effective until WGI and SSBC are given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
ORION ACQUISITION, INC.
By:
-----------------------------------
Annette Montoya
Acknowledged: Vice President
STATE STREET BOSTON CORPORATION
By:
-------------------------------
William M. Reghitto
Vice President
O-5
<PAGE> 100
EXHIBIT P
SELLER'S OFFICER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Annette Montoya, in her capacity as Vice President of Orion Acquisition, Inc.,
who, after being duly sworn, did state as follows:
1. This certificate is being given pursuant to Section 11.9 of
that certain Purchase and Sale Agreement ("Agreement") dated
June 14, 1996 between Orion Acquisition, Inc. ("Seller") and
Wattenberg Gas Investments, LLC ("Buyer"). Unless defined
otherwise, the capitalized terms used herein shall have the
meaning set forth in the Agreement.
2. All of the representations and warranties of Seller contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Seller in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Seller has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it prior to the Closing Date.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
Subscribed and sworn before me June 14, 1996.
--------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - -----------------------
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EXHIBIT Q
Form of Opinion on Behalf of Seller
June 14, 1996
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, MA 02109
Attn: Roger D. Tullberg
Ladies and Gentlemen:
I am General Counsel to HS Resources, Inc. ("HS") and its
wholly-owned subsidiary Orion Acquisition, Inc. ("Orion") (collectively, the
"Companies" and singularly, a "Company"). In my capacity as General Counsel
for the Companies, I am familiar with the provisions of the Purchase and Sale
Agreement dated June 14, 1996 between Orion Acquisition, Inc. and Wattenberg
Gas Investments, LLC, to which HS and Orion are signatories (the "Agreement").
I have examined the Agreement, the Assignment, the Option and
the Management Agreement (as such terms are defined in the Agreement) and the
other documents and instruments affecting the Companies with respect to the
transactions contemplated by the Agreement (collectively the "Documents"), and
have made such other factual and legal investigations as I have deemed
necessary.
In examining and reviewing the Documents, I have assumed (i)
the genuineness of all signatures and (ii) the due authorization, execution,
and delivery by parties to the Documents other than the Companies.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. Each Company is a corporation duly organized and validly
existing under the laws of the State of Delaware, and is duly qualified to
carry on its business, and is in good standing, in the States of Delaware and
Colorado and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse impact on the Assets or the
transactions contemplated by the Agreement.
2. Each Company has all requisite corporate power and
authority to carry on its business as presently conducted, to execute the
Agreement and each of the documents contemplated to be executed by the Company
at Closing, and to perform its obligations under the Agreement and under such
documents. The
Q-1
<PAGE> 102
obligations of each Company contemplated by the Agreement and each of the
documents contemplated to be executed by the Company at Closing will not
violate, nor be in conflict with, (i) any provision of the Company's
certificate of incorporation, bylaws or governing documents, (ii) any material
agreement or instrument to which the Company is a party or is bound, or (iii)
any judgment, decree, order, statute, rule or regulation applicable to the
Company; provided that, the Companies have or have covenanted to use reasonable
efforts to secure (a) consents of or filings with the United States Department
of Interior or the applicable state agencies or authorities in connection with
the assignment of any federal or state leases or any interest therein
("Governmental Consents"), (b) waivers of preferential rights to purchase all
or any portion of the Assets and consents to or notices of assignment necessary
to convey all or any portion of the Assets which are not Governmental Consents,
and (c) waivers of maintenance of uniform interest provisions in applicable
operating agreements.
3. The execution, delivery and performance of the Agreement
and each of the documents contemplated to be executed by the Companies at
Closing and the transactions contemplated thereby have been duly and validly
authorized by all requisite corporate action on the part of each Company.
4. The Agreement has been duly executed and delivered on
behalf of each Company, and all documents and instruments required thereunder
to be executed and delivered by the Companies have been duly executed and
delivered. Based on and assuming the application of Colorado law, the
Agreement and the other Documents to which the Companies are signatories do and
shall, constitute legal, valid and binding obligations of the Companies
enforceable in accordance with their terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application with respect to creditors, (ii) general principles of
equity, and (iii) the power of a court to deny enforcement of remedies
generally based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter states my opinion on the points
covered if the substantive law of Colorado were applied, even though certain of
the Documents may be governed by the law of other jurisdictions. No opinion is
given as to the effect of the application of such other laws.
B. This opinion letter is rendered solely for the use
and benefit of FMR Corp., State Street Boston Corporation, their respective
affiliates, and Wattenberg Gas Investments, LLC and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without my prior
written consent.
<PAGE> 103
C. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Companies' attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
HS RESOURCES, INC.
James M. Piccone
General Counsel
<PAGE> 104
EXHIBIT R
BUYER'S MANAGER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Gary L. Greenstein, a Vice President of Fontenelle, Inc., in its capacity as
Manager of Wattenberg Gas Investments, LLC, who, after being duly sworn, did
state as follows:
1. This certificate is being given pursuant to Section 11.11 of
that certain Purchase and Sale Agreement dated June 14, 1996
("Agreement") between Orion Acquisition, Inc. ("Seller") and
Wattenberg Gas Investments, LLC ("Buyer"). Unless defined
otherwise, the capitalized terms used herein shall have the
meaning set forth in the Agreement.
2. All of the representations and warranties of Buyer contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Buyer in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Buyer has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it on or as of the Closing Date.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
Subscribed and sworn before me June 17, 1996.
--------------------------------------
Notary Public in and for
the Commonwealth of Massachusetts
Name:
My Commission Expires: Address:
- - ------------------------
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<PAGE> 105
EXHIBIT S
Form of Opinions on Behalf of Buyer
June 14, 1996
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Re: Wattenberg Gas Investments, LLC
Ladies and Gentlemen:
We have acted as special Delaware counsel to Wattenberg Gas
Investments, LLC, a Delaware limited liability company (the "Company"), in
connection with certain matters of Delaware law relating to the transactions
contemplated by the Purchase and Sale Agreement dated June 14, 1996 between
Orion Acquisition, Inc. ("Seller") and the Company (the "Purchase Agreement").
Capitalized terms used herein and not otherwise herein defined are used as
defined in the Purchase Agreement.
In rendering this opinion, we have examined and relied upon
copies of the following documents in the forms provided to us: (i) the
Operating Agreement of the Company dated effective as of November 8, 1995, as
amended and restated April 25, 1996, May 21, 1996 and June 14, 1996 (as from
time to time in effect, the "LLC Agreement"); (ii) the Certificate of Formation
of the Company as filed in the Office of the Secretary of State of the State of
Delaware (the "State Office") on November 8, 1995 (the "Certificate of
Formation"); (iii) the Certificate of Incorporation, bylaws and certain
corporate minutes of Fontenelle, Inc., a Delaware corporation and the manager
of the Company (the "Manager"); (iv) the Purchase Agreement; (v) the
Assignment, in the form attached as Exhibit C to the Purchase Agreement; (vi)
the Option, in the form attached as Exhibit D to the Purchase Agreement; (vii)
the Ratification of Obligations, in the form attached as Exhibit O to the
Purchase Agreement (the "Ratification"); (viii) the Management Agreement, in
the form attached as Exhibit T to the Purchase Agreement; (ix) the Form of
Escrow Agreement, in the form attached as Exhibit U to the Purchase Agreement;
(x) the Form of Limited Power of Attorney, in the form attached as Exhibit V to
the Purchase Agreement; (xi) the Certificate of Officer of Fontenelle, Inc. in
the form attached as Exhibit R to the Purchase Agreement (the "Buyer
Certificate; (xii) a Certificate of Officer of the Manager in the form attached
hereto as Annex I (collectively with the Buyer
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<PAGE> 106
Certificate, the "Officers Certificates"); and (xiii) certificates of good
standing of the Company and Manager issued as of a recent date by the Office of
the Secretary of State for the State of Delaware. The Purchase Agreement,
Assignment, Option, Ratification and Management Agreement are herein
collectively referred to as the "Transaction Documents." In our examination of
the documents referred to above, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as copies or
drafts of documents to be executed and the legal competence and capacity of
natural persons to complete the execution of documents. We have further
assumed for the purposes of this opinion: (i) the due formation or
organization, valid existence and good standing of each party (other than the
Company or the Manager) to the documents examined by us under the law of the
jurisdiction of its formation or organization; (ii) except to the extent
addressed by our opinion in paragraphs 2, 3 and 4 below, the due authorization,
execution and delivery of each of the documents reviewed by us by each party
thereto other than the Company; (iii) that the Transaction Documents are
governed by the law of the State of Colorado or the law of the state otherwise
designated in a Transaction Document and, under the law of Colorado or such
other state, constitute legal, valid and binding obligations of the parties
thereto, enforceable against such parties in accordance with their respective
terms; (iv) that no event or circumstance has occurred on or prior to the date
hereof that would cause a dissolution of the Company under the terms of the LLC
Agreement or the Delaware Limited Liability Company Act, 6 Del. C. Sections
18-101 et seq. (the "Delaware Act"); (v) the payment of consideration for
limited liability company interests in the Company as provided in the LLC
Agreement; and (vi) that the documents examined by us have not been
supplemented, amended or otherwise modified. We have not reviewed any
documents other than those identified above in connection with this opinion,
and we have assumed that there are no documents not reviewed by us that are
contrary to or inconsistent with the opinions expressed herein. No opinion is
expressed with respect to the requirements of, or compliance with, federal or
state securities or blue sky laws. Further, we express no view as to any
documents that are referenced in or constitute exhibits to any of the documents
reviewed by us except to the extent that such documents are identified herein
as Transaction Documents. As to any facts material to our opinion, other than
those assumed, we have relied on the above-referenced documents and on the
accuracy, as of the date hereof, of the matters therein contained. We have not
undertaken any independent investigation to determine the existence or absence
of any facts, or the accuracy of factual matters contained in the documents
reviewed by us, and we have not conducted any searches of court dockets or
other public records.
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, it is our opinion that:
S-2
<PAGE> 107
1. The Company is a limited liability company duly
formed, validly existing and in good standing under the law of the State of
Delaware. The Manager is a corporation duly organized, validly existing and in
good standing under the law of the State of Delaware.
2. The Company has requisite limited liability company
power and authority under the LLC Agreement and the Delaware Act to execute,
deliver and perform all of its obligations under the Transaction Documents to
which it is a party. The Manager has requisite corporate power and authority
under Delaware law to act as, and perform the obligation of, manager of the
Company and to cause the Company to execute and deliver, and perform its
obligations under, the Transaction Documents to which it is a party.
3. The execution, delivery and performance of the
Transaction Documents to which it is a party have been authorized by all
requisite limited liability company action on the part of the Company and by
all requisite corporate action on the part of the Manager, acting in its
capacity as manager of the Company.
4. When the Transaction Documents to which it is a party
have been executed and delivered by the Manager, the Manager acting in its
capacity as manager of and for and on behalf of the Company, the Transaction
Documents will have been duly executed and delivered on behalf of the Company.
5. The Company's execution and delivery of, and
performance under, the Transaction Documents to which it is a party do not
violate the LLC Agreement, the Certificate of Formation or the Delaware Act.
The Manager's execution and delivery of the Transaction Documents to which it
is a party for and on behalf of the Company, and the Manager causing the
Company to perform its obligations thereunder, do not violate the Certificate
of Incorporation or bylaws of Manager or, to our knowledge based solely on the
Officer Certificates, any material agreement, instrument, order, writ, judgment
or decree to which the Manager is a party or by which Manager is bound.
We understand that the firm of Davis, Graham & Stubbs LLP may
wish to rely as to matters of Delaware law on the opinions set forth above in
connection with the rendering of its opinion to you dated on or about the date
hereof concerning the Transaction Documents, and we hereby consent to such
reliance. We also consent to reliance hereon by each of the bank lenders to HS
Resources, Inc. and its wholly-owned subsidiary Orion Acquisition, Inc., for
whom The Chase Manhattan Bank, N.A. ("Chase") currently acts as Agent,
including Chase, in its individual capacity. Except as provided in the
foregoing provisions of this paragraph, the opinions herein expressed are
intended solely for the benefit of the addressees hereof in connection with the
transactions contemplated by the Transaction Documents and may not be relied
upon by any other person or
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<PAGE> 108
entity, or for any other purpose, without our prior written consent.
Very truly yours,
MORRIS, NICHOLS, ARSHT & TUNNELL
Walter C. Tuthill
S-4
<PAGE> 109
CERTIFICATE OF OFFICER
OF
FONTENELLE, INC.
Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware corporation ("Fontenelle"), Fontenelle being a member and the manager
of Wattenberg Gas Investments, LLC, a Delaware limited liability company (the
"Company"), does hereby certify on behalf of Fontenelle and the Company as
follows:
1. I am familiar with the Purchase and Sale Agreement
dated June 14, 1996 ("Purchase Agreement"), between Orion Acquisition, Inc.
("Orion") and the Company, the documents attached as Exhibits or Schedules
thereto (collectively with the Purchase Agreement, the "Orion Documents") and
the transactions contemplated thereby.
2. I am familiar with all business activities engaged in
by Fontenelle, which activities consist solely of (i) acting as a member and
the manager of the Company and causing the Company to enter into the Orion
Documents and to perform its obligations thereunder, (ii) acting as a member
and manager of TGas Investments, LLC, a Delaware limited liability company
("TGas") and, in such capacity, causing TGas to enter into a Purchase and Sale
Agreement dated as of August 1, 1995 between TGas and Dalen Resources Oil & Gas
Co. and the documents identified as Exhibits or Schedules thereto, and causing
TGas to perform its obligations under such documents, (iii) acting as a member
and manager of Natural Gas Investments, L.L.C., a Delaware limited liability
company ("NGI") and, in such capacity, causing NGI to enter into Purchase and
Sale Agreements dated as of September 1, 1995 and November 1, 1995 between NGI
and Cabot Oil & Gas Corporation and Cabot Oil & Gas Production Corporation,
respectively, and the documents identified as Exhibits or Schedules thereto,
and causing NGI to perform its obligations under such documents, (iv) acting as
a member and manager of the Company and, in such capacity, causing the Company
to enter into the Purchase and Sale Agreement dated as of December 1, 1995, and
a First Amendment to Purchase and Sale Agreement, Assignment, Option,
Management Agreement, Gas Purchase Agreement and Limited Power of Attorney
dated April 25, 1996, between the Company and HS Resources, Inc. and the
documents identified as Exhibits or Schedules thereto, and causing the Company
to perform its obligations under such documents, (v) acting as a member and
manager of DJ Gas Investments, LLC, a Delaware limited liability company
("DJGI") and, in such capacity, causing DJGI to enter into (1) the Purchase and
Sale Agreement dated as of March 12, 1996 between DJGI and SOCO Wattenberg
Corporation, and (2) the Purchase and Sale Agreement dated as of March 12, 1996
between DJGI and Snyder Oil Corporation, and the documents identified as
Exhibits or Schedules thereto, and causing DJGI to perform its obligations
under such documents, and (vi) acting as a member of the Company, and in such
capacity, causing the Company to enter
S-5
<PAGE> 110
into a Purchase and Sale Agreement dated May 21, 1996, between the Company and
Wattenberg Resources Land, L.L.C. and the documents identified as Exhibits or
Schedules thereto, and causing the Company to perform its obligations under
such documents.
3. The execution, delivery and performance by Fontenelle
of the Orion Documents to which it is a party will not violate any agreement,
instrument, order, writ, judgment or decree to which Fontenelle is a party or
by which it is bound.
4. Fontenelle's execution and delivery of the Orion
Documents for and on behalf of the Company, and Fontenelle serving as manager
of the Company and causing the Company to perform its obligations under the
Orion Documents to which it is a party, will not violate any agreement,
instrument, order, writ, judgment or decree to which Fontenelle is a party or
by which it is bound.
5. Fontenelle continues as the manager of the Company
and has not been removed as such pursuant to Section 8.1 of the Operating
Agreement of the Company dated as of November 8, 1995, as amended and restated
effective April 25, 1996, May 21, 1996 and June 12, 1996.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Officer, effective June 1, 1996.
--------------------------------------
Gary L. Greenstein
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June 14, 1996
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Re: Wattenberg Gas Investments, LLC
Ladies and Gentlemen:
I am Associate General Counsel to FMR Corp. ("FMR"). In my
capacity as Associate General Counsel, I am familiar with the transactions
contemplated by the Purchase and Sale Agreement dated June 14, 1996 (the
"Agreement") between Orion Acquisition, Inc. and Wattenberg Gas Investments,
LLC ("WGI"). Any capitalized terms used herein which are not defined herein
shall have the meanings given to them in the Agreement.
I have examined the Agreement, the Ratification of Obligations
(the "Ratification") and the other documents and instruments associated with
the closing (the "Closing") of the transactions contemplated by the Agreement,
and have made such other factual and legal investigations as I deemed
necessary.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. FMR is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, is duly qualified
to carry on its business, and is in good standing in the Commonwealth of
Massachusetts and in each jurisdiction in which the failure to so qualify would
have a material adverse impact on FMR's ability to fulfill its obligations
under the Ratification.
2. FMR has all requisite corporate power and authority
to carry on its business as presently conducted, to enter into the Ratification
and to perform its obligations under the Ratification. The consummation of the
transactions contemplated by the Ratification and any other collateral
documents to be executed by FMR at Closing will not violate, nor be in conflict
with, (i) any provision of its articles of incorporation, bylaws or governing
documents, (ii) any material agreement or instrument to which FMR is a party or
is bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to FMR.
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3. The execution, delivery and performance of the
Ratification and any collateral documents to be executed by FMR at Closing and
the transactions contemplated thereby have been duly and validly authorized by
all requisite corporate action on the part of FMR.
4. All documents and instruments required to be executed
and delivered by FMR under the Agreement have been duly executed and delivered
on behalf of FMR. Such documents and instruments do and shall, constitute
legal, valid and binding obligations of FMR, enforceable in accordance with
their terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy.
The Opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Orion Acquisition, Inc. and their lender
banks, including The Chase Manhattan Bank, N.A., and their respective counsel
in connection with the transactions contemplated by the Agreement and may not
be relied upon by any other person or for any other purpose without my prior
written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my
attention or to the attention of FMR subsequent to the date hereof and that may
affect the opinions expressed herein, including, without limitation, future
changes in applicable law.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
D. I have made such examination of law as in my judgment
is necessary or appropriate for purposes of this opinion. I am a member of the
bar of the Commonwealth of Massachusetts. I do not express any opinion herein
with respect to the law of any jurisdiction other than the law of the
Commonwealth of Massachusetts and the law of the United States of America.
Very truly yours,
FMR CORP.
Jay Freedman
Associate General Counsel
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June 14, 1996
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Ladies and Gentlemen:
I am Counsel to SSB Investments, Inc. (the "Company") and to
State Street Boston Corporation (the "Guarantor"). The Company is a member of
Wattenberg Gas Investments, LLC, a Delaware limited liability company ("WGI").
In my capacity as Counsel for the Company and Guarantor, I have examined the
Operating Agreement for WGI dated effective as of November 8, 1995, as amended
and restated April 25, 1996, May 21, 1996 and June 14, 1996 (the "LLC
Agreement"), the Ratification of Obligations dated June 14, 1996, the
Assignment of Contribution Obligations dated June 14, 1996, and the Assignment
of Guaranty Rights (collectively, the "Documents"), and have made such other
factual and legal investigations as I have deemed necessary.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase and Sale Agreement dated June 14, 1996 between Orion Acquisition,
Inc. ("Orion") and WGI (the "Purchase Agreement") or on the Assets as defined
therein.
2. The Company has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
LLC Agreement, the Ratification of Obligations and the Assignment of
Contribution Obligations and to perform its obligations contemplated under such
documents. The consummation of the transactions contemplated by the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
Obligations will not violate, nor be in conflict with, (i) any provision of the
Company's Certificate of Incorporation, bylaws or governing documents, (ii) any
material agreement or instrument to which the Company is a party or is bound,
or (iii) any
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judgment, decree, order, statute, rule or regulation applicable to the Company.
3. The execution, delivery and performance of the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
Obligations have been duly and validly authorized by all requisite corporate
action on the part of the Company.
4. The LLC Agreement, the Ratification of Obligations and the
Assignment of Contribution Obligations have been duly executed and delivered on
behalf of the Company.
5. The Guarantor is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase Agreement or on the Assets as defined therein.
6. The Guarantor has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
Ratification of Obligations and the Assignment of Guaranty Rights and to
perform its obligations under such documents. The consummation of the
transactions contemplated by the Ratification of Obligations and the Assignment
of Guaranty Rights will not violate, nor be in conflict with, (i) any provision
of the Guarantor's Certificate of Incorporation, bylaws or governing documents,
(ii) any material agreement or instrument to which the Guarantor is a party or
is bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to the Guarantor.
7. The execution, delivery and performance of the
Ratification of Obligations and the Assignment of Guaranty Rights and the
transactions contemplated thereby have been duly and validly authorized by all
requisite corporate action on the part of the Guarantor.
8. The Ratification of Obligations and the Assignment of
Guaranty Rights have been duly executed and delivered on behalf of the
Guarantor and does and shall, constitute the legal, valid and binding
obligation of the Guarantor enforceable in accordance with their terms, subject
to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Orion and their lender banks,
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including The Chase Manhattan Bank, N.A., and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without my prior
written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Company's attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
SSB INVESTMENTS, INC.
STATE STREET BOSTON CORPORATION
Charles C. Cutrell, III
Counsel
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June 14, 1996
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Ladies and Gentlemen:
We are counsel to Wattenberg Gas Investments, LLC, a Delaware
limited liability company (the "Company"). In our capacity as counsel for the
Company, we are familiar with the transactions contemplated by the Purchase and
Sale Agreement dated as of June 14, 1996 (the "Agreement") between Orion
Acquisition, Inc. (the "Seller") and the Company as the Buyer. Any capitalized
terms used herein which are not defined herein shall have the meanings given to
them in the Agreement.
We have examined the Agreement, the Assignment, the Option,
the Management Agreement and the Ratification of Obligations, as such terms are
defined in the Agreement (collectively the "Documents"). We have reviewed and
are relying on the opinion to the Seller dated June 14, 1996 of Morris,
Nichols, Arsht & Tunnell, special Delaware counsel of the Company, and we have
made such other factual and legal investigations as we have deemed necessary.
In addition, in rendering this opinion we have examined and relied upon
certificates of the Manager of the Company with respect to certain factual
matters.
In examining and reviewing the Documents, we have assumed (i)
the genuineness of all signatures; (ii) the conformity to originals of all
documents submitted to us as copies; (iii) the authenticity of all original
documents of which we have received copies; (iv) the due authorization,
execution, and delivery by the Seller of the Agreement and the other Documents
to which it is a signatory; and (v) that the Documents to which the Seller is a
signatory are binding on and enforceable against the Seller.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, we are of the opinion that
the Documents to which the Company is a signatory are binding on and
enforceable against the Company by the Seller or by other signatories thereto,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors'
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rights generally and to the assumption that enforcement of remedies will be
undertaken in good faith and in a commercially reasonable manner and subject,
as to enforceability, to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or law.
The opinion expressed in this letter is subject to the
following qualifications and limitations:
A. The opinion expressed in this letter is limited
solely to the law of the State of Colorado and applicable federal law of the
United States of America.
B. This opinion letter is rendered solely for the use
and benefit of Seller, HS Resources, Inc. and their lender banks, including
The Chase Manhattan Bank, N.A., and their respective legal counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without our prior
written consent.
C. This opinion letter is rendered as of the date
hereof. We do not undertake to advise you of matters that may come to our
attention subsequent to the date hereof and that may affect the opinions
expressed herein.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
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EXHIBIT T
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement"), dated effective
as of June 1, 1996 (the "Effective Date"), is by and between Wattenberg Gas
Investments, LLC, a Delaware limited liability company, (the "Company" or
"WGI") and HS Resources, Inc., a Delaware corporation ("HS" or "Manager")
(collectively, the "Parties"). Orion Acquisition, Inc., a Delaware corporation
("Orion"), is a wholly-owned subsidiary of HS.
RECITALS
A. The Company owns certain working interests and
overriding royalty interests in oil and gas leases and wells, as identified on
the attached Exhibits A and B, respectively (collectively, the "Assets");
B. Manager has the resources and expertise necessary to
operate and manage the Assets and to provide management services to the Company
as set forth in this Agreement (collectively, the "Services" as defined in
Article 2 below); and
C. The Company desires to retain Manager to provide such
Services and Manager desires to provide such Services, all pursuant to the
terms of this Agreement.
AGREEMENT
In consideration for the Parties entering other agreements
concurrently herewith and the mutual promises hereunder, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
All capitalized terms used herein without definition shall
have the have the meaning given in the Wellbore Assignment of Oil and Gas
Leases with Reservation of Production Payment dated June 14, 1996, between
Orion and the Company (the "Assignment"), or in the case of the terms "IRC,"
"Post-Effective Date Liabilities" and "Losses," in the Purchase and Sale
Agreement dated June 14, 1996, by and between Orion and the Company (the
"Purchase Agreement").
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ARTICLE 2
SERVICES
2.1 Subject to Section 2.2 hereof, the constraints of
applicable operating and other agreements to which all or any portion of the
Assets are now or hereafter subject and the other terms of this Agreement,
Manager agrees to and shall have the exclusive right and authority to manage
the Assets for and on behalf of the Company, such management to include,
without limitation, performance of the following management functions (the
"Services"):
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed, conditioned, marketed,
delivered, transported or sold) gas, oil and related hydrocarbons produced by
the Company from the Assets, and pay or cause to be paid all royalties,
production payments (including, without limitation, the Production Payment),
net profits interests and all other such payment obligations arising in
connection with the Assets or the production of hydrocarbons therefrom;
provided, however, that Manager shall obtain the approval of the Company to
enter into any sales or marketing agreements which have terms of one year or
greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly constituted
federal or state regulatory body), and local laws, ordinances, rules,
regulations and orders applicable to the Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or cause to be
implemented and completed, any remedial, removal or other response action
required on the Assets under applicable environmental laws, with such actions
to be implemented and completed in accordance with customary industry practices
and in compliance with applicable environmental laws.
(e) Inform the Company of any pending or
threatened action or investigation of which Manager receives written notice and
which Manager believes in good faith could have a material adverse effect on
the Assets, including all actions initiated or investigations threatened by a
third party or governmental authority under applicable environmental laws.
(f) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of the Assets in
material compliance with applicable environmental laws and to initiate and
complete any remedial, removal or other response actions required under
applicable environmental laws in response to any release of a hazardous
substance on the Assets.
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(g) Employ or contract for the services of any
Person required by Manager, in its reasonable discretion, to assist Manager in
the performance of any of its duties and responsibilities under this Agreement,
including, without limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as Manager deems
advisable, in its reasonable discretion, from any Person.
(h) Except for payment of the Production Payment,
pay and perform all obligations of the Company which relate to the Assets,
including, without limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of all money to
which it becomes entitled pursuant to the Assignment, and payment to third
parties, on behalf of the Company, of working interest expenses attributable to
the Assets.
(i) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with respect to all such
insurance, cause the Company to be named as an additional insured party on all
such insurance policies.
(j) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits, applications,
requests or regulatory documents or instruments relating to the Assets.
(k) Establish and maintain all bank accounts,
books and records, capital accounts, the Net Profits Account and other accounts
as are required or convenient to operate the Assets.
(l) Perform all accounting and reporting as
required by the Assignment, the Purchase Agreement, and any other agreement
relating to the Assets and to which the Company is subject; provided, however,
for purposes of this Agreement, the Operating Agreement for Wattenberg Gas
Investments, LLC dated effective as of November 8, 1995, as amended and
restated April 25, 1996, May 21, 1996 and June 14, 1996, shall not be deemed to
be an agreement relating to the Assets to which the Company is subject; and
provided further that Manager shall not adopt an entitlement accounting method
for gas imbalances that causes the parties subject to the imbalance to be
treated as a partnership for federal income tax purposes.
All accounting and reporting shall be performed in
accordance with the provisions of this Agreement, consistently applied. Such
accounting and reporting may initially be performed based on estimated figures,
and subsequently based on actual figures. Beginning with the partial calendar
quarter commencing on June 1, 1996, and every applicable calendar quarter
thereafter, Manager shall prepare and furnish to the Company within 60 days
after the end of each calendar quarter a Quarterly Report. "Quarterly Report"
shall mean a report detailing gas
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production and sales from the Assets attributable to the Wells for the most
recent calendar quarter. Such Quarterly Report shall include (1) an accounting
of the Net Profits Account, including a summary of all credits and debits, and
Production Payments determined in accordance with the Assignment, (2) an
accounting of the Company's share of all tax credit qualified gas sales and
production, total gas sales and production attributable to the Assets and
produced from the Wells, and (3) all other information necessary and sufficient
for the Company to calculate and verify Expense Amounts.
On or before March 15th of each year, with respect to
the preceding calendar year, Manager shall furnish to the Company a report
(referred to herein as the "Annual Report"), based upon mutually agreeable
procedures, of (1) the Net Profits Account, including all credits and debits,
and all Production Payments determined in accordance with the Assignment, (2)
the Company's share of all tax credit qualified gas sales and production, total
gas sales and production attributable to the Assets and produced from the
Wells, (3) credits under IRC Section 29 which are attributable to the Assets,
(4) Expense Amounts determined in accordance with this Agreement, and (5) all
other information necessary and sufficient for the Company to calculate and
prepare its tax return for such year. If the production figures reported by
Manager are amended by it or other producers subsequent to Manager furnishing
an Annual Report to the Company, an amended Annual Report for the affected time
period shall be furnished to the Company within 60 days after the end of a
calendar quarter during which Manager received the amended production figures.
Notwithstanding the immediately foregoing, Manager shall have no obligation to
amend a prior Annual Report if the applicable period of limitations for the
Internal Revenue Service to make assessments with respect to the year in
question has expired.
(m) Calculate, supply adequate substantiation,
and invoice the Company for the Expense Amounts determined in accordance with
this Agreement and the Production Payment determined in accordance with the
Assignment.
If the production information is amended after an
Expense Amount or Production Payment for any given quarter has been calculated,
the Expense Amount and/or the Production Payment for that quarter shall be
recalculated using the amended information (the "Amended Payment Amount").
Manager shall invoice the Company for all Expense
Amounts and Production Payments within 60 days after the end of each calendar
quarter, or partial calendar quarter, and the receipt of all supporting data.
Manager shall invoice the Company for all Amended Payment Amounts within 60
days after the end of the quarter during which Manager received the amended
production information from Orion or other producers.
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(n) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the Purchase Agreement).
(o) Receive and collect all revenues and income
attributable to the Assets, including, without limitation, all Gross Proceeds
and Other Income; the parties understand that all Expense Amounts are deemed
not to be revenues and income attributable to the Assets for the purposes of
this subsection (o), however, submitting invoices and sufficient supporting
documentation to the Company for Expense Amounts is a required obligation of
Manager under this Agreement.
(p) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and agreements affecting
the Assets which Manager believes are necessary or desirable in connection with
the ownership, development, operation, production and maintenance of the Assets
or to perform any of the Services hereunder; provided, however, that Manager
shall obtain the approval of the Company to enter into any such contract or
agreement which has a cost exceeding $25,000 per well (or per separately owned
formation within a well), net to the interest of the Company. Unless Manager
obtains the prior approval of the Company, Manager shall not intentionally
undertake or approve any of the Services described in this Section 2.1(p) if
any such Services will exceed by more than 10% the cost levels or estimates
upon which the Company's approval was based.
(q) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits, mediations,
arbitrations and other forms of dispute resolutions and other proceedings which
relate in any way to the Assets or the Services performed pursuant to this
Agreement; provided, however, that Manager shall obtain the approval of the
Company to settle any claim, demand, cause of action or other proceeding if the
cost exceeds $25,000 per well, net to the interest of the Company.
(r) Serve as the Company's representative as to all
hearings, proceedings, filings, permits, bonds, licenses or such other similar
matters as they relate to the drilling of sidetrack wellbores from the Wells
and which relate to any governmental, quasi-governmental or regulatory body or
agency (other than the Internal Revenue Service), and to execute all
applications, permits, orders, consents, waivers and agreements, as such relate
to the Wells with respect to such body or agency. Should a conflict arise
between the interests of Manager and the Company regarding the foregoing
matters, Manager shall advise the Company of (i) any such conflict, and (ii)
Buyer's right to represent itself with respect to such matters.
(s) All other acts and things as are necessary to
carry out Manager's responsibilities under this Agreement.
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If Manager is not at any time the operator of a particular portion of the
Assets, the obligations of Manager under this Agreement with respect to such
portion of the Assets shall be construed to require only that Manager use its
reasonable best efforts to cause the operator of such portion of the Assets to
take such actions or render such performance within the constraints of the
applicable contracts.
2.2 Determination and Payment of the Expense Amount.
(a) The Parties anticipate that the aggregate of (i)
Gross Proceeds and Other Income from the Assets and (ii) the Expense Amount (as
hereinafter defined) (collectively, the "Aggregate Amount") will be sufficient
to perform all of the Services hereunder. Unless Manager obtains the prior
approval of the Company and except for emergency situations, Manager will not
undertake or approve Services or operations on the Assets that in any instance
are anticipated to involve costs and expenses exceeding the Aggregate Amount
for such period when such costs and expenses are payable and which excess costs
and expenses cannot reasonably in good faith be expected to be recouped from
the Aggregate Amount from a subsequent period or periods. If Manager
reasonably in good faith anticipates that costs and expenses which will need to
be incurred during a particular period in order to perform the Services
hereunder for such period will exceed the Aggregate Amount for that same
period, and that the excess of costs and expenses over the Aggregate Amount
cannot reasonably in good faith be expected to be recouped from the Aggregate
Amount from a subsequent period or periods, then Manager shall forward to the
Company a timely request for the amount of funds required for Manager to timely
perform such Services, together with documentation supporting Manager's
request. The Company shall respond to Manager's request on or before 10
business days after receipt of such request. If the Company in its reasonable
and sole discretion elects to grant Manager's request, Manager will undertake
such Services or operations on the Assets and the Company shall pay to Manager
the funds required for Manager to timely perform such Services, with the
Company to recoup all such funds out of the revenues and income collected by
Manager pursuant to Section 2.1(o) and amounts payable by the Company pursuant
to Section 2.2(b) on a schedule to be determined by the Parties.
(b) The Company recognizes and agrees that for any
Payment Period during which credits are available to the Company under IRC
Section 29 from the production of "qualified fuels" (within the meaning of IRC
Section 29) from the Assets, the Gross Proceeds and Other Income from the
Assets attributable to such Payment Period after reduction for funds necessary
to satisfy the Production Payment payable to Orion for such period will be
insufficient to pay "all expenses attributable to the Assets," which shall
mean, for the purposes of this Agreement, all debits made to the Net Profits
Account as set forth in Section 4.3 of the Assignment for such Payment Period.
The
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Company hereby agrees to pay all such excess costs and expenses for any Payment
Period (the "Expense Amount") from sources other than Gross Proceeds and Other
Income from the Assets. The Company's obligation to fund Expense Amounts shall
survive the termination of this Agreement for any reason.
2.3 The Company hereby covenants and agrees with Manager
as follows:
(a) All revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company pursuant to
Section 2.2(b) shall be used by Manager to perform the Services hereunder.
(b) Any Person is entitled to rely on this
Agreement as granting to Manager the power and authority to manage the Assets
and to perform the Services on behalf of the Company. In order to allow
Manager to carry out its duties and to exercise its powers hereunder, the
Company has executed a Memorandum of Management Agreement and Power of Attorney
(the "Power of Attorney") in the form set forth on Schedule 1. The Company
shall execute such counterparts of the Power of Attorney as are necessary to
carry out the purpose of this Agreement and to evidence that Manager has the
power and authority to manage the Assets and to perform the Services on behalf
of the Company. The Company and Manager acknowledge that, for purposes of
administrative convenience, certain limitations on the authority of Manager
which are set forth in this Agreement are not set forth in the Power of
Attorney, and that this circumstance shall not result in any expansion in the
authority of Manager. The Company shall, for all purposes of this Agreement,
be deemed to have elected to participate in any actions properly taken by
Manager in accordance with the Power of Attorney.
ARTICLE 3
PERFORMANCE OF SERVICES
Manager agrees to use reasonable best efforts to perform all
of the Services in a reasonable prudent and timely manner consistent with good
oil field and business practices.
ARTICLE 4
FEES AND EXPENSES
4.1 Management Fee. Commencing on the Effective Date and
continuing throughout the term of this Agreement, the Company shall pay Manager
a fee of $2500 per month (the "Management Fee"). The Management Fee is
intended to reimburse Manager for all of its corporate level internal
administrative expenses incurred in managing the Assets. The Management Fee
does not cover and the Manager shall pay all COPAS overhead charges payable to
any Person (including Manager) with respect to the
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Assets under any applicable operating or other agreements, in accordance with
Section 2.1(h) as part of the Company's obligations relating to the Assets.
With respect to any Well which is not covered by an operating agreement,
Manager shall charge the Company and pay to itself out of the revenue and
income collected by it pursuant to Section 2.1(o) above or paid to it pursuant
to Section 2.2(b), a monthly overhead charge of $350 per Well; provided,
however that such well rate shall be adjusted in the manner provided in
Paragraph 1(A)(3) of Section III of the 1985 COPAS Accounting Procedure.
4.2 Expenses Attributable to the Assets. As the owner of the
Assets, the Company is obligated to pay the expenses associated with the Assets
and it is recognized and agreed that during each Payment Period for which a
Credit Payment Amount is due, the Company must fund the Expense Amount from
sources other than Gross Proceeds and Other Income from the Assets during such
Payment Period. In connection with providing the Services, if and to the
extent that Manager pays or advances expenses associated with the Assets on
behalf of the Company, the Company agrees to reimburse Manager for such
expenses as follows: Within 60 days following the end of each Payment Period,
Manager shall invoice the Company for that portion of the Expense Amount paid
by Manager on behalf of the Company (the "Reimbursable Expense Amount").
(a) The Company agrees to pay each Reimbursable
Expense Amount to Manager within 15 days following its receipt of an invoice
therefor from Manager. On any past due Reimbursable Expense Amount, the
Company agrees to pay (i) interest at the Agreed Rate (defined below) from the
date on which such Reimbursable Expense Amount is due until the date on which
such Reimbursable Expense Amount is paid, and (ii) an additional amount equal
to the amount, if any, of all interest paid to the Company under the
Contribution Agreements on any contributions that were not timely made. The
term "Agreed Rate" shall mean the annual rate of interest equal to the lesser
of (i) the prime rate in effect at The Chase Manhattan Bank, N.A. (or its
successor, or if such bank no longer exists, the U.S. prime rate generally
recognized in the financial media from time to time) and (ii) the maximum rate
of interest allowed by applicable law.
(b) Each invoice delivered by Manager to the Company
pursuant to this Section 4.2 shall include the calculation of the expenses
which are the subject thereof, together with supporting documentation.
ARTICLE 5
INDEMNIFICATION
5.1 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including
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the officers, employees, agents, administrators and representatives of such
members; from and against all Losses which arise directly or indirectly from or
in connection with Manager's breach of its duties or obligations under this
Agreement; provided that the Company is not in material default under the terms
and conditions of this Agreement and does not remain in material default under
the terms and conditions of this Agreement after Manager has given the Company
written notice of such material default and given the Company a reasonable
amount of time to cure such material default; and provided further, Manager's
indemnity obligations under the terms of this Agreement shall not extend to any
Losses which arise or result directly or indirectly from or in connection with
the Company's gross negligence, willful misconduct, and/or material
non-compliance with its obligations under this Agreement if the Company
continues to be in material non-compliance with its obligations under this
Agreement after Manager has given the Company written notice of material
non-compliance and given the Company a reasonable amount of time to cure said
material non-compliance or correct the results of the Company's gross
negligence or willful misconduct.
5.2 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all losses
which arise directly or indirectly from or in connection with Post-Effective
Date Liabilities involving environmental matters, to the extent that Orion or
Manager, or their successors and assigns, is jointly liable with the Company
and such environmental matters are attributable to the period of time during
which this Agreement is in force and effect. Orion shall be responsible for
and liable for all costs, expenses, liabilities and obligations accruing or
relating to the owning, operating, or maintaining of the Assets or the
producing, transporting and marketing of hydrocarbons from the Assets relating
to periods before the Effective Date in accordance with Section 13.2 of the
Purchase Agreement.
ARTICLE 6
ASSIGNMENT
This Agreement may be assigned by the Company with the prior
written consent of Manager, which consent shall not be unreasonably withheld.
Without the prior written consent of the Company, the accounting functions to
be performed by Manager hereunder and Manager's indemnity obligations hereunder
may not be assigned and shall remain the obligations of Manager. With respect
to all of the other rights, authority, duties and obligations, this Agreement
may be assigned by Manager in whole or in part at the same time and to the same
extent the Production Payment may be assigned by Orion pursuant to the
Assignment.
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Upon any such assignment of this Agreement and except for the indemnity
obligations and accounting obligations of Manager, Manager shall have no
further liability to the Company with respect to any obligations or duties
accruing following the effective date of such assignment as to the portion of
the Agreement so assigned.
ARTICLE 7
TERM / TERMINATION
7.1 This Agreement shall be effective for the period from the
Effective Date until June 1, 1997. Thereafter, this Agreement shall continue
on a year-to-year basis, but may be terminated by either party upon 90 days
written notice to the other party. Notwithstanding the foregoing, if the
Internal Revenue Service ("IRS") publishes a Revenue Procedure or other
guidance in the IRS Cumulative Bulletin allowing for a longer term with respect
to management agreements contemplated under a transaction essentially similar
to the Purchase Agreement, the Company and Manager agree to extend the term of
this Agreement in accordance with such guidance, but in no event shall the term
of this Agreement extend beyond January 1, 2005. This Agreement shall not be
applicable to any portion of the Assets as to which Orion has effected a
partial exercise of the Option.
7.2 If Manager is in breach of its obligations set forth in
Article 3, and the Company is materially damaged as a result of such breach,
the Company shall so inform Manager in writing of such breach (an "Event of
Default"). Thereafter, Manager shall have 30 days in which to cure the Event
of Default or such longer period of time as is reasonably necessary under the
circumstances so long as Manager undertakes to commence the cure of such Event
of Default within such 30-day period and such cure is diligently prosecuted
thereafter. If Manager does not cure the Event of Default within that time
frame, the Company, at its sole option and discretion, may terminate this
Agreement, and retain any legal and equitable rights and remedies it may have
against Manager on account of such breach.
ARTICLE 8
MISCELLANEOUS
8.1 This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
of the Parties and delivered to the other.
8.2 This Agreement shall be governed by and construed in
accordance with the law of the State of Colorado without reference to the
conflict of laws provisions thereof.
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8.3 All notices hereunder shall be sufficiently given for
all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
by United States mail, telecopy, telefax or other electronic transmission
service to the appropriate address as set forth below.
If to Manager:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
with a copy to:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Company:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Fax: (617) 476-6248
Telephone: (617) 563-4791
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
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or at such other address and to the attention of such other person as such
Party may designate by written notice to the other Party.
8.4 Notwithstanding anything herein provided to the
contrary, the Company shall be deemed to have given its approval to Manager for
any matter requiring the Company's approval if the Company fails to deny its
approval to Manager within 7 days of receipt from Manager of a request for
approval under this Agreement, or within such shorter time period if the
situation requires Manager to act before the 7-day period has expired and
Manager notifies Company of such shorter time frame.
8.5 Subject to Article 6 hereof, this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors and assigns. Further, this Agreement, and the rights and
obligations hereunder, shall be a covenant running with the lands attributable
to the Assets.
8.6 This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the Parties. Any party
hereto may, only by an instrument in writing, waive compliance by another Party
with any term or provision of this Agreement on the part of such other Party to
be performed or complied with. The waiver by any Party of a breach of any term
or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
8.7 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 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.
8.8 In addition to any other remedy which Manager may
enjoy under this Agreement, at law or in equity, Manager shall have the right
to seek and enforce the remedy of specific performance by the Company of its
obligations under this Agreement.
8.9 The provisions of Section 2.2 and of Article 5 shall
survive the termination of this Agreement for any reason with respect to
liabilities or obligations under such provisions that accrue or arise during
the period of time that this Agreement, including any amendments, replacements
or renewals of this Agreement, is valid and in effect.
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8.10 This Agreement is not intended to create, and shall
not be construed to create, a relationship of partnership or an association for
profit between Manager and the Company.
8.11 The Parties agree not to record this Management
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first above written.
Wattenberg Gas Investments, LLC
By: Its Manager, Fontenelle, Inc.
By:
----------------------------
Name: Gary L. Greenstein
Title: Vice President
HS Resources, Inc.
By:
----------------------------------
Name: Annette Montoya
Title: Vice President
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SCHEDULE 1
MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
This MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
(this "Power of Attorney") is dated as of June 14, 1996 and effective as of
June 1, 1996 (the "Effective Date"), and is executed by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company having an office at
82 Devonshire Street, R22C, Boston, Massachusetts 02109 (the "Company") and HS
Resources, Inc., a Delaware corporation, having an office at 1999 Broadway,
Suite 3600, Denver, Colorado 80202 (the "Manager") (collectively, the
"Parties"). Orion Acquisition, Inc., a Delaware corporation ("Orion"), is a
wholly-owned subsidiary of Manager.
The Parties hereby give notice that they entered into a
Management Agreement dated June 14, 1996 (the "Agreement"), whereby the Company
contracted with Manager for Manager to perform certain operating and management
services relative to the lands and leases identified on Exhibit A and to the
wells identified on Exhibit B (collectively, the "Assets" as further defined in
that Purchase and Sale Agreement dated June 14, 1996 between the Parties (the
"Purchase Agreement")). The Company does hereby appoint and constitute Manager
as its duly authorized Attorney-in-Fact with the powers and obligations set
forth herein. Manager may present this Power of Attorney to any third party as
evidence of its authority to perform the duties and obligations of Manager
under the Agreement.
Manager has agreed to manage the Assets for and on behalf of
the Company, by performing certain management services, as limited and
described in more detail in the Agreement (the "Services").
Effective as of the Effective Date, the Company does hereby
revoke all prior powers of attorney granted in connection with the following
matters and does hereby appoint and constitute Manager as its duly authorized
Attorney- in-Fact with power and authority for the Company and in its name,
place and stead to execute, acknowledge and deliver such instruments as Manager
deems necessary or convenient in connection with the following matters relating
to real or personal property constituting the Assets:
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed,
conditioned, marketed, delivered, transported or sold) gas,
oil and related hydrocarbons produced by the Company from the
Assets, and pay or cause to be paid
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all royalties, production payments, net profits interests and
all other such payment obligations arising in connection with
the Assets or the production of hydrocarbons therefrom;
provided, however, that Manager shall obtain the approval of
the Company to enter into any sales or marketing agreements
which have terms of one year or greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly
constituted federal or state regulatory body), and local laws,
ordinances, rules, regulations and orders applicable to the
Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or
cause to be implemented and completed, any remedial, removal
or other response action required on the Assets under
applicable environmental laws, with such actions to be
implemented and completed in accordance with customary
industry practices and in compliance with applicable
environmental laws.
(e) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of
the Assets in material compliance with applicable
environmental laws and to initiate and complete any remedial,
removal or other response actions required under applicable
environmental laws in response to any release of a hazardous
substance on the Assets.
(f) Employ or contract for the services of any
person required by Manager, in its reasonable discretion, to
assist Manager in the performance of any of its duties and
responsibilities under the Agreement, including, without
limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as
Manager deems advisable, in its reasonable discretion, from
any person.
(g) Pay and perform all obligations of the
Company which relate to the Assets, including, without
limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of
all money to which it becomes entitled, and payment to third
parties, on behalf of the Company, of working interest
expenses attributable to the Assets.
(h) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with
respect to all such insurance, cause the Company
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to be named as an additional insured party on all such
insurance policies.
(i) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits,
applications, requests or regulatory documents or instruments
relating to the Assets.
(j) Establish and maintain all bank accounts,
books and records, capital accounts, Net Profits Account and
other accounts as are required or convenient to operate the
Assets.
(k) Perform all accounting and reporting related
to the Assets.
(l) Calculate and invoice the Company for
amounts due under the Purchase Agreement.
(m) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the
Purchase Agreement and the Operating Agreement of the
Company).
(n) Receive and collect all revenues and income
attributable to the Assets.
(o) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and
agreements affecting the Assets which Manager believes are
necessary or desirable in connection with the ownership,
development, operation, production and maintenance of the
Assets or to perform any of the Services under the Agreement.
(p) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits,
mediations, arbitrations and other forms of dispute
resolutions and other proceedings which relate in any way to
the Assets or the Services performed pursuant to the
Agreement.
(q) Act on behalf of and bind the Company with
respect to all hearings, proceedings, filing, permits, bonds,
licenses or such other similar matters as they relate to the
Assets (including, but not limited to the drilling of
sidetrack wellbores from the Wells) or a portion thereof and
which relate to any governmental, quasi-governmental or
regulatory body or agency (other than the Internal
Revenue Service), and to execute all applications, permits,
orders, consents, waivers and agreements, as such relate to
the Assets or a portion thereof, with respect such body or
agency.
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<PAGE> 134
(r) Exercise on behalf of the Company the right to not
participate or to non-consent any proposal.
(s) Pool or unitize the Company's interests in the
Assets.
(t) All other acts and things as are necessary to carry
out Manager's responsibilities under the Agreement.
The powers herein conferred shall extend to all acts and transactions
described in (a) - (t) above affecting the Assets and extend to all forms of
interests in the Assets. This Power of Attorney is irrevocable by the Company
and is coupled with an interest in the lands covered by the Assets for the
period from the Effective Date until the Agreement is terminated. If Orion
elects to exercise its rights under the Option to Purchase Oil and Gas
Interests dated June 14, 1996 between the Company and Orion (the "Option"),
this Power of Attorney shall no longer be effective as to the Assets on which
Orion has exercised the Option.
If Manager is not at any time the operator of a particular portion of
the Assets, the obligations of Manager under the Agreement with respect to such
portion of the Assets shall be construed to require only that Manager use
reasonable best efforts to cause the operator of such portion of the Assets to
take such actions or render such performance within the constraints of the
applicable contracts.
Manager shall use reasonable best efforts to perform the Services in a
reasonable and prudent manner consistent with good oil field and business
practices.
Any person is entitled to rely on this Power of Attorney as notice
that Manager has been given the power and authority to manage the Assets and to
perform the Services on behalf of the Company.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
------------------------------------
Name: Gary L. Greenstein
Title: Vice President
HS RESOURCES, INC.
By:
------------------------------------
Name: Annette Montoya
Title: Vice President
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<PAGE> 135
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
---------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
---------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
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<PAGE> 136
EXHIBIT U
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this ____ day
of ______________, by and between Orion Acquisition, Inc. ("Seller"),
Wattenberg Gas Investments, LLC ("Buyer"), and __________________ BANK ("Escrow
Agent"). Seller and Buyer are sometimes herein jointly referred to as the
"Parties."
RECITALS
A. Seller and Buyer are the Seller and Buyer,
respectively, under that certain Purchase and Sale Agreement dated June 14,
1996 (the "Purchase Agreement"), and Grantor and Grantee, respectively, under
the Wellbore Assignment of Oil and Gas Leases with Reservation of Production
Payment dated June 14, 1996 (the "Assignment"); and
B. Pursuant to Section 8.3 of the Purchase Agreement,
Seller and Buyer have agreed that Buyer shall deposit certain amounts in an
escrow account; and
C. Escrow Agent has agreed to act as such in accordance
with the terms, provisions and conditions of this Escrow Agreement and to hold
the funds described herein in accordance with the terms and provisions hereof.
AGREEMENT
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Of even date herewith, Buyer has delivered to Escrow
Agent and Escrow Agent hereby acknowledges the receipt of an Expense Amount (as
defined in the Management Agreement dated June 14, 1996 between Seller and HS
Resources, Inc.) for deposit into the account set up hereunder (the "Escrow
Account"). Seller and Buyer have advised Escrow Agent that Buyer will deliver
additional Expense Amounts for deposit into the Escrow Account. Such sums,
together with any interest or other earnings of the money so deposited shall be
referred to herein as the "Escrow Funds."
2. During the term of this Escrow Agreement, Escrow
Agent shall hold and maintain the Escrow Funds and said funds shall be invested
or reinvested by Escrow Agent at the joint written direction of Seller and
Buyer. Seller and Buyer hereby
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direct Escrow Agent to invest the Escrow Funds in the _______________________
Fund.
The Escrow Agent shall sell all or any designated part of such
investments so directed in writing jointly by Seller and Buyer. All
commissions, brokerage taxes, fees and expenses, if any, applicable to the
acquisition or sale of the investments under this paragraph shall be paid
initially from the interest or income generated from the Escrow Funds and
thereafter from any remaining amounts in the Escrow Funds. The Escrow Agent
shall not be liable for losses on any investments made by it pursuant to and in
compliance with such instructions.
3. The Escrow Agent shall hold and disburse the Escrow
Funds during the term of this Escrow Agreement in accordance with the joint
written instructions from Seller and Buyer. The Escrow Agent shall deliver the
Escrow Funds or any part thereof to the party designated to receive such funds
if Escrow Agent receives joint written instructions from both Seller and Buyer
to do so. The Escrow Agent shall hold the Escrow Funds until it has received a
joint written instruction notice from Seller and Buyer as to how delivery of
the Escrow Funds shall be made. Should any controversy arise between Seller
and Buyer and/or the Escrow Agent with respect to this Escrow Agreement or with
respect to the right to receive the Escrow Funds, the Escrow Agent shall have
the right to consult counsel and/or to institute a bill of interpleader in any
court of competent jurisdiction to determine the rights of the Parties. Should
such actions be necessary, or should the Escrow Agent become involved in
litigation in any manner whatsoever on account of this Escrow Agreement or the
Escrow Funds held hereunder, the Parties bind and obligate themselves, their
successors, assigns and legal representatives to pay the Escrow Agent, in
addition to any charge made hereunder for acting as Escrow Agent, reasonable
attorney's fees incurred by the Escrow Agent, and any other disbursements,
expenses, losses, costs and damages in connection with and resulting from such
actions.
4. Duties of the Escrow Agent
(a) The duties of the Escrow Agent are only such
as are herein specifically provided, being purely ministerial in nature, and
the Escrow Agent shall incur no liability whatsoever except for gross
negligence or willful misconduct. The Escrow Agent is not a party to any other
agreement regarding the subject matter contained herein and as such shall only
be bound by the terms and conditions of this Escrow Agreement.
(b) The Escrow Agent shall be under no
responsibility for the recitals in this Escrow Agreement, the covenants or
undertakings set forth in the Purchase Agreement, the Assignment, or in respect
of any of the items deposited with the Escrow Agent other than to comply with
the specific duties and responsibilities set forth herein and with any written
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<PAGE> 138
instructions or other communications herein provided for; and, without limiting
the generality of the foregoing, the Escrow Agent shall have no obligation or
responsibility to determine the correctness of any statement or calculation
made by any party hereto in any written instruction or other communication or
the genuineness or validity of any document. The Escrow Agent shall be fully
protected in acting in accordance with any written instructions or other
communications from Seller and Buyer given to it in accordance with the
provisions hereof and reasonably believed by it to have been signed by the
proper parties. The Escrow Agent shall have no liability for losses arising
from any cause beyond its control, including (but not limited to) the
following: (i) the act, failure or neglect of any agent or correspondent
selected by the Escrow Agent for the remittance of funds; (ii) any delay,
error, omission or default of any mail, delivery, cable or wireless agency or
operator; (iii) the acts or edicts of any government or governmental agency or
other group or entity exercising governmental powers. The Escrow Agent shall
be entitled to pay from the Escrow Funds the cost and expense of defending any
legal proceedings which may be instituted against it with respect to the
subject matter of this Escrow Agreement (including counsel and investigatory
fees); provided, however, the Escrow Agent shall consult with Seller and Buyer
prior to incurring any such legal expenses. The Escrow Agent shall not be
required to institute legal proceedings of any kind.
5. The Escrow Agent may resign at any time by giving
written notice to Seller and Buyer. Such resignation shall not be effective
until a new Escrow Agent has been appointed by the joint written agreement of
Seller and Buyer. The Escrow Agent may at any time be removed by notice in
writing delivered to the Escrow Agent by Seller and Buyer. The Escrow Agent's
sole responsibility thereafter shall be to keep safely all Escrow Funds then
held by it and to deliver the same to a person designated by the Parties or in
accordance with the directions of a final order or judgment from a court having
competent jurisdiction.
6. For its services pursuant to this Escrow Agreement,
the Escrow Agent shall be entitled to a fee of _______________________ DOLLARS
($______.00 U.S.). Any fees and expenses due the Escrow Agent shall be borne
one- half (1/2) by Seller and one-half (1/2) by Buyer and shall be paid within
10 days after the receipt of an invoice from the Escrow Agent for such fees and
expenses. The Parties jointly and severally agree to pay to the Escrow Agent
its fees for the services rendered by it pursuant to the provisions of this
Escrow Agreement and will reimburse the Escrow Agent for its reasonable
expenses, including reasonable attorney's fees incurred in connection with the
negotiations, drafting and performance by it of such services. Except as
otherwise noted, this fee covers account acceptance, set-up and termination
expenses, plus usual and customary related administrative services such as
safekeeping, investment, collection and distribution of assets, including
normal record
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<PAGE> 139
keeping and reporting requirements. Any additional services beyond the
receipt, investment and payment of funds specified in this Escrow Agreement, or
activities requiring excessive administrator time or out-of-pocket expenses
such as optional substitution of collateral or securities, shall be deemed
extraordinary fees for which related costs, transaction charges and additional
fees will be billed at the Escrow Agent's standard charges for such items.
7. The Parties agree to jointly and severally indemnify,
defend and hold the Escrow Agent harmless from and against any and all loss,
damage, tax, liability and expense that may be incurred by the Escrow Agent
arising out of or in connection with its acceptance or appointment as the
Escrow Agent hereunder, including the legal costs and expenses of defending
itself against any claim or liability in connection with its performance
hereunder. Any fees and expenses resulting from the foregoing indemnification
shall be borne one-half (1/2) by Seller and one-half (1/2) by Buyer.
8. The Escrow Agent is hereby given a lien on the Escrow
Funds for all indebtedness that may become owing to the Escrow Agent hereunder,
which lien may be enforced by the Escrow Agent by setoff or appropriate
foreclosure proceedings.
9. The Parties warrant to the Escrow Agent that there
are no federal, state or local tax liabilities or filing requirements
whatsoever concerning the Escrow Agent's actions contemplated hereunder and
warrant and represent to the Escrow Agent that the Escrow Agent has no duty to
withhold or file any report regarding any tax liability (other than with
respect to interest on the Escrow Funds) under any federal or state income tax,
local or state property tax, local or state sales or use taxes, or any other
tax by any taxing authority. The Parties agree to jointly and severally
indemnify the Escrow Agent fully for any tax liability, penalties or interest
incurred by the Escrow Agent arising hereunder and agree to pay in full any
such tax liability together with penalty and interest if any tax liability is
ultimately assessed against the Escrow Agent for any reason as a result of its
actions hereunder (except for the Escrow Agent's individual income tax
liability with respect to its fees).
10. All notices, requests, directions, instructions,
waivers, approvals or other communications to any party hereto shall be made or
delivered in person or by registered mail or certified mail, postage prepaid,
addressed to such party as provided below, or to such other address as such
party may hereafter specify in a written notice to the other parties named
herein, and all such notices or other communications shall be in writing so
addressed and shall be effective upon receipt by the addressee thereof:
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<PAGE> 140
Escrow Agent: _____________________ BANK
Corporate Trust Department
Attn: ______________________
Telephone: ( )
Fax: ( )
Seller: Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
Buyer: Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attn: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
11. No agreement shall be effective to amend or
supplement this Escrow Agreement unless such agreement is in writing and signed
by the parties hereto. This Escrow Agreement may be executed in any number of
execution counterparts.
12. This Escrow Agreement shall be governed by and
construed in accordance with the law of the State of Colorado, except that
statutory provisions regarding fiduciary duties and liabilities of Trustees
shall not apply to this Escrow Agreement. The Parties expressly waive such
duties and liabilities, it being their intent to create solely an agency
relationship and hold the Escrow Agent liable only in the event of its gross
negligence or willful misconduct in order to obtain lower fee schedule rates as
specifically negotiated with the Escrow Agent.
13. This Escrow Agreement shall terminate by its own
terms when no funds remain in the Escrow Account, unless sooner terminated in
writing by the Parties, in which case the balance of any funds remaining in the
Escrow Account upon such termination shall promptly be paid in accordance with
written instructions signed by Seller and Buyer.
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<PAGE> 141
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date first above written.
ORION ACQUISITION, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
BANK,
--------------------
as Escrow Agent
By:
-----------------------------------
Name:
Title: President
----------------------
U-6
<PAGE> 142
EXHIBIT V
LIMITED POWER OF ATTORNEY
Wattenberg Gas Investments, LLC, a Delaware limited liability
company, having an office at 82 Devonshire Street, R22C, Boston, Massachusetts
02109 (the "Company") does hereby make, constitute and appoint Thomas H.
McCarthy, Jr. having an office at 3047 So. Claude Court, Denver, Colorado
80210, to be its true and lawful attorney (attorney-in-fact), for it and in its
name and behalf, to execute and deliver the Assignment, Bill of Sale and
Conveyance attached hereto as Schedule 1, requiring execution and delivery in
the name of the Company pursuant to the terms of that certain Purchase and Sale
Agreement dated June 14, 1996 between the Company and Orion Acquisition, Inc.
("Orion"), for the leases and wells identified by exhibit therein (the
"Assets").
The attorney-in-fact shall execute and is obligated to execute
from time to time the attached Assignment, Bill of Sale and Conveyance, in any
number of counterparts and covering all or any portion of the Assets, upon the
written request of Orion, regardless of any objection by any party including
the Company. Such written request shall include a copy of a written notice
from Orion to the Company, which Orion represents has been received by the
Company at least 60 days prior to the submittal to the attorney-in-fact (which
the attorney-in-fact shall not be required to verify), stating that (a) the
Company failed to perform an obligation under (i) the Purchase and Sale
Agreement, (ii) the Wellbore Assignment of Oil and Gas Leases with Reservation
of Production Payment dated June 14, 1996 between Orion and the Company, (iii)
the Option to Purchase Oil and Gas Interests dated June 14, 1996 between the
Company and Orion (the "Option"), or (iv) the Management Agreement dated June
14, 1996 between the Company and HS Resources, Inc., and (b) that Orion
tendered any required payment to WGI for the Assets to be conveyed by the
Assignment, Bill of Sale and Conveyance in accordance with the terms of the
Option. The written request shall also include a signed statement by an
officer of Orion, that the Company has not remedied such failure to perform in
the 60 days since the Company's receipt of the written notice of such failure
to perform.
This Limited Power of Attorney is irrevocable by the Company
and is coupled with an interest in the lands covered by the Assets. The
foregoing power of attorney shall be effective from the date hereof until Orion
receives a conveyance of all of the Assets or until the Option expires, which
ever is earlier.
Gary L. Greenstein, Vice President of Fontenelle, Inc., in its
capacity as Manager of the Company, hereby certifies that the execution of this
Limited Power of Attorney is authorized by
V-1
<PAGE> 143
the Operating Agreement of the Company dated effective as of November 8, 1995,
as amended and restated April 25, 1996, May 21, 1996 and June 14, 1996 and
other governing authority of the Company and that the Company will ratify and
confirm all lawful actions taken by Thomas H. McCarthy, Jr., or his successor,
on behalf of the Company which are authorized by this Limited Power of
Attorney. The Company and Orion each waive any and all claims against the
attorney-in-fact and the right to enjoin the attorney-in-fact for any actions
authorized herein. The Company and Orion each shall indemnify and release the
attorney-in-fact from any damages incurred by or claims made against the
attorney-in-fact for any exercise of authority granted herein.
Thomas H. McCarthy, Jr. may not resign as attorney-in-fact
under this Limited Power of Attorney until he appoints a successor
attorney-in-fact and notifies the Company and Orion of such appointment, and
the successor agrees to such appointment in a writing delivered to Orion. In
the event that Thomas H. McCarthy, Jr. is deceased, is permanently
incapacitated or otherwise is unable to perform under this Limited Power of
Attorney, Dante L. Zarlengo, having an office at 621 - 17th Street, Suite 2200,
Denver, Colorado 80293 is appointed as the successor attorney-in-fact for the
Company.
Orion may assign all of its right, title, interest and
obligation under this Limited Power of Attorney to HS Resources, Inc. ("HS"), a
Delaware corporation, without any prior notice or consent of WGI. Upon
satisfaction of the requirements set forth above and receipt of evidence of
such an assignment by Orion, the attorney-in-fact shall execute and deliver the
requested Assignment, Bill of Sale and Conveyances to HS.
This Limited Power of Attorney is executed on June 14, 1996,
and effective for all purposes as of June 1, 1996.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
------------------------------
Name: Gary L. Greenstein
Title: Vice President
ORION ACQUISITION, INC.
By:
-----------------------------
Name: Annette Montoya
Title: Vice President
THOMAS H. MCCARTHY, JR.
By:
-----------------------------
Name: Thomas H. McCarthy, Jr.
V-2
<PAGE> 144
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th day of
June, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, in her capacity as Vice President of
Orion Acquisition, Inc., a Delaware corporation on behalf of such corporation.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
V-3
<PAGE> 145
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Thomas H. McCarthy, Jr., an individual.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
---------------
(SEAL)
V-4
<PAGE> 146
SCHEDULE 1
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE ("Assignment") is
dated this ____ day of _________, but effective as of _______________ (the
"Effective Date"), from WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited
liability company with an office at 82 Devonshire Street, R22C, Boston,
Massachusetts 02109 (herein called "Assignor"), to ORION ACQUISITION, INC., a
Delaware corporation with an office at 1999 Broadway, Suite 3600 Denver,
Colorado 80202 (herein called "Assignee").
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor does hereby GRANT,
BARGAIN, SELL, CONVEY, ASSIGN, and DELIVER unto Assignee all of the following:
A. All of Assignor's right, title and interest in and to
the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B
from the intervals in such wells identified in
Exhibit B as of the Effective Date (the above
described interests in such leases being herein
called the "Leases" and the above described interest
in such wells being herein called the "Wells"),
subject to any restrictions, exceptions,
reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to
the Leases and the Wells, and excluding such portion
of the Leases and the Wells which were not conveyed
to Assignor because of Defective Interests or which
were determined to be Excluded Assets (as such terms
are defined in the Purchase and Sale Agreement
between Assignor and Assignee dated June 14, 1996
(the "Purchase Agreement");
B. The right, title and interest of Assignor in and to
overriding royalty interests in the Leases insofar
and only insofar as the Leases cover the wellbores
associated with the Wells from the producing
intervals identified in Exhibit B;
C. To the extent affected, the right, title and interest
of Assignor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization,
pooling, operating and communitization agreements,
declarations and orders affecting the Leases and
Wells, and in and to the properties covered and the
units created thereby;
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<PAGE> 147
D. To the extent affected, the right, title and interest
of Assignor in and to the personal property and
fixtures that are appurtenant to the Wells, including
all wells, casing, tubing, pumps, separators, tanks,
lines and other personal property and oil field
equipment appurtenant to such Wells; provided,
however, that Assignor shall remain co-owner of any
personal property appurtenant to any property owned
by Assignor that is not exclusively part of the
Wells;
E. To the extent affected, the right, title and interest
of Assignor in and to and under, or derived from, the
presently existing and valid gas sales, purchase,
gathering and processing contracts and operating
agreements, joint venture agreements, partnership
agreements, rights- of-way, easements, permits and
surface leases and other contracts, agreements and
instruments (but specifically excluding any
management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the
Leases, Wells and the units referred to in Paragraph
C above; provided, however, that Assignor shall
remain co-owner of any agreements, including
unitization and pooling agreements, if they pertain
to any property owned by Assignor that is not
exclusively part of the Leases or Wells.
All of the foregoing leases, interests, rights and properties
described in Paragraphs A through E, above, are herein called the "Properties"
and are located in the various counties identified in Exhibits A and B.
To have and to hold the Properties forever, subject to the
following:
1. THIS ASSIGNMENT IS MADE WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, EXCEPT AS TO PARTIES CLAIMING BY,
THROUGH OR UNDER ASSIGNOR.
2. Assignor shall execute such forms of assignment
conveying Assignor's interest in the Properties as may be required by any
governmental authority to conform to governmental regulation and such
assignments shall not serve to enlarge or diminish the rights herein conveyed.
3. This Assignment shall be binding upon and inure to
the benefit of Assignee and Assignor and their respective successors and
assigns.
V-6
<PAGE> 148
Executed and effective as of the day and year first above
written.
By:
-----------------------------------
Name: Thomas H. McCarthy, Jr.
Title: Attorney-in-Fact
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this ____
day of ______________ by Thomas H. McCarthy, Jr. as Attorney-in-Fact of
WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited liability company, on
behalf of such company.
Witness my hand and official seal.
My Commission Expires:
--------------------------------------
Notary Public
Name:
Address:
- - --------------------------------
[seal]
V-7
<PAGE> 1
================================================================================
PURCHASE AND SALE AGREEMENT
(TAX PARTNERSHIP PROPERTIES)
BETWEEN
WATTENBERG RESOURCES LAND, L.L.C.
AND
WATTENBERG GAS INVESTMENTS, LLC
DATED: JUNE 14, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 HS Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Leases and Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Incidental Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Credit Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Apportionment of Production, Revenues, Taxes and other Expenses . . . . . . . . . . . . . . . . . . . . . 4
6. Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.5 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.6 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. Seller's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.6 Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.8 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.9 Preferential Purchase Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.10 No Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.11 Gas Balancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.12 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.13 Operations in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.14 Hydrocarbon Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.15 Proceeds of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.17 Bills in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.18 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.21 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.22 Tax Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.23 Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
8. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Opinion of Tax Counsel, Right to Request Ruling . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Escrow in the Event of Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Settlements Resulting from a Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Cooperation and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.1 Seller's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.2 Buyer's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.1 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.2 Section 15.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.3 Notice of Preferential Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.4 Release of Mortgages and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.5 Assignment; Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.6 Non-Foreign Ownership Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.7 Ratification of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.8 Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.9 Seller's Manager's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.10 Opinion on Behalf of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.11 Buyer's Manager's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.12 Opinions on Behalf of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.13 Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.14 Performance Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.15 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.16 Consent to Amendments of LLC Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.17 Additional Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12. Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.1 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.2 Sales Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.3 Purchase Price Rebates for Defective Interests . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.4 Purchase Price and Other Rebates for Exercised Preferential Purchase Rights, Failure to
Obtain Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.5 Reconveyance of Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.6 Allocation of Commingled Production and Costs . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.7 Performance of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.8 Overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.9 Review of Aggregate Credit Payment Amount Figure . . . . . . . . . . . . . . . . . . . . . . . . 26
12.10 Representations of Seller and Buyer to Survive Closing . . . . . . . . . . . . . . . . . . . . . 27
13. Apportionment of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.1 Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.2 Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.1 Buyer's Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.2 Seller's Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
14.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
14.4 HS Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.6 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.9 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.10 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(iii)
<PAGE> 5
EXHIBITS
Exhibit A Leases (Weld County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Manager's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
(iv)
<PAGE> 6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (Tax Partnership Properties)
("Agreement"), dated June 14, 1996, is between Wattenberg Resources Land,
L.L.C., a Delaware limited liability company ("Seller" or "WRL") and Wattenberg
Gas Investments, LLC, a Delaware limited liability company ("Buyer" or "WGI").
RECITALS
A. Seller is the owner of certain oil and gas leasehold
interests in Weld County, Colorado, as more specifically described below in
Section 2 (the "Assets").
B. Seller desires to sell and Buyer desires to purchase
the Assets pursuant to the terms and conditions of this Agreement.
AGREEMENT
IN CONSIDERATION of the Purchase Price set forth below in
Section 4.1, the Credit Payment Amounts set forth below in Section 4.2, the
reservation of the "Production Payment" (defined below) and the grant of the
"Option" (defined below), and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
1. Purchase and Sale. Seller agrees to convey the
Assets to Buyer and Buyer agrees to purchase the Assets from Seller, all
pursuant to the terms and conditions of this Agreement. Seller will convey the
Assets subject to (i) a production payment (the "Production Payment"), a
reversionary interest (the "Reversion Interest") and other reservations and
obligations as specifically set forth in the Wellbore Assignment of Oil and Gas
Leases With Reservation of Production Payment in a form substantially similar
to Exhibit C (the "Assignment"), and (ii) the Option To Purchase Oil and Gas
Interests to be granted to Seller in a form substantially similar to Exhibit D
(the "Option").
1.1 HS Option. Seller entered into that
certain Option Agreement dated March 26, 1996 (the "HS Option") with HS
Resources, Inc., a Delaware corporation ("HS"). Seller and Buyer acknowledge
that if HS exercises its rights under the HS Option, HS will assume the rights
and obligations of Seller under this Agreement, including without limitation
any obligations of Seller which may have arisen prior to the date of such
exercise.
2. The Assets. The "Assets" shall be all of the
following:
<PAGE> 7
2.1 Leases and Wells. Seller's right, title
and interest in and to the oil and gas leases and mineral interests described
in Exhibit A, including any and all overriding royalty interests owned by
Seller in such leases, but insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B from the intervals referenced
in Section 7.23 and identified in Exhibit B in such wells as of the Effective
Date (the above described interest in such leases being herein called the
"Leases" and the above described interest in such wells being herein called the
"Wells"), and subject to any restrictions, exceptions, reservations,
conditions, limitations, burdens, contracts, agreements and other matters
applicable to such Leases and Wells.
2.2 Incidental Rights. All of Seller's right,
title and interest in and to the following insofar and only insofar as same are
attributable to the Leases and the Wells:
(a) Unitization and Pooling
Agreements. All presently existing and valid oil, gas or mineral
unitization, pooling, operating and communitization agreements,
declarations and orders affecting the Leases and Wells, and in and to
the properties covered and the units created thereby;
(b) Personal Property. The personal
property and fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and other
personal property and oil field equipment appurtenant to such Wells;
(c) Agreements. All presently
existing and valid oil and gas sales, purchase, production swap,
gathering and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way, easements,
permits, surface leases and other contracts, agreements and
instruments, but specifically excluding any management agreements.
Seller shall remain co-owner of any "Agreements," "Personal Property" and
"Unitization and Pooling Agreements" to the extent they pertain to any property
or formation owned by Seller that is not exclusively part of the Wells.
3. Effective Date. The purchase and sale of the Assets
shall be effective, for all purposes, including allocation of revenue, expenses
and taxes, as of June 1, 1996 at 7:00 a.m. local time at the site of the Assets
(the "Effective Date").
4. Purchase Payments. Buyer shall pay to Seller the
Purchase Price defined in Section 4.1 and the Credit Payment Amounts defined in
Section 4.2
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<PAGE> 8
4.1 Purchase Price. The purchase price for
the Assets shall be $110,000 (the "Purchase Price"). Buyer shall pay the
Purchase Price to Seller in immediately available funds at Closing.
4.2 Credit Payment Amount. "Credit Payment
Amount" shall mean, for any Payment Period (as that term is defined in the
Assignment), an amount equal to $0.70 of each dollar of tax credits (the "Tax
Credit") available to Buyer under Section 29 of the Internal Revenue Code of
1986, as amended from time to time ("IRC"), as a result of the sale of Subject
Hydrocarbons by or on behalf of Buyer, to the extent that such Subject
Hydrocarbons (i) constitute "qualified fuels" within the meaning of IRC Section
29(c), (ii) meet the requirements of IRC Sections 29(d)(1), 29(d)(4) and 29(f),
during (x) such Payment Period and (y) any earlier Payment Period to the extent
the dollar amount of Tax Credits attributable thereto was not taken into account
in a Credit Payment Amount for a previous Payment Period, and (iii) are produced
from the Wells (defined in Section 2.1 above). For purposes of the preceding
sentence, Tax Credits available to Buyer under IRC Section 29 shall be
determined after taking into account any phase- out of Tax Credits under IRC
Section 29(b)(1) and any applicable inflation adjustment under IRC Section
29(b)(2), but shall be determined without regard to limitations on Buyer's or
its affiliate's use of Tax Credits imposed by IRC Section 29(b)(6) and without
regard to whether Buyer or its affiliates actually utilize such Tax Credits.
The Credit Payment Amount for any given Payment Period shall initially be based
on estimated Subject Hydrocarbon production and sales data available at the time
of the calculation of such amount and later corrected when actual data is
available. The Credit Payment Amount shall be determined on the assumption that
(i) the Production Payment is treated as a production payment for federal income
tax purposes, and (ii) Buyer is treated as owning the economic interest in
minerals in place in the Assets. Credit Payment Amounts shall be calculated
and, unless otherwise provided, will be due and payable in accordance with the
last sentence of this Section 4.2 with respect to gas produced and sold from
June 1, 1996 until the earlier of (x) the aggregate of all Credit Payment
Amounts paid pursuant to this Agreement equals $300,000, (y) December 31, 2002,
or (z) the first day on which Tax Credits are no longer permitted for gas
attributable to the Subject Hydrocarbons and produced and sold from the Wells.
The Credit Payment Amount shall include payments for Tax Credits attributable to
natural gas liquids produced from the Subject Hydrocarbons and for Tax Credits
attributable to Wells that were recompleted between November 5, 1990 and
December 31, 1992, subject to the provisions of Sections 7.23 and 12.8 below. If
for any reason the Tax Credits are repealed by Congressional statute or
resulting regulation, no Credit Payment Amount shall be due with respect to
Subject Hydrocarbons subject to such repeal. If for any reason the amount of
Tax Credits contemplated under this Agreement are reduced by Congressional
statute or resulting regulation, the Credit Payment Amounts due under this
Agreement shall be reduced
-3-
<PAGE> 9
commensurate with such reduction in Tax Credits. For purposes of this Section
4.2, the term "Subject Hydrocarbons" shall have the meaning given it in the
Assignment. Buyer acknowledges that Credit Payment Amounts will be payable
directly to HS pursuant to Section 2.1(n)(iii) of the Management Agreement
dated March 26, 1996 between Seller and HS.
5. Apportionment of Production, Revenues, Taxes and
other Expenses. Buyer shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells on or after the Effective Date, subject to
the Production Payment, Reversion Interest and the Option. Buyer shall pay for
costs and expenses incurred with respect to the Assets on or after the
Effective Date. Seller shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells before the Effective Date, and shall pay
for costs and expenses incurred with respect to the Assets prior to the
Effective Date. Taxes relating to the Assets, including ad valorem, property,
production, severance and other taxes (other than income taxes) shall be
allocated in the same manner as other expenses. Taxes that are measured by or
that relate to production shall be treated as expenses in connection with such
production regardless of the period for which such taxes are assessed.
6. Buyer's Representations and Warranties. Buyer makes
the following representations and warranties as of the date of execution of
this Agreement:
6.1 Existence. Buyer is a limited liability
company, duly organized, validly existing and formed under the laws of the
State of Delaware, and Buyer is duly qualified to carry on its business, and is
duly qualified and in good standing, in each of the states in which the nature
of its business and activities requires it to be so qualified.
6.2 Power and Authority. Buyer has all
requisite power and authority to carry on its business as presently conducted,
to enter into this Agreement and each of the documents contemplated to be
executed by Buyer at Closing, and to perform its obligations under this
Agreement and under such documents. The consummation of the transactions
contemplated by this Agreement and each of the documents contemplated to be
executed by Buyer at Closing will not violate, nor be in conflict with, (i) any
provision of Buyer's organizational or governing documents, (ii) any material
agreement or instrument to which Buyer is a party or is bound, or (iii) any
judgment, decree, order, statute, rule or regulation applicable to Buyer.
6.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Buyer at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action on the
part of Buyer.
-4-
<PAGE> 10
6.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Buyer, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Buyer shall have been duly executed and delivered. This Agreement
does, and such documents and instruments shall, constitute legal, valid and
binding obligations of Buyer enforceable in accordance with their terms,
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application with respect to creditors, (ii)
general principles of equity and (iii) the power of a court to deny enforcement
of remedies generally based upon public policy.
6.5 Securities Laws. Buyer is purchasing the
Assets for Buyer's own account, not for public distribution thereof, and Buyer
shall not sell or transfer all or any part of, or any interest in, the Assets
in violation of the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or the securities laws of any state.
6.6 Brokers' Fees. Buyer has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Seller shall have any
responsibility whatsoever.
7. Seller's Representations and Warranties. Seller
makes the following representations and warranties as of the date of this
Agreement:
7.1 Existence. Seller is a limited liability
company duly organized and validly existing under the laws of the State of
Delaware, and Seller is duly qualified to carry on its business, and is in good
standing in the State of Colorado.
7.2 Power and Authority. Seller has all
requisite authority to carry on its business as presently conducted, to enter
into this Agreement and each of the documents contemplated to be executed by
Seller at Closing, and to perform its obligations under this Agreement and
under such documents. The consummation of the transactions contemplated by
this Agreement and each of the documents contemplated to be executed by Seller
at Closing will not violate, nor be in conflict with, (i) any provision of
Seller's organizational or governing documents, (ii) any material agreement or
instrument to which Seller is a party or is bound, or (iii) any judgment,
decree, order, statute, rule or regulation applicable to Seller; provided that,
the representations and warranties contained in clauses (ii) and (iii) of this
Section 7.2 are subject to (a) consents of or filings with the United States
Department of Interior or the applicable state agencies or authorities in
connection with the assignment of any federal or state leases or any interest
therein to the extent such consents are typically received or filings typically
made subsequent to such assignment ("Governmental Consents"), (b) preferential
rights to purchase
-5-
<PAGE> 11
all or any portion of the Assets and consent to or notices of assignment
necessary to convey all or any portion of the Assets which are not Governmental
Consents, (c) any violation of any maintenance of uniform interest provision in
any applicable operating agreement, and (d) the consent of the banks and other
required actions as set forth in Sections 10.1(d) and 10.2(d).
7.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Seller at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action on the
part of Seller.
7.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Seller, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Seller will be duly executed and delivered. This Agreement does,
and such documents and instruments shall, constitute legal, valid and binding
obligations of Seller enforceable in accordance with their terms, subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
7.5 Brokers' Fees. Seller has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever.
7.6 Reserve Report. The term "Reserve Report"
shall mean the reserve report prepared by Seller and dated as of June 1, 1996,
which is based on reserves as of December 31, 1995, as adjusted by estimated
production from January 1, 1996 through June 1, 1996, and attached hereto as
Exhibit E. To Seller's best knowledge, the average price for sales of
hydrocarbons (based on contract prices for existing effective contracts and
estimates of regional spot prices adjusted for regional transportation costs),
historical costs of operations, production volumes, and payout data used by
Seller in the preparation of the Reserve Report were, on the dates so used,
accurate in all material respects.
7.7 Liens. Except for the burdens and
obligations created by or arising under the Leases and except for Permitted
Encumbrances, the Assets are free and clear of all Encumbrances. As used
herein, the term "Encumbrances" shall mean all royalties, overriding royalties,
production payments, debts, liens, mortgages, security interests, and
encumbrances. As used herein, the term "Permitted Encumbrances" shall mean the
following:
(i) the burdens, encumbrances and
obligations attributable to mortgages and liens held on or
-6-
<PAGE> 12
against the Assets, or any portion thereof, as of the date of this
Agreement by The Chase Manhattan Bank, N.A., for itself and as agent
on behalf of those banks that are or become a party to that certain
Credit Agreement with Seller dated as of March 26, 1996 (as it may be
amended or supplemented from time to time, the "Credit Agreement"),
which mortgages and liens will be released with respect to the Assets
conveyed pursuant to the Assignment on or before the Closing;
(ii) the burdens, encumbrances and
obligations created by or arising under the Wells and other agreements
affecting the Assets, and all royalties, overriding royalties, net
profits interests, carried interests, reversionary interests, back-in
rights and other burdens taken into account in computing the net
revenue interests ("NRI") and working interests ("WI") set forth on
Exhibit B for the Wells;
(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 the Assets if
the same are customarily obtained subsequent to such sale or
conveyance;
(iv) rights of reassignment upon
surrender of the Leases held by predecessors in interest to Seller;
(v) easements, rights-of-way,
servitudes, permits, licenses, surface leases and other rights in
respect of surface use to the extent these do not materially interfere
with operations or production on or from the Assets;
(vi) rights and regulatory powers
reserved to or vested in any municipality or governmental, statutory
or public authority;
(vii) all Material Contracts to the
extent same do not reduce Seller's interest in the production from the
Wells to less than the NRI set forth on Exhibit B, including the
"Production Payment" and "Reversion Interest" reserved in that
Wellbore Assignment of Oil and Gas Interests with Reservations of
Production Payment and Reversion Interest dated March 26, 1996 as
recorded April 10, 1996 at Reception No. 2485154 of the real property
records of Weld County, Colorado;
(viii) any (x) undetermined or
inchoate liens or charges constituting or securing the payment of
expenses which were incurred incidental to maintenance, development,
production or operation of the Assets or for the purpose of
developing, producing or processing oil, gas
-7-
<PAGE> 13
or other hydrocarbons therefrom or therein and (y) materialman's,
mechanics', repairman's, employees', contractors', operators' or other
similar liens, security interests or charges for liquidated amounts
arising in the ordinary course of business incidental to construction,
maintenance, development, production or operation of the Assets or the
production or processing of oil, gas or other hydrocarbons therefrom,
that are not delinquent and that will be paid in the ordinary course
of business or, if delinquent, that are being contested in good faith;
(ix) any liens for taxes not yet
delinquent or, if delinquent, that are being contested in good faith
in the ordinary course of business;
(x) any liens or security interests
created by law or reserved in Leases for royalty, bonus or rental or
for compliance with the terms of the Leases;
(xi) any prohibitions or restrictions
similar to the Maintenance of Uniform Interest Provisions contained in
Article VIII.D. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement and any contribution obligations under provisions similar to
Article VII.B of such Model Form Operating Agreement;
(xii) all preferential rights to
purchase all or any portion of the Assets and consents to or notices
of assignment necessary to convey all or any portion of the Assets
which are not described in item (iii) of this definition of Permitted
Encumbrances;
(xiii) all agreements and obligations
relating to imbalances with respect to the production, transportation
or processing of gas or calls or purchase options on oil or gas
production;
(xiv) all agreements and obligations
relating to gathering, transportation or processing of gas or oil
production;
(xv) all treating, processing, sales
or marketing agreements which have a fee which is based on a
percentage of proceeds or an obligation to transfer certain volumes of
gas or oil production in-kind;
(xvi) all obligations by virtue of a
prepayment, advance payment or similar arrangement under any contract
for the sale of gas production, including by virtue of "take or pay"
or similar provisions, to deliver gas produced from or attributable to
the Wells after the Effective Date without then or thereafter being
entitled to receive full payment therefor;
-8-
<PAGE> 14
(xvii) all liens, charges,
encumbrances, contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting any Asset which
individually or in the aggregate will not interfere materially with
the operation, value or use of such Asset;
(xviii) the burdens, encumbrances and
obligations created by or arising under this Agreement, the
Assignment, Option or Management Agreement.
7.8 Title. Seller has Defensible Title to the
Assets. The term "Defensible Title" means such title of Seller in the Leases
that, subject to and except for the Permitted Encumbrances, entitles Seller to
receive an interest in production from the Wells not less than the respective
NRIs in the Wells as set forth on Exhibit B, and entitles Seller to own the
respective WIs in the Wells as set forth on Exhibit B under applicable state
law and for federal income tax purposes. Any Well or Lease for which Seller
has less than Defensible Title as of the date of this Agreement shall be called
a "Defective Interest." Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3. Buyer and Seller
shall cooperate fully and consult in good faith with each other in the
litigation of any matter identified in this Section 7.8.
If, under a final court determination, Buyer or its members
are not entitled to Tax Credits with respect to any portion of production from
the Assets (the "Disqualified Production"), and it is reasonable to believe
that the structure of Seller's ownership or acquisition of the Assets is
responsible for the loss of Tax Credits with respect to the Disqualified
Production, then Seller shall pay to Buyer the amount of any Credit Payment
Amount paid by Buyer with respect to the Disqualified Production, interest
thereon at the rates applicable to underpayments of federal income tax, and
Buyer's reasonable expenses of contesting the disallowance of the Tax Credits
with respect to the Disqualified Production, including its reasonable
professional fees. Seller shall not be obligated to make such payments to
Buyer if Seller or HS establishes (by a level of proof that would persuade a
mutually acceptable tax partner from a law firm or a "big-six" accounting firm)
that the Tax Credits claimed by Buyer with respect to the Disqualified
Production would not have been sustained without regard to the structure of
Seller's ownership or acquisition of the Assets. Seller's obligation to make
payments pursuant to this paragraph with respect to Disqualified Production
shall be construed in a manner that neither limits nor duplicates any other
indemnification of Buyer by Seller or HS with respect to such Disqualified
Production.
7.9 Preferential Purchase Rights and Consents.
To Seller's best knowledge, except as set forth in Exhibit F, there do not
exist any preferential rights to purchase all or any
-9-
<PAGE> 15
portion of the Assets. To Seller's best knowledge, except for consents from
its lender banks, Governmental Consents and other matters as set forth in
Exhibit F, there are no consents or waivers necessary to convey any material
portion of the Assets pursuant to this Agreement. Buyer's exclusive remedy for
Seller's breach of this representation and warranty (other than for consents
from the lender banks) is set forth in Section 12.4.
7.10 No Prepayments. To Seller's best knowledge,
except as set forth in Exhibit G, Seller is not obligated, by virtue of a
prepayment arrangement, a "take or pay" arrangement, a production payment,
hedging or any other arrangement, to deliver any material portion of
hydrocarbons produced from the Wells at some future time without then or
thereafter receiving full payment therefor.
7.11 Gas Balancing. To Seller's best knowledge,
except as set forth in Exhibit H, no material portion of hydrocarbons produced
from the Wells are subject to a gas imbalance or other arrangement requiring
delivery of hydrocarbons after the Effective Date without receiving full
payment therefor.
7.12 Leases. To Seller's best knowledge, all
royalties, rentals and other payments due by Seller under the Leases have been
properly and timely paid except where the failure to pay same will not have a
material adverse effect on the value of the particular Asset. To Seller's best
knowledge, all Leases are presently in full force and effect. To Seller's best
knowledge, Seller has not received a written notice of material default under
any Lease that could result in cancellation of the Lease. Any Lease which is
not presently in full force and effect, or for which Seller has not paid all
royalties, rentals or other payments due by Seller, or for which Seller is in
material default as of the date of this Agreement shall be treated as a
Defective Interest. Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3.
7.13 Operations in Progress. Except for
operations disclosed on Exhibit I and normal daily operating expenses, as of
the date of this Agreement there are no operations in progress with respect to
the Assets which are reasonably expected to exceed $35,000 in cost net to
Seller's interest and which shall be payable in whole or in part on or after
the Effective Date.
7.14 Hydrocarbon Sales Contracts. Except as
specifically indicated in Exhibit J and for calls on production, options to
purchase or similar rights with respect to production from the Wells, no
material portion of the hydrocarbons produced from the Wells is subject to a
sales contract or other agreement relating to the production, gathering,
transporting, processing, treating or marketing of hydrocarbons except those
which can be terminated by Seller upon not more than three months notice.
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<PAGE> 16
7.15 Proceeds of Production. To Seller's best
knowledge, Seller is currently receiving from all purchasers of production from
the Wells at least the NRI set forth in Exhibit B without suspense or any
indemnity other than the normal division order warranty of title, except where
the failure to receive same would not have a material adverse effect on the
value of the Assets.
7.16 Material Contracts. To Seller's best
knowledge, and subject to the execution of new contracts in the ordinary course
of business if a contract has expired or has been terminated, all contracts
material to the Assets are in full force and effect (the "Material Contracts").
Seller has not received written notices of material default under the Material
Contracts that remain uncured, or that Seller has not made provisions for so
that such event of default will not have a material adverse effect on the
Assets.
7.17 Bills in the Ordinary Course. In the
ordinary course of business and to Seller's best knowledge, Seller is current
on its payments for all costs and expenses pertaining to the Assets, except
where such payments are being contested with good faith or except where the
failure to make such payments would not have a material adverse effect on the
Assets.
7.18 Legal Proceedings. Except as set forth on
Exhibit K, no suit, action or other proceeding is pending against Seller or, to
Seller's best knowledge, threatened in writing against Seller before any court,
governmental agency, arbitrator or other panel that relates to the Assets or
the transaction contemplated by this Agreement that might (i) impair Seller's
ability to consummate the transaction contemplated by this Agreement or (ii)
cause the impairment or loss of Seller's title to any material portion of the
Assets or the value thereof or (iii) hinder or impede the operation or
enjoyment of the Leases in any material respect insofar as they relate to the
Assets.
7.19 Compliance with Laws. To Seller's best
knowledge, all laws, rules, regulations, ordinances and orders (of all
governmental and regulatory bodies having authority over the Assets) material
to the operation of the Assets have been complied with in all material
respects.
7.20 Environmental Matters. To Seller's best
knowledge, no conditions exist on the Assets that would subject Seller or Buyer
to any damages, remedial action, injunctive relief or other liability under any
Environmental Laws, including without limitation, all costs associated directly
or indirectly with cleanup, removal, closure or other response actions;
provided that Seller or Buyer may be subject to such matters which are (i)
routine in the operation of the Assets and (ii) in the aggregate not material
to the value of the Assets as a whole. Seller and its predecessors have
obtained and are in material
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<PAGE> 17
compliance with all material permits, licenses and approvals affecting the
Assets and required under Environmental Laws.
As used herein, the term "Environmental Laws" shall
mean any and all existing laws (common or statutory), rules, regulations,
codes, or ordinances issued or promulgated by any federal, state or local
governmental entity relating to the management and disposal of waste materials,
the protection of public or employee health and safety, the cleanup,
remediation or prevention of pollution, or the protection of the environment.
7.21 Payment of Taxes. To Seller's best
knowledge, all ad valorem, property, production, severance, excise and similar
taxes and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on the Assets
which are currently due and payable have been properly and timely paid, except
to the extent such taxes are being contested in good faith in the ordinary
course of business.
7.22 Tax Partnerships. Except as set forth in
Exhibit L, no portion of the Assets (i) has been contributed to and is
currently owned by a tax partnership; (ii) is subject to any form of agreement
(whether formal or informal, written or oral) deemed by any state or federal
tax statute, rule or regulation to be or to have created a tax partnership; or
(iii) otherwise constitutes "partnership property" (as that term is used
throughout IRC Subchapter K of Chapter 1 of Subtitle A) of a tax partnership.
Seller retains all liability and responsibility, if any, to make all payments
to appropriate parties under the tax partnerships identified on Exhibit L. In
addition to all other remedies available to Buyer, Seller agrees to indemnify
Buyer for all costs, losses, damages, penalties or expenses incurred by Buyer
as a result of any of the Assets having been contributed to or currently owned
by a tax partnership, provided that Seller shall not be obligated to indemnify
Buyer for any reduction in Tax Credits attributable to the Assets subject to
the tax partnerships identified on Exhibit L with respect to ownership
interests attributable to lease operating expenses and taxes under such tax
partnerships. For purposes of this Section 7.22, a "tax partnership" is any
entity, organization or group deemed to be a partnership within the meaning of
IRC Section 761 or any similar state or federal statute, rule or regulation,
and that is not excluded from the application of the partnership provisions of
IRC Subchapter K of Chapter 1 of Subtitle A and of all similar provisions of
state tax statutes or regulations by reason of elections made, pursuant to IRC
Section 761(a) and all such similar state or federal statutes, rules and
regulations, to be excluded from the application of all such partnership
provisions. With respect to any tax partnership identified on Exhibit L,
Seller and Buyer have the power to elect a basis adjustment under IRC Section
754 in connection with the transaction contemplated by this Agreement, and the
consummation of the transaction contemplated by this Agreement.
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7.23 Other Tax Matters.
(a) NGPA Determination.
(i) Applications. Except for the
Wells listed on Exhibit M, Seller or its predecessor in interest has
filed or caused to be filed with the applicable state and federal
agencies "Applications" for well determination(s) for each Well under
the Natural Gas Policy Act of 1978, as amended (the "NGPA") and the
rules and regulations of the Federal Energy Regulatory Commission (the
"FERC") under such act (the "NGPA Regulations") requesting a
determination that all or a quantifiable portion of the gas produced
from a particular Well is "natural gas produced from designated tight
formations" as defined in 18 C.F.R. Section 274.205(e). Each such
application has been approved by the indicated state and federal
agency and by the FERC and has been finally approved under and in
accordance with Section 503 of the NGPA. Such applications comply
with the requirements of the NGPA and the NGPA Regulations and do not
(1) contain any untrue statement of material fact or (2) omit any
statement of material fact necessary to make the statements therein
not misleading. No further applications are required under the NGPA
and the NGPA Regulations to allow the legal sale of all gas produced
from the Wells at a price equal to the price for such gas currently
being received.
(ii) Wells For Which Applications
Were Not Filed. With respect to the Wells listed on Exhibit M,
Seller, its predecessor in interest, or the operator of such Wells has
not to Seller's knowledge filed or caused to be filed with the
applicable state and federal agencies "Applications" for well
determinations under the NGPA and the rules and regulations of the
FERC. With respect to the Wells listed on Exhibit M, all such Wells
were (x) drilled (or recompleted in accordance with private letter
rulings issued by the Internal Revenue Service ("IRS") to third
parties, or will be recompleted in an uphole formation in accordance
with Situation 1 of Revenue Ruling 93-54) into a "qualifying
formation" (tight formation or other qualifying formation) within the
time frames set forth in subsection (b) below or (y) drilled within
the time frames set forth in subsection (b) below but no certificate
was obtained from either the state agency or the FERC or both stating
that the Well is qualified and but for the absence of such certificate
the Well is qualified under IRC Section 29, and as to both (x) and
(y) the hydrocarbons produced and sold from such Wells qualify for the
Tax Credit.
(iii) Wells Where Commingling With
Non-Qualified Production Is Conducted. For Wells, if any, where
production from a qualifying formation and production from a non-
qualifying formation are commingled, the production has
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been allocated to each producing formation on a reasonable basis,
consistent with industry standards and in accordance with procedures,
if any, that have been approved by appropriate state and federal
agencies.
(b) Wells. Each Well (1) has been
timely drilled under IRC Section 29(f)(1)(A) (drilled after December 31, 1979
but before January 1, 1993), or administrative interpretations thereof, and (2)
has been timely drilled under IRC Section 29(c)(2)(B)(ii) or administrative
interpretations thereof, or was committed to interstate commerce (as defined in
Section 2(18) of the Natural Gas Policy Act of 1978, as in effect on November
5, 1990) as of April 20, 1977.
(c) No Qualified Production prior to
January 1, 1980. Prior to January 1, 1980, there was no production of oil or
gas from, nor were any wells drilled or completed on, the "property" (within
the meaning of IRC Section 29) on which any Well is located nor was any
portion of any such "property" included within a unit from which oil or gas was
produced or in which any wells were drilled or completed prior to such date.
(d) No Enhanced Oil Recovery Credit. No
oil or gas produced from the Wells qualifies or has qualified for (i) the
enhanced oil recovery credit or any other credit under IRC Section 43 and none
has been claimed or taken on such oil or gas, or (ii) the credit allowed under
IRC Section 38 by reason of the energy percentage with respect to property
used in the project.
(e) No Government Financing. No portion
of any drilling, equipping, seismic or other development costs of the Assets
paid by Seller were financed by any state, local or federal agency, directly or
indirectly, including by way of grant, loan, expenditure or loan guaranty.
(f) Seller Status. Seller is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the IRC and the rules and
regulations promulgated thereunder), and Seller shall deliver to Buyer an
affidavit of non-foreign ownership in the form of Exhibit N.
8. Certain Tax Matters.
8.1 Opinion of Tax Counsel, Right to Request
Ruling. At Closing, Buyer at its sole cost, shall provide Seller a copy of the
opinion which Buyer has requested from Arthur Andersen LLP ("AA") regarding the
tax consequences of the transaction contemplated by this Agreement (the "Tax
Opinion"); provided, however, that the Tax Opinion need not address matters
which would give rise to a payment obligation by Seller to Buyer under the
second paragraph of Section 7.8. Notwithstanding the Tax Opinion, Buyer shall
have the right, but not the obligation,
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to request a "private letter ruling" from the IRS to the effect that (i)
Buyer's interest in the Assets constitutes an economic interest in minerals in
place, and (ii) the Production Payment will be treated as a mortgage loan under
IRC Section 636 (a "Ruling"). Should Buyer elect to request a Ruling, Buyer
shall have no right to terminate or rescind this Agreement if the Ruling is not
acceptable to Buyer. Seller shall, in good faith, amend this Agreement and the
documents contemplated hereunder in order that Buyer may obtain a favorable
Ruling, if, in Seller's sole and reasonable discretion, such amendments will
not have a material adverse effect on Seller.
8.2 Tax Status. Seller and Buyer intend that,
for tax purposes only, the Production Payment will be treated as a mortgage
loan and not as an "economic interest" in the Assets. Buyer shall have no
recourse against Seller in the event that the Production Payment is not so
treated until the commencement of a Tax Audit, in which event the provisions of
Section 8.3 shall control.
8.3 Escrow in the Event of Tax Audit. Promptly
following the earlier to occur of (1) the date which is 90 days following
receipt by a member of Buyer of a notice from the IRS of the commencement of an
administrative proceeding at the partnership level pursuant to IRC Section
6223(a)(1) (a "Tax Audit"), or (2) the date of issuance by the IRS of either
(i) a notice of proposed adjustment with respect to any audit proceedings or
(ii) a so- called "60 day letter" (such earlier date, the "Escrow Commencement
Date"), Seller and Buyer shall enter into an Escrow Agreement with an escrow
agent, substantially in the form of Exhibit U; provided, however, that Buyer
may waive its rights to enter into such an Escrow Agreement, in which event the
provisions of Sections 8.3(a) through 8.3(e) shall not apply. If Buyer does
not waive its rights to an Escrow Agreement, the Escrow Agreement and the funds
in the "Escrow Account" established pursuant thereto shall be administered in
accordance with the following provisions:
(a) Beginning with the Payment Period
(as that term is defined in the Assignment) in which the Escrow
Commencement Date occurs and continuing for each Payment Period until
the "Conclusion of a Tax Audit" (as that term is defined below, with
such period of time being the "Escrow Period"), Buyer shall deposit
into the Escrow Account the Credit Payment Amount for each Payment
Period (the "Escrow Amount" and the sum of all Escrow Amounts being
the "Escrowed Funds"). The Escrowed Funds shall not include any funds
which were due from Buyer to Seller prior to the Escrow Commencement
Date, but which were not paid to Seller. During the Escrow Period,
Buyer and Seller agree that Gross Proceeds plus Other Income (as
contemplated in the Assignment) will be sufficient to perform all of
the Services under the Management Agreement. For tax purposes
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only, Buyer shall be treated as the owner of the Escrowed Funds.
(b) A Tax Audit will be deemed to have
concluded upon the earliest to occur of the following events: (i) the
receipt by Buyer of written notice from the IRS that it will not
assert any adjustments with respect to the transactions contemplated
by this Agreement; (ii) Buyer entering into a settlement agreement
with the IRS which resolves the open federal income tax issues in
connection with such transactions; (iii) a judgment of a court of law
or a decision in an administrative proceeding becoming non- appealable
with respect to the federal income tax issues in connection with such
transactions; or (iv) the expiration of the applicable period of
limitations for making assessments with respect to the years under
examination in the Tax Audit if the IRS has made no assessments within
such period with respect to such transactions (such earliest event
being deemed the "Conclusion of a Tax Audit").
(c) At the Conclusion of a Tax Audit,
Buyer and Seller agree to recalculate, pursuant to the provisions of
the second paragraph of this Section 8.3(c), any amounts due Buyer and
Seller pursuant to the terms of this Agreement for the Escrow Period,
taking into account the reduction, if any, in the Credit Payment
Amounts due for each Payment Period during the Escrow Period resulting
from the Tax Audit (including any settlement described in Section
8.4). Buyer shall receive from the Escrowed Funds an amount equal to
70% of the total dollar amount of any reduction in Tax Credits
available to Buyer with respect to hydrocarbon production from the
Wells as a result of the application of the preceding sentence, or
Sections 8.3(d) and (e) as applicable, including interest thereon, for
the periods on or after the Escrow Commencement Date. Seller shall
receive all remaining Escrowed Funds, including interest thereon.
Except for such adjustment, there is no other obligation of Seller to
make any other payment to Buyer with respect to the Tax Audit, subject
to Section 12.8 below.
If, at the Conclusion of a Tax Audit, payments have been made into the
Escrow Account with respect to any Open Period, distributions from the
Escrow Account with respect to the Open Period (whether or not another
Tax Audit has commenced and remains outstanding with respect to such
period) shall, subject to Section 8.3(e), be shared under this Section
8.3(c) in accordance with the principles of any "no-change letter,"
binding settlement or final court decision or administrative
determination with respect to the Tax Audit or, if the statute of
limitations with respect to the Tax Audit expired without an IRS
adjustment having been imposed, in accordance with the terms of this
Agreement (in either case, the "Audit Terms"). An "Open Period" shall
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mean any period not covered by a Tax Audit if there has been a
Conclusion of such Tax Audit.
Credit Payment Amounts which are credited or paid to Seller other than
from Escrowed Funds with respect to Open Periods shall, subject to the
second paragraph of Section 8.3(e), be computed in accordance with the
Audit Terms.
(d) If a new Tax Audit (the "New Tax Audit")
is commenced with respect to an Open Period before the expiration of
the applicable statute of limitations and after the Conclusion of a
Tax Audit, then a new Escrow Account shall not be established in
accordance with Section 8.3(a) with respect to such New Tax Audit, and
Credit Payment Amounts for the Open Period shall, subject to Section
8.3(e), continue to be computed in accordance with the applicable
Audit Terms.
(e) Upon the Conclusion of a New Tax Audit
with respect to an Open Period, the Credit Payment Amounts with
respect to the Open Period shall be recomputed in accordance with any
no-change letter, binding settlement or final court or administrative
decision resulting from the New Tax Audit.
If the statute of limitations for any Open Period expires without an
IRS adjustment having been imposed for such Open Period, the Credit
Payment Amounts with respect to such Open Period shall be recomputed
in accordance with the terms of this Agreement without regard to the
result of any Tax Audit, provided that such treatment is consistent
with Buyer's federal income tax returns (as amended) for such Open
Period. Buyer shall make reasonable efforts to claim all the Tax
Credits arising from the sale of production from the Assets during
each Open Period.
Promptly following a recomputation of Credit Payment Amounts pursuant
to the first two paragraphs of this Section 8.3(e), Buyer shall pay to
Seller (or Seller shall pay to Buyer) any amount to which Seller (or
Buyer) is entitled under such recomputation.
8.4 Settlements Resulting from a Tax Audit. If
Buyer elects to enter into a negotiated settlement with the IRS of any Tax
Audit adjustments, Buyer shall, in good faith, consult with Seller regarding
the suggested terms of such settlement; provided, however, that Buyer shall be
under no obligation to comply with any suggestion of Seller. Buyer shall
provide to Seller copies of all correspondence or pleadings between Buyer and
the IRS regarding any Tax Audit. Seller shall be entitled to monitor all
hearings and meetings with the IRS associated with such settlement
negotiations. Notwithstanding the foregoing, Section 12.8 shall govern
Seller's rights to monitor or control whether Tax Credits are available for
natural gas liquids.
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9. Covenants.
9.1 Cooperation and Access. Seller shall fully
cooperate with Buyer's post-Closing due diligence efforts, both at Seller's
offices and at the site of the Assets.
9.2 Insurance. At or prior to the Closing,
Seller shall cause Buyer to be named as an additional insured on all insurance
policies Seller has that pertain in any way to the ownership and operation of
the Assets. At Closing, Seller will provide Buyer with Certificates of
Insurance naming Buyer as an additional insured, or other evidence,
satisfactory to Buyer, of compliance with this Section 9.2.
10. Closing Conditions.
10.1 Seller's Closing Conditions. The obligation
of Seller to consummate the transactions contemplated hereby is subject, at the
option of Seller, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Buyer contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Buyer to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Buyer shall have
executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Seller or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Seller resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
10.2 Buyer's Closing Conditions. The obligation
of Buyer to consummate the transactions contemplated hereby is
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subject, at the option of Buyer, to the satisfaction on or prior to the Closing
Date of all of the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Seller contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Seller to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Seller shall
have executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Buyer or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Buyer resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
(e) Engineering Confirmation.
Williamson Petroleum Consultants, Inc., using the same cost and
pricing assumptions as used in the Reserve Report, shall confirm that
Seller's estimates of the amount of reserves and estimated annual
production rates with respect to the Assets are, in the aggregate,
reasonable.
(f) Tax Opinion. On or before the
Closing Date, Buyer shall have received the Tax Opinion described in
Section 8.1.
11. Closing. The consummation of the transactions
contemplated hereby (the "Closing") shall occur, either in person or by
facsimile, at the offices of Davis, Graham & Stubbs LLP on the date of this
Agreement (the "Closing Date") or at such other time and place as the parties
may agree to in writing. At 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 (except where the documents involved
indicate otherwise):
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11.1 Payment of Purchase Price. Buyer shall
deliver the Purchase Price by wire transfer to Seller's account in accordance
with written instructions supplied by Seller at least three days prior to the
Closing Date.
11.2 Section 15.2 Payment. Seller and Buyer shall
pay to the other, in cash or its equivalent, the amount due pursuant to Section
15.2, if any, as reimbursement for the expenses incurred in connection with
this transaction.
11.3 Notice of Preferential Rights and Consents.
Seller shall deliver to Buyer a copy of the notices sent to and any responses
received from third parties regarding preferential rights to purchase and
consents affecting the Assets with respect to the transactions contemplated by
this Agreement.
11.4 Release of Mortgages and Liens. Seller shall
deliver to Buyer releases of mortgages and other liens held by the banks and
other lending institutions to which Seller is obligated under the Credit
Agreement.
11.5 Assignment; Option. Seller and Buyer shall
execute and deliver the Assignment and the Option. In addition, Seller shall
prepare and Seller and Buyer shall execute such other conveyances on official
forms and related documentation necessary to transfer the Assets to Buyer in
accordance with requirements of governmental regulations; provided, however,
that any such separate or additional conveyances required pursuant to this
Section 11.5 or pursuant to Section 15.1 (i) shall evidence the conveyance and
assignment of the Assets made or intended to be made in the Assignment, (ii)
shall not modify or be deemed to modify any of the terms, reservations,
covenants and conditions set forth in the Assignment, and (iii) shall be deemed
to contain all of the terms, reservations and provisions of the Assignment, as
though the same were set forth at length in such separate or additional
conveyance.
11.6 Non-Foreign Ownership Affidavits. Seller
shall deliver to Buyer the affidavits of non-foreign ownership substantially in
the form of Exhibit N, one stating that Seller is a non-foreign entity for
federal income tax purposes, and the other stating that there is no obligation
for Colorado withholding tax under C.R.S. Section 39-22-604.5.
11.7 Ratification of Obligations. Buyer shall
cause its members (Fontenelle, Inc., Bald Prairie, Inc. and SSB Investments,
Inc.), FMR Corp. and State Street Boston Corporation to execute and deliver to
Seller a ratification of their respective obligations under the Contribution
Agreements and Guaranty Agreements contemplated in that Purchase and Sale
Agreement dated December 1, 1995 between Buyer and HS. The ratification shall
be substantially in the form of the Ratification of Obligations attached hereto
as Exhibit O.
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11.8 Evidence of Insurance. Seller shall provide
Buyer with certificates from Seller's insurers or other evidence that Buyer has
been named an additional insured on Seller's policies affecting the Assets.
11.9 Seller's Manager's Certificate. Seller shall
execute and deliver to Buyer the Manager's Certificate, substantially in the
form attached as Exhibit P.
11.10 Opinion on Behalf of Seller. Seller shall
deliver to Buyer an opinion substantially in the form set forth in Exhibit Q.
11.11 Buyer's Manager's Certificate. Buyer shall
execute and deliver to Seller the Manager's Certificate substantially in the
form attached as Exhibit R.
11.12 Opinions on Behalf of Buyer. Buyer shall
deliver to Seller the following opinions, substantially in the respective forms
of opinion set forth in Exhibit S:
(a) Opinion of counsel for FMR Corp.
(b) Opinion of counsel for State Street
Boston Corporation and SSB Investments, Inc.
(c) Opinion of Davis, Graham & Stubbs
LLP regarding Wattenberg Gas Investments, LLC.
11.13 Management Agreement. Seller and Buyer shall
execute and deliver the Management Agreement (the "Management Agreement") and
Memorandum of Management Agreement and Power of Attorney substantially in the
forms set forth in Exhibit T.
11.14 Performance Power of Attorney. Buyer shall
execute and deliver to Seller counterparts of a Limited Power of Attorney,
substantially in the form of Exhibit V.
11.15 Tax Opinion. Buyer shall deliver to Seller a
copy of the Tax Opinion of AA.
11.16 Consent to Amendments of LLC Agreement.
Seller shall deliver its consent and shall cause HS and its wholly-owned
subsidiary Orion Acquisition, Inc., a Delaware corporation ("Orion"), to
deliver to Buyer their respective consent to the amendments to Sections 2.8,
3.2(a) and 9.2 of Buyer's Limited Liability Company Operating Agreement,
amended and restated as of April 25, 1996, May 21, 1996 and June 14, 1996.
11.17 Additional Instruments. Seller and Buyer
shall execute, acknowledge and deliver to each other such
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additional instruments as are reasonable and customary to accomplish the
purposes of this Agreement.
12. Post-Closing Matters.
12.1 Files and Records. Following Closing, Seller
shall retain physical possession of all lease files, land files, division order
files, production marketing files and production records in Seller's possession
relating to the Assets (the "Records"). However, except to the extent that
Buyer's inspection thereof would violate legal constraints or legal
obligations, Buyer shall have the right to inspect the Records in Seller's
offices at any reasonable time. At Buyer's request in writing (which written
request may be delivered by facsimile), to the extent that Seller's delivery
thereof would not violate legal constraints or legal obligations, Seller shall
make copies of the Records or materials in the Records at Seller's expense and
shall deliver said copies to Buyer at Seller's expense, provided that Seller
may charge Buyer the actual costs for such copies and delivery if such costs
exceed $250 per request. If Buyer requires copies of the Records for its own
account, Seller will permit Buyer, at Buyer's own expense, to make copies of
pertinent material contained in the Records to the extent such action would not
violate legal constraints or legal obligations.
12.2 Sales Taxes and Recording Fees. Seller shall
be responsible for making the payment to the proper authorities of all taxes
and fees occasioned by the sale of the Assets, including without limitation,
any transfer fees and sales taxes (which are to be apportioned one-half to
Seller and one-half to Buyer), and any documentary, filing and recording fees
required in connection with the filing and recording of any assignments or
conveyances delivered hereunder in the appropriate county, federal and/or state
records.
12.3 Purchase Price Rebates for Defective
Interests. In addition to the remedy provisions of Section 12.8, Buyer shall
be entitled to the following rebate if Seller does not have Defensible Title to
the Assets. At any time and from time to time if Buyer discovers that Seller
breached the representation and warranty set forth in Section 7.8 or 7.12,
Buyer may give Seller a Notice of Defective Interests, which notice shall
describe the Defective Interest and the basis for the Defective Interest.
Buyer shall be entitled to a rebate in the Purchase Price for a Defective
Interest which shall equal the difference between the Purchase Price and the
product of the Purchase Price multiplied by a fraction, the numerator of which
is the volume of reserves (net to Buyer) allocated to the Wells not affected by
the Defective Interest and the denominator of which is the total volume of
reserves (net to Buyer) allocated to all of the Wells in the Reserve Report;
provided, however, that if the Defective Interest does not remain in effect
during the entire productive life of the subject Well, such fact shall be
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taken into account in determining the amount of the rebate in the Purchase
Price.
The rebate of the Purchase Price calculated above shall be
paid from Seller to Buyer if and only if the aggregate amount to be rebated
with respect to all Defective Interests exceeds a threshold of $35,000, and if
such amount is exceeded, the rebate shall be made for all Defective Interests.
In addition to rebating a portion of the Purchase Price on account of Defective
Interests, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, by multiplying such amount or number,
as the case may be, by a fraction, the numerator of which is the aggregate
volume of reserves associated with the Assets without such Defective Interest
and the denominator of which is the total volume of reserves allocated to all
of the Assets.
12.4 Purchase Price and Other Rebates for
Exercised Preferential Purchase Rights, Failure to Obtain Consents. If the
holder of any preferential purchase right exercises such right and Seller
cannot validly convey the affected Asset to Buyer, or if a required consent
(except for Governmental Consents) to assign is not obtained or deemed obtained
within 45 days following Closing and the affected Asset cannot be validly
conveyed to Buyer, a portion of the Purchase Price shall be rebated for the
value of such affected Asset and such affected Asset shall be excluded from the
Assets conveyed to Buyer pursuant to the terms hereof (collectively the
"Excluded Assets"). The amount of the rebate in the Purchase Price for an
Excluded Asset shall be determined in accordance with the provisions of Section
12.3. In addition to rebating a portion of the Purchase Price on account of
Excluded Assets, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, for the Excluded Assets in accordance
with the provisions of Section 12.3.
12.5 Reconveyance of Excluded Assets. Seller
shall provide to Buyer, within 45 days following Closing, copies of all
responses from third parties regarding the notices sent to such third parties
pursuant to Section 11.3. Upon written request from Seller, Buyer shall
reconvey to Seller all Excluded Assets, free and clear of any burdens, liens
and encumbrances created by, through or under Buyer.
12.6 Allocation of Commingled Production and
Costs. Seller may have interests in the lands covered by the Leases that are
not part of the Assets ("Seller's Interests"), which are producing hydrocarbons
into a Well and such hydrocarbons are commingled with the hydrocarbons produced
from the Assets. Seller shall use reasonable efforts to ensure that
hydrocarbon production from the Wells is allocated between Seller's Interests
and the Assets on a reasonable basis,
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consistent with industry standards and in accordance with procedures, if any,
that have been approved by appropriate state and federal agencies. Costs and
expenses shall be allocated between the Seller's Interests and the Assets in
accordance with the allocation of production between the Seller's Interests and
the Assets; provided that costs and expenses directly attributable to Seller's
Interests shall be allocated to such Seller's Interests, and costs and expenses
directly attributable to the Assets shall be allocated to and debited against
the Net Profits Account under the Assignment.
12.7 Performance of Buyer. Seller shall be
entitled to the remedy of specific performance of Buyer's obligations under
this Agreement in order to be assured of the benefits contemplated under this
Agreement, the Assignment, Option or Management Agreement. Should Buyer fail
to perform any obligation under this Agreement, the Assignment, Option or
Management Agreement, which if unremedied would have a material adverse effect
on Seller, then Seller may give written notice to Buyer of such failure to
perform. If Seller gives such notice and Buyer does not remedy such failure
within 60 days of receipt of such notice, in addition to the remedy of specific
performance, Seller shall have the right to cause the attorney-in-fact of Buyer
identified in the Limited Power of Attorney to execute an Assignment, Bill of
Sale and Conveyance in a form substantially similar to that set forth in
Exhibit X covering any or all of the Assets which are adversely affected by
such failure. Seller and Buyer expressly waive any and all claims against the
attorney-in-fact named in the Limited Power of Attorney and any right to enjoin
such attorney-in-fact.
12.8 Overpayments. For purposes of this Section 12.8, the
term "Payment Period" shall have the meaning given it in the Assignment.
(i) If at any time Buyer is determined to have
paid Seller more than the amount then due with respect to any Credit
Payment Amount as a result of a breach by Seller of its
representations and warranties in Section 7, then as Buyer's exclusive
remedy, Seller shall be obligated to return any such overpayment,
limited to amounts actually paid to Seller by Buyer, after Buyer
notifies Seller of the amount of such overpayment and provides Seller
substantiation thereof. Alternatively, Buyer may elect to offset the
amount of any such overpayment against future Credit Payment Amounts.
(ii) The Credit Payment Amount shall include
payments for credits attributable to natural gas liquids produced from
the Subject Hydrocarbons until Buyer provides Seller with (a) a copy
of a published or private ruling, court decision or other authority
which supports the position that IRC Section 29 credits are not
available for such natural gas liquids (the "IRS Position"), and (b)
an opinion
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reasonably satisfactory to Seller from a "big-six" accounting firm (or
other accounting or law firm acceptable to both Seller and Buyer)
that, in its view, there is not "substantial authority" under IRC
Section 6662 for taking a position that is contrary to the IRS
Position.
(iii) After Buyer provides Seller with an authority
and an opinion in accordance with Section 12.8(ii), the Credit Payment
Amount shall no longer include payments for Tax Credits which are
inconsistent with the IRS Position until Seller provides Buyer with
(a) a copy of a published or private ruling, court decision or other
authority which is contrary to the IRS Position, and (b) an opinion
reasonably satisfactory to Buyer from a "big-six" accounting firm (or
other accounting or law firm acceptable to both Seller and Buyer)
that, in its view, there is "substantial authority" under IRC Section
6662 for taking a position that is contrary to the IRS Position.
(iv) After Seller provides Buyer with a copy of an
authority and an opinion in accordance with Section 12.8(iii), (a) the
Credit Payment Amount shall thereafter include payments for Tax
Credits based upon the position of such opinion (unless and until
Buyer again provides Seller with a copy of an authority and an opinion
in accordance with Section 12.8(ii) with respect to such position),
and (b) the Credit Payment Amount for the first Payment Period
following the receipt of such opinion shall include an amount equal to
the increase in prior Credit Payment Amounts that would result from
recomputing the prior Credit Payment Amounts in accordance with the
position of such opinion.
(v) If the IRS asserts in a Tax Audit that IRC
Section 29 credits are not available for portions of production (the
"Disputed Production") from the Subject Hydrocarbons on the ground
that IRC Section 29 credits are not available for natural gas
liquids, then (a) the computation of the Credit Payment Amount shall
continue to include Tax Credits from the sale of natural gas liquids
subject to Sections 12.8(ii) and (iii) above; (b) Credit Payment
Amounts attributable to the production from the Subject Hydrocarbons
shall be escrowed and distributed as required by, and in accordance
with, the provisions of Section 8.3 (if Buyer has not waived its
rights to have such amounts escrowed pursuant to Section 8.3); and (c)
Seller shall have the right to participate, in accordance with the
provisions of Section 12.8(vii), in challenging the IRS Position that
natural gas liquids do not qualify for IRC Section 29 credits.
(vi) Should Buyer receive either a 90-day letter
or final partnership administrative adjustment (either, an
"Adjustment") holding that Tax Credits are not available for Disputed
Production, then Seller shall pay Buyer within 60 days of the receipt
by Seller of a copy of the Adjustment,
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an amount equal to 70% of the amount of all IRC Section 29 credits
with respect to Disputed Production prior to the applicable Escrow
Commencement Date which were disallowed in the Adjustment, such
payment not to exceed the Credit Payment Amount previously paid by
Buyer with respect to such Disputed Production. Upon the Conclusion
of the applicable Tax Audit, Buyer shall repay to Seller any portion
of the amount paid pursuant to the preceding sentence that would not
have been payable if the Adjustment had conformed to the
determinations reached in the Conclusion of the Tax Audit.
(vii) Buyer agrees to keep Seller fully and
promptly informed of all administrative and court proceedings with
respect to the qualification of natural gas liquids for IRC Section
29 credits. Upon the commencement of any such proceeding, Seller
shall have the right to participate, at its own expense, in
challenging the IRS Position that natural gas liquids do not qualify
for IRC Section 29 credits. Buyer shall fully cooperate in any such
challenge, including without limitation the execution of protests,
petitions and complaints if requested by Seller in the course of such
challenge, and the determination of the nature, method, timing, forum,
strategy, issuances of and response to settlement proposals, counsel
and issues in connection with such challenge shall be at the
discretion of Seller. Seller shall indemnify and hold harmless Buyer
with respect to any liability incurred in connection with providing
such cooperation, and shall reimburse Buyer for all costs incurred (as
incurred and in no event less frequently than quarterly) in doing so,
including reimbursement for a reasonable amount of internal overhead,
and reasonable attorneys' and accountants' fees. If, in connection
with requests for cooperation with respect to such a challenge, Buyer
determines that it is likely to incur an expense to a third party
other than its own attorneys and accountants, then, before incurring
the expense, Buyer shall promptly give notice to Seller. If Seller
declines to reimburse Buyer for the actual amount to be expended in
complying with such request, then Buyer shall be excused from
complying with such request.
12.9 Review of Aggregate Credit Payment Amount
Figure. From time to time, at the written request of either Seller or Buyer,
Seller and Buyer shall in good faith reevaluate the aggregate Credit Payment
Amount figure of $300,000 set forth in Section 4.2 above, and in Paragraph
1.a(vii) of the Option to determine if such figure should be reduced in
exchange for Seller's identification of alternative qualified leases and wells
("Alternative Assets") and the assignment of such Alternative Assets to Buyer
in accordance with an agreement having terms substantially similar to the terms
of this Agreement. If a determination is made to reduce such figure, Seller
and Buyer shall enter into a written agreement regarding the terms of the
reduction, Seller shall assign the Alternative Assets to Buyer,
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and Buyer shall grant to Seller an option to repurchase the Alternative Assets
under terms substantially similar to those set forth in the Option.
12.10 Representations of Seller and Buyer to
Survive Closing. The representations of Seller under Section 7 above, and the
representations of Buyer under Section 6 above, shall survive Closing.
13. Apportionment of Liabilities and Obligations.
13.1 Buyer. Upon Closing, Buyer shall assume and
pay for all costs, expenses, liabilities and obligations accruing or relating
to the owning, operating or maintaining of the Assets or the producing,
transporting and marketing of hydrocarbons from the Assets, relating to periods
on and after the Effective Date, including without limitation, environmental
obligations and liabilities, off-site liabilities associated with the Assets,
the obligation to plug and abandon all Wells and reclaim all Well sites and all
obligations arising under agreements covering or relating to the Assets
(collectively, the "Post-Effective Date Liabilities").
13.2 Seller. Upon Closing, Seller shall retain,
assume and pay for all costs, expenses, liabilities and obligations accruing or
relating to the owning, operating or maintaining of the Assets or the
producing, transporting and marketing of hydrocarbons from the Assets, relating
to periods before the Effective Date, including without limitation,
environmental obligations and liabilities, the obligation to plug and abandon
wells (to the extent relating to periods prior to the Effective Date), off site
liabilities associated with the Assets, and all obligations arising under
agreements covering or relating to the Assets (collectively, the "Pre-Effective
Date Liabilities").
14. Indemnification. For the purposes of this Agreement,
"Losses" shall mean any actual loss, cost and expense (including reasonable
fees and expenses of attorneys, technical experts and expert witnesses),
liability, and damage (including those arising out of demands, suits, sanctions
of every kind and character); provided, however, that in no event shall
"Losses" be deemed to include consequential damages of a party to this
Agreement.
14.1 Buyer's Indemnification of Seller. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Buyer shall indemnify and hold harmless Seller, its officers,
directors, shareholders, employees, representatives, agents, successors and
assigns, forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Post-Effective Date Liabilities, and (ii)
Buyer's breach of its representations, warranties and covenants in this
Agreement.
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14.2 Seller's Indemnification of Buyer. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Seller shall indemnify and hold harmless Buyer; its officers;
directors; members; employees; representatives; agents; successors and assigns;
and the employees, representatives, agents, successors and assigns of such
members forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Pre-Effective Date Liabilities, and (ii)
Seller's breach of its representations, warranties and covenants in this
Agreement regardless of Seller's knowledge if such representations or
warranties are knowledge qualified, provided that the matters contemplated in
this clause (ii) shall not apply to the representations set forth in Section
7.6. Buyer and Seller shall cooperate fully and consult in good faith with
each other in the litigation of any matter identified in this Section 14.2.
Notwithstanding any of the foregoing provisions of this Section 14.2,
Buyer shall be entitled to payment for matters indemnified under this Section
14.2 only after a court of competent jurisdiction makes a final determination
regarding the matter litigated; provided that such payment shall cover only
Losses incurred by Buyer which have not been remedied by Seller under the
escrow provisions of Section 8.3 above and/or the overpayment provisions of
Section 12.8 above.
14.3 Third Party Claims. If a claim by a third
party is made against Seller or Buyer (an "Indemnified Party"), and if such
party intends to seek indemnity with respect thereto under this Section 14,
such Indemnified Party shall promptly notify Buyer or Seller, as the case may
be (the "Indemnitor"), of such claim. The Indemnitor shall have 30 days after
receipt of such notice to undertake, conduct and control, through counsel of
its own choosing and at its own expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with it in connection therewith; provided
that the Indemnitor shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified Party,
however, the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as the Indemnitor, at its cost and expense, (1) has
undertaken the defense of, and assumed full responsibility for all Losses with
respect to, such claim, and (2) is reasonably contesting such claim in good
faith, by appropriate proceedings, the Indemnified Party shall not pay or
settle any such claim. Notwithstanding compliance by the Indemnitor with the
preceding sentence, the Indemnified Party shall have the right to pay or settle
any such claim, provided that in such event it shall waive any right to
indemnity therefor by the Indemnitor for such claim. If, within 30 days after
the receipt of the Indemnified Party's notice of a claim of indemnity
hereunder, the Indemnitor does not notify the Indemnified Party that it elects,
at Indemnitor's cost and expense, to undertake the defense thereof and assume
full responsibility for all Losses with respect thereto, or gives such notice
and thereafter fails
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to contest such claim in good faith, the Indemnified Party shall have the right
to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement.
14.4 HS Guarantee. HS and Orion (collectively,
HS) hereby, jointly and severally, unconditionally guarantee the punctual
payment and performance by Seller of all obligations due Buyer under this
Agreement and under all instruments contemplated hereunder to which Seller is a
party, and agree to pay all costs, expenses (including reasonable attorneys'
fees and expenses associated with claims made by Buyer against HS, but not
against Seller), liabilities and obligations incurred by Buyer in enforcing any
rights under this Agreement and the instruments contemplated hereby with
respect to owning, operating or maintaining the Assets or producing,
transporting and marketing of hydrocarbons from the Assets (all such
obligations being referred to herein as the "Obligations"). Without limiting
the generality of the foregoing, HS' liability hereunder shall extend to all
amounts which constitute part of the Obligations and would be owed by Seller
under this Agreement or the instruments contemplated hereunder but for the fact
that they are unenforceable or limited due to the existence of a bankruptcy,
reorganization or similar proceeding involving Seller.
(a) Guarantee Absolute. HS guarantees
that the Obligations will be paid or performed, as appropriate, strictly in
accordance with the terms of this Agreement and any instrument contemplated
hereby to which Seller is a party, and any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of Buyer with respect thereto. The obligations of HS under this
guarantee are independent of the Obligations, and a separate action or actions
may be brought and prosecuted against HS to enforce this guarantee,
irrespective of whether any action is brought against Seller or whether Seller
is joined in any action or actions.
(b) Notice. HS hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations and this guarantee and any requirement that Buyer
exhaust any right or take any action against Seller or any other person.
(c) Representation and Warranties. HS
hereby represents and warrants as follows:
(i) There are no conditions precedent to the
effectiveness of this guarantee that have not been satisfied or
waived.
(ii) HS is a corporation duly organized and in good
standing under the laws of the State of Delaware.
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(iii) This guarantee has been duly authorized by all
necessary corporate action; is binding upon and enforceable against
HS in accordance with its terms; and will not violate or constitute a
default under its Certificate of Incorporation or by-laws, or any
agreements or indentures to which HS is a party or by which HS or its
properties are bound.
(d) Amendments, Consents. No amendment
or waiver of any provision of this guarantee, and no consent to any departure
by HS herefrom, shall in any event be effective unless the same shall be in
writing and signed by Buyer, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(e) Continuing Guarantee. This
guarantee by HS is a continuing guarantee and shall (1) remain in full force
and effect until the later of (i) the payment or performance in full of the
Obligations, and (ii) the termination of both this Agreement and the Management
Agreement contemplated hereunder; (2) be binding upon HS, its successors and
assigns; and (3) inure to the benefit of, and be enforceable by, Buyer and its
successors and assigns.
15. Miscellaneous.
15.1 Further Assurances. After Closing, Seller
and Buyer shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and take such other action as may
be reasonably necessary or advisable to carry out the purposes and intents of
this Agreement and any document, certificate or other instrument delivered
pursuant hereto.
15.2 Expenses. Seller and Buyer each agree to pay
one-half of the reasonable costs and expenses of Williamson Petroleum
Consultants, Inc., Arthur Andersen LLP and Davis, Graham & Stubbs LLP incurred
in connection with this transaction, subject to receipt of evidence and
substantiation thereof. Such costs and expenses shall not include any costs or
expenses associated with the Tax Opinion. Seller and Buyer shall pay their
respective amount of taxes and fees, apportioned to each under Section 12.2.
15.3 Notices. All notices under this Agreement
shall be in writing and addressed as set forth below. Any communication or
delivery hereunder shall be deemed to have been duly made and the receiving
party charged with notice (i) if personally delivered or telecopied, when
received, (ii) if mailed, three business days after mailing, certified mail,
return receipt requested, or (iii) if sent by overnight courier, one day after
sending. All notices shall be addressed as follows:
If to Seller:
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Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Telephone: (303) 762-9991
Fax: (303) 762-9992
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Buyer:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Any party may, by written notice so delivered to the other party, change the
address or individual to which delivery shall thereafter be made.
15.4 Survival. The representations, warranties,
covenants, agreements and indemnities included or provided in this Agreement
shall survive the Closing. The doctrine of merger shall not cause any
representation, warranty, covenant, agreement or indemnity under this Agreement
to terminate as a result of
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<PAGE> 37
Buyer and Seller entering into the Assignment, Option or any other instrument
contemplated hereunder.
15.5 Confidentiality. Buyer and Seller shall keep
this Agreement confidential except to the extent each may be required to
disclose the contents hereof by recording the Assignment, Option, and
Memorandum of Management Agreement and Power of Attorney in the real property
records in the counties where the Assets are located or filing the official
forms of conveyances covering the Assets with appropriate governmental
authorities, the IRS or to the extent required in the operation of the Assets,
pursuant to the Management Agreement, by law, regulation or order, in
connection with obtaining third party consents and waivers of preferential
purchase rights and other matters, or in connection with any public
announcement issued in accordance with Section 15.6 hereof.
15.6 Announcements. Seller and Buyer shall
consult with each other regarding all press releases and other public
announcements issued at, prior to or following Closing concerning this
Agreement or the transactions contemplated hereby and except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange. Neither Buyer nor Seller shall issue any such press
release or other public announcement without the prior written consent of the
other party, which consent will not be unreasonably withheld. In all such
press releases and other public announcements, Seller shall refer to Buyer as
being affiliated with large east coast financial institutions.
15.7 Assignment. Neither Buyer nor Seller may
assign its rights or delegate its duties or obligations under the terms of this
Agreement without the prior written consent of the other party, provided that
either Buyer or Seller may assign its rights, but not its obligations under
this Agreement, to any party (including any affiliated or nonaffiliated party)
as long as such assignment does not relieve the assigning party of its
obligations to the other party hereto, and provided further that Buyer may not
cause or permit an assignment, transfer, sale, alienation or other disposition
of all or any portion of the Assets which would result in the transferred
Assets becoming "plan assets" under the Employee Retirement Income Security Act
of 1974, as amended. Notwithstanding the foregoing provisions of this Section
15.7, Seller shall be entitled without prior consent, but upon written notice
within a reasonable time thereafter, to assign or otherwise convey to HS or
Orion all or any portion of the Production Payment, Reversion Interest or
Seller's obligations to Buyer under this Agreement, the Assignment, the
Management Agreement or the Option. Such an assignment or conveyance of
obligations to HS or Orion shall serve to release Seller from any such
obligations and to substitute HS or Orion, as appropriate, to be the obligor
under such obligations; provided, however, that such an assignment or
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conveyance to Orion shall not release HS from its obligations under Section
14.4 above.
15.8 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
successors and, subject to Section 15.7 hereof, their assigns.
15.9 Complete Agreement. When executed by the
authorized representative of Seller and Buyer, this Agreement, the Exhibits
hereto and the documents to be delivered pursuant hereto shall constitute the
complete agreement between the parties. This Agreement may be amended only by
a writing signed by both parties.
15.10 Knowledge. As used in this Agreement, the
term "knowledge," "best knowledge" or any variations thereof shall mean the
actual knowledge of any fact, circumstance or condition by the officers or
employees at a manager or higher level of the party involved as such knowledge
has been obtained in the performance of their duties in the ordinary course of
business after making reasonable and appropriate inquiries.
15.11 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF COLORADO
WITHOUT REFERENCE TO THE CONFLICT OF LAW PROVISIONS THEREOF.
15.12 Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each party and delivered to the other party.
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<PAGE> 39
EXECUTED as of the date first above mentioned.
BUYER:
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
SELLER:
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
David G. Stolfa
Manager
HS Resources, Inc., a Delaware corporation, and its wholly-owned subsidiary
Orion Acquisition, Inc., a Delaware corporation, are signatories to this
Agreement for the purpose of confirming their obligations under Section 14.4.
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - --------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - --------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
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<PAGE> 40
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996 by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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<PAGE> 41
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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<PAGE> 42
EXHIBITS
Exhibit A Leases (Weld County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Manager's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
<PAGE> 43
EXHIBIT C
WELLBORE ASSIGNMENT OF OIL AND GAS LEASES
WITH RESERVATION OF PRODUCTION PAYMENT
THIS WELLBORE ASSIGNMENT OF OIL AND GAS LEASES WITH
RESERVATION OF PRODUCTION PAYMENT (this "Assignment") is made effective as of
June 1, 1996 (the "Effective Date") by and between Wattenberg Resources Land,
L.L.C., a Delaware limited liability company, whose manager has an office at
3300 South Columbine Circle, Englewood, Colorado 80110 (herein called
"Grantor"), and Wattenberg Gas Investments, LLC, a Delaware limited liability
company, 82 Devonshire Street, R22C, Boston, Massachusetts 02109 (herein called
"Grantee").
ARTICLE 1
CERTAIN DEFINITIONS AND REFERENCES
1.1 CERTAIN DEFINED TERMS. When used in this Assignment, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Affiliate" shall mean (a) any person directly or indirectly
owning, controlling or holding with power to vote 50% or more of the
outstanding voting securities of Grantee, (b) any person 50% or more
of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by Grantee, (c) any
person directly or indirectly controlling, controlled by or under
common control with Grantee, and (d) any officer, director or partner
or member of Grantee or any person described in clause (c) of this
definition.
"Assignment" is defined in the first paragraph above.
"Business Day" shall mean a day on which commercial banks are
open for business in both the Commonwealth of Massachusetts and the
State of Colorado.
"Effective Date" is defined in the first paragraph.
"Full Production Date" shall mean the date on which the total
volume of gas attributable to the Subject Hydrocarbons produced, saved
and sold from and after the Effective Date equals a volume equivalent
to 2,800,043 MCF (wellhead gas, net to Grantee); provided that such
volume shall be decreased by an amount, if any, equal to the aggregate
volume of reserves allocated to properties on which Grantor has
exercised the Option.
C-1
<PAGE> 44
"Grantee" shall mean Grantee as defined in the first paragraph
of this Assignment, and its successors and assigns and, unless the
context in which used shall otherwise require, such term shall mean
any successor-owner at the time in question of any or all of the
Subject Interests.
"Grantor" shall mean Grantor as defined in the first paragraph
and its successors and assigns; and, unless the context in which used
shall otherwise require, such term shall mean any successor-owner at
the time in question of any or all of the Production Payment.
"Gross Proceeds" shall have the meaning assigned to it in
Section 4.2(a).
"Leases" is defined in Section 2.1(a).
"Management Agreement" means the Management Agreement between
Grantor and Grantee dated effective as of June 1, 1996.
"Measurement Amount" is defined in Section 4.5.
"Net Profits" for any Payment Period shall mean the net
balance, positive or negative, resulting after application of the
credits and debits as provided in Sections 4.2 and 4.3 for such
period.
"Net Profits Account" shall have the meaning assigned to it in
Section 4.1.
"Non-Affiliate" shall mean any Person who is not an Affiliate.
"Option" shall mean that Option to Purchase Oil and Gas
Interests between Grantee and Grantor dated effective as of June 1,
1996.
"Other Income" is defined in Section 4.2(b).
"Payment Period" shall mean a calendar quarter, provided that
the first Payment Period shall mean the period from the Effective Date
until the end of the calendar quarter during which the Effective Date
occurs, and the last Payment Period shall mean the portion of the
calendar quarter during which the Termination Date occurs from the
beginning of such calendar quarter until and including the Termination
Date.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation or other legal
entity.
"Production Payment" is defined in Section 3.1.
C-2
<PAGE> 45
"Production Payment Period" shall mean the period from the
Effective Date until and including the Termination Date.
"Production Sales Contracts" shall mean all contracts,
agreements and arrangements for the sale or disposition of Subject
Hydrocarbons that may be produced from or attributable to the Subject
Interests, whether presently existing or hereafter created.
"Purchase Agreement" means the Purchase and Sale Agreement
(Tax Partnership Properties) between Grantor and Grantee dated June
14, 1996.
"Reversion Interest" is defined in Section 3.3.
"Subject Hydrocarbons" shall mean that portion of the oil, gas
and other minerals in and under and that may be produced, from and
after the Effective Date, from or attributable to the Subject
Interests and after deducting the appropriate share of all royalties
and any overriding royalties (other than those overriding royalties
conveyed herein), production payments (except the Production Payment)
and other similar charges burdening the Subject Interests on the
Effective Date or additional burdens created under the Management
Agreement. There shall not be included in the Subject Hydrocarbons
any oil, gas or other minerals unavoidably lost in production or used
by Grantee in conformity with good oil field practices for production
operations (including without limitation, fuel, secondary or tertiary
recovery) conducted solely for the purpose of producing Subject
Hydrocarbons from the Subject Interests, but only so long as such
Subject Hydrocarbons are so used.
"Subject Interests" is defined in Section 2.1.
"Termination Date" shall mean the day on which the total
volume of gas attributable to Subject Hydrocarbons produced, saved and
sold from and after the Effective Date equals 2,020,216 MCF (wellhead
gas, net to Grantee); provided that such volume shall be decreased by
an amount, if any, equal to the aggregate volume of Subject
Hydrocarbons on which Grantor has exercised the Option, multiplied by
the ratio of 2,020,216 to 2,800,043.
"Wells" is defined in Section 2.1(a).
1.2 REFERENCES AND TITLES. All references in this Assignment to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Assignment
unless expressly provided otherwise. Titles appearing at the beginning of any
of such subdivisions are for convenience only and shall not constitute part of
such subdivisions and shall be disregarded in construing the language contained
in such subdivisions. The
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words "this Assignment", "this instrument", "herein", "hereof", "hereby",
"hereunder" and words of similar import refer to this Assignment (and
reservation of Production Payment) as a whole and not to any particular
subdivision unless expressly so limited. Words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires. All references in this Assignment to Exhibits or Schedules refer to
exhibits or schedules to this Assignment unless expressly provided otherwise,
and all such Exhibits or Schedules are hereby incorporated herein by reference
and made a part hereof for all purposes.
ARTICLE 2
ASSIGNMENT
2.1 For and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, TRANSFER,
ASSIGN, and CONVEY unto Grantee, its successors and assigns, all of the
following (the "Subject Interests"):
(a) The right, title and interest of Grantor in and to
the oil and gas leases described in Exhibit A (attached hereto and
made a part hereof for all purposes) insofar and only insofar as said
leases cover the right to produce from the wellbores of the wells
described in Exhibit B (attached hereto and made a part hereof for all
purposes) from the intervals in such wells identified in Exhibit B as
of the Effective Date (the above described interest in such leases
being herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions, limitations,
burdens, contracts, agreements and other matters applicable to the
Leases and the Wells, and excluding such portion of the Leases and the
Wells which are not conveyed to Grantee because of Defective Interests
or which were determined to be Excluded Assets (as such terms are
defined in the Purchase Agreement);
(b) The right, title and interest of Grantor in and to
overriding royalty interests in the Leases insofar and only insofar as
the Leases cover the wellbores associated with the Wells from the
producing intervals identified in Exhibit B;
(c) To the extent affected, the right, title and interest
of Grantor in and to, or derived from, the following insofar and only
insofar as same are attributable to the Leases and the Wells:
(i) The presently existing and valid oil,
gas or mineral unitization, pooling, operating and
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communitization agreements, declarations and orders affecting the
Leases and Wells, and in and to the properties covered and the units
created thereby;
(ii) The personal property and fixtures that
are appurtenant to the Wells, including all wells, casing, tubing,
pumps, separators, tanks, lines and other personal property and oil
field equipment appurtenant to such Wells; provided, however, that
Grantor shall remain co-owner of any personal property appurtenant to
any property owned by Grantor that is not exclusively part of the
Wells;
(iii) The presently existing and valid gas
sales, purchase, production swap, gathering and processing contracts
and operating agreements, joint venture agreements, partnership
agreements, rights-of- way, easements, permits and surface leases and
other contracts, agreements and instruments (but specifically
excluding any management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in (c)(i) above; provided, however, that
Grantor shall remain co-owner of any agreements, including unitization
and pooling agreements, if they pertain to any property owned by
Grantor that is not exclusively part of the Leases and Wells;
reserving to Grantor, however, the Production Payment, the Reversion Interest
and the other rights reserved herein, all as provided in Article 3 below; to
have and to hold the Subject Interests forever.
ARTICLE 3
RESERVATIONS
3.1 PRODUCTION PAYMENT. Grantor reserves unto itself, and its
successors and assigns, from this Assignment a production payment payable out
of and only from Subject Hydrocarbons equal to 100% of the Net Profits derived
from the Subject Hydrocarbons; such production payment to be effective during
the Production Payment Period and such payment, in any Payment Period, not to
exceed the Gross Proceeds during such Payment Period, (the "Production
Payment"); and subject to the terms and conditions contained herein.
3.2 SURFACE AND OTHER USE. Grantor reserves unto itself, and its
successors and assigns, from this Assignment the right to use as much of the
surface of the acreage covered by the Leases as well as the wellbores conveyed
hereunder as may be necessary in the conduct of operations in those zones,
formations and depths not assigned to Grantee herein and on other property
owned or leased by Grantor. Grantor further reserves the right to drill
through the depths, zones and formations herein assigned to Grantee in
conducting any operations in the depths, zones and
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formations not assigned herein or on other property owned or leased by Grantor,
and also the right to drill, produce, operate and maintain infill wells as
permitted by regulatory agencies having jurisdiction over such matters.
Grantor reserves the right to jointly use any easements and rights-of-way for
its operations on the land covered hereby or on other lands in the area.
3.3 REVERSION INTEREST AFTER FULL PRODUCTION DATE. Grantor
reserves unto itself, and its successors and assigns, an undivided 75% interest
in and to the Subject Interests from and after the Full Production Date (the
"Reversion Interest"); provided, however, that this reservation will not take
effect if the estimated net cash flow from operations and production of the
Subject Hydrocarbons remaining after the Full Production Date, when taken as a
whole, is not reasonably expected by Grantor in good faith to exceed the
estimated cost to plug and abandon the Wells. If the Full Production Date is
reached and this reversion becomes effective, Grantor and Grantee agree to
enter into a mutually acceptable Joint Operating Agreement to govern operation
of the Subject Interests after the Full Production Date, in form and substance
similar to the Model Form Operating Agreement typically used by Grantor at the
Full Production Date, naming Grantor as Operator. For the purposes of this
Section 3.3, net cash flow from operations and production means the excess of
revenue from production of Subject Hydrocarbons over the aggregate of operating
expenses, overhead costs and capital costs required to produce such Subject
Hydrocarbons.
3.4 SIDETRACK WELLBORE DRILLING RIGHTS. Grantor reserves unto
itself, and its successors and assigns, the right to drill sidetrack wellbores
and to produce oil, gas and other hydrocarbons from completions in such
sidetrack wellbores from the Wells with respect to the Leases, insofar and only
insofar as (i) such drilling operations are in accordance with local, state and
federal governmental authorities having jurisdiction over such operations, and
(ii) such drilling operations are conducted primarily to exploit oil and gas
reserves which cannot be economically or efficiently produced from the
wellbores of the Wells conveyed hereunder (the "Drilling Rights").
This reservation includes a corresponding right, title, interest and
estate in and to the property and rights incident to the Drilling Rights and
the lands covered thereby or unitized therewith, including, without limitation:
(1) A corresponding right to the presently existing oil, gas or
mineral unitization, pooling and communitization agreements,
declarations and orders relating to the Leases and the units
associated therewith (including, without limitation, all units formed
under orders, regulations, rules or other official acts of any
federal, state or other governmental agency having jurisdiction),
which relate to any of the Leases.
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(2) A corresponding right to the presently existing oil and gas,
sales, purchase, exchange and processing contracts, casinghead gas
contracts, operating agreements, joint venture agreements, area of
mutual interest agreements, farmout and farmin agreements and all
other contracts, agreements and instruments which relate to any of the
Leases or Wells and to the production of oil, gas and other minerals
from or attributable to the Leases or Wells, but only insofar as such
contracts, agreements and instruments relate to the rights conveyed
herein.
(3) A corresponding right to all personal property, improvements,
lease and well equipment, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or useful or held for future use
in connection with the exploration, development or operation or
maintenance of the Leases or Wells, or any unit or units or operation
or maintenance of the Leases or Wells, or any unit or units in which
part or parts of the Leases or Wells may be included.
(4) A corresponding right, title, interest and estate, whether
real, personal or mixed, of every nature and description in and to the
lands described on Exhibit A, whether such right, title, claim or
interest be under and by virtue of an oil, gas and mineral lease, an
operating agreement, a unitization, pooling or communitization
agreement, declaration or order, a division order, a transfer order or
any type of contract, conveyance or instrument, or under and by virtue
of any type of claim or title, legal or equitable recorded or
unrecorded, and even though Grantor's interests therein be incorrectly
described in or a description of such interest be omitted from the
exhibit thereto.
(5) A corresponding and concurrent right of ingress and egress to
and from the lands covered by the Leases for the purpose of exploring
for, drilling for, producing and marketing the hydrocarbons owned by
each of them at their respective depths and locations under the terms
of the Leases. Further, each party shall own and hold proportionally
any and all rights granted in the Leases or otherwise relating thereto
pursuant to any agreements, surface leases, permits, rights-of-way,
pooling declarations, licenses, governmental regulations or other
grant or instrument as incident to and for the purpose of exploring
for, drilling for and producing the minerals owned by them in their
respective depths and locations including the right to drill pursuant
to this Assignment, lay and maintain pipelines and waterlines, dig
pits, erect structures and to perform any and all other operations
incident to the rights and interests therein.
Grantor shall not be entitled to exercise the Drilling Rights as to
any well if such exercise would likely result in a
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termination of production from the associated Well for a period exceeding 90
days. Grantor shall promptly give Grantee reasonable notice concerning such
exercise, provided that such notice may be given either before or after the
commencement of the drilling of a sidetrack wellbore in a Well. All exercises
of the Drilling Rights must be conducted in accordance with the provisions of
the Sidetrack Wellbore Terms attached hereto as Schedule 1.
ARTICLE 4
PRODUCTION PAYMENT ACCOUNTING AND PAYMENT
4.1 ESTABLISHMENT OF NET PROFITS ACCOUNT. Grantee shall establish
and maintain a Net Profits Account (herein called the "Net Profits Account") in
accordance with the various provisions of this Assignment and at all times
during the Production Payment Period shall keep true and correct books and
records with respect thereto. Such books and records shall be open for
inspection, copying and audit by Grantor and its accountants and
representatives.
4.2 CREDITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Gross Proceeds and Other Income.
(a) "Gross Proceeds" shall mean, on an accrual basis, all
consideration, direct or indirect, from sales of Subject Hydrocarbons,
subject to the following:
(1) If a controversy exists (whether by reason of
any statute, order, decree, rule, regulation, contract, or
otherwise) as to the correct or lawful sales price of any
Subject Hydrocarbons, then at Grantor's sole election, Grantor
may choose to treat amounts affected by such controversy (i)
as Gross Proceeds of Grantee, or (ii) not as Gross Proceeds of
Grantee and require Grantee to promptly deposit such amounts
with an escrow agent pending settlement of such controversy,
provided that all amounts, excluding any interest or other
income, thereafter paid to Grantee by such escrow agent out of
or on account of such escrow shall be considered to be amounts
from the sale of Subject Hydrocarbons. Amounts of Grantee not
deposited with an escrow agent shall be considered Gross
Proceeds;
(2) Gross Proceeds relating to any non-consent
operations conducted with respect to all or any part of the
Subject Hydrocarbons after the Effective Date shall be subject
to Section 5.8;
(3) Gross Proceeds shall not include any amount
which Grantee shall receive as a bonus for any lease or
payments made to Grantor in connection with adjustment
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of the cost of any Well and leasehold equipment upon
unitization or revision of participating areas under federal
divided-type units covering any of the Subject Hydrocarbons;
(4) Cash settlements and cash make-ups with
respect to the Subject Hydrocarbons under gas balancing or
similar agreements shall be considered derived from the sale
of Subject Hydrocarbons;
(5) The proceeds from (i) all insurance and (ii)
all judgments, claims and settlements, which are used to
remedy, replace or repair losses or damages actually incurred,
to the extent such proceeds relate to the production of
Subject Hydrocarbons; and
(6) Gross Proceeds shall not include Other Income.
(b) "Other Income" shall mean, on an accrual basis, the
following:
(1) Proceeds after the Effective Date from (i)
the sale of any materials, supplies, equipment and other
personal property or fixtures, or any part thereof or interest
therein, used in connection with the Subject Hydrocarbons,
(ii) delay rentals, (iii) lease bonuses, and (iv) rentals from
reservoir use or storage; including without limitation all
amounts attributable thereto by way of conformance of
investment in personal property and equipment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from
time to time unitized or are affected by the revision of a
participating area in a federal divided-type unit;
(2) Proceeds from all insurance, other than to
remedy or repair losses or damages actually incurred, to the
extent such proceeds relate to the production of Subject
Hydrocarbons, (i) the cost of which is charged to the Net
Profits Account, directly or indirectly, and/or (ii) that
accrue to Grantee as a consequence of the loss or damage to
any one or more of the following which occurs after the
Effective Date: the Subject Hydrocarbons, or any part thereof
or interest therein, the interest of Grantee in any materials,
supplies, equipment or other personal property or fixtures
used in connection with any of the Subject Hydrocarbons;
except to the extent such amounts are used to repair or
replace the items damaged or lost giving rise to the receipt
of such amounts;
(3) Amounts from a purchaser of Subject
Hydrocarbons (i) as a prepayment of any portion of the
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sales price for such Subject Hydrocarbons, (ii) as advance gas
payments or (iii) as payments pursuant to contractual
provisions providing for "take-or-pay" payments (including
amounts awarded by a court or agreed to by the parties in any
settlement of a claim (net of costs and attorneys' fees
incurred in connection therewith) as damages for the failure or
refusal of the purchaser to take Subject Hydrocarbons pursuant
to the contract which contains such provisions) shall be
considered to be from the sale of Subject Hydrocarbons;
provided that such amounts shall not be considered to be from
the sale of Subject Hydrocarbons at a later date when Subject
Hydrocarbons are delivered in respect of any such payments
under "make-up" or similar provisions;
(4) Proceeds of (i) all insurance and (ii) all
judgments, claims and settlements, for damages to one or more
of the following which occurs after the Effective Date: to
the extent such proceeds relate to the production of Subject
Hydrocarbons, or any part thereof or interest therein; any
materials, supplies, equipment or other personal property or
fixtures, or any part thereof or interest therein, used in
connection with any of the Subject Hydrocarbons; except to the
extent such amounts are used to repair, replace or remedy
losses or damages actually incurred, which gave rise to the
receipt of such amounts;
(5) Any interest, penalty or other amounts which
are attributable to the Subject Hydrocarbons and are not
derived from the sale of Subject Hydrocarbons;
(6) Any interest or other income earned on funds
deposited into an escrow account in accordance with the
provisions of Section 4.2(a)(1) above; and
(7) All other monies and things of value
attributable to ownership after the Effective Date of the
Subject Hydrocarbons and the materials, supplies, equipment
and other personal property and fixtures used in connection
with the Subject Hydrocarbons.
4.3 DEBITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be debited (without duplication), on an
accrual basis, with the following amounts:
(a) All direct costs which are attributable to production
of the Subject Hydrocarbons (i) for all direct labor (including fringe
benefits), other services and expenses necessary for developing,
operating, producing, reworking (including recompleting) and
maintaining the Subject Hydrocarbons after the Effective Date, (ii)
for
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dehydration, compression, separation, gathering, transportation and
marketing of the Subject Hydrocarbons after the Effective Date, and
(iii) for all materials, supplies, equipment and other personal
property and fixtures purchased for use in connection with the Subject
Hydrocarbons after the Effective Date (including without limitation
(A) all amounts necessary for conformance of investment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from time to
time unitized or if any participating area in a federal divided-type
unit is changed, and (B) the cost of secondary recovery, pressure
maintenance, repressuring, recycling and other operations conducted
for the purpose of enhancing production);
(b) Costs (including without limitation outside legal,
accounting and engineering services) attributable to the Subject
Hydrocarbons and allocated in accordance with revenues therefrom of
(i) handling, investigating and/or settling litigation, administrative
proceedings and claims (including without limitation lien claims other
than liens for borrowed funds) and (ii) payment of judgments,
penalties and other liabilities (including interest thereon), paid by
Grantee (and not reimbursed under insurance maintained by Grantee or
others) and involving any of the Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date, or requiring the payment or restitution of
any proceeds of Subject Hydrocarbons, or arising from tax or royalty
audits, except that there shall not be debited to the Net Profits
Account any expenses incurred by Grantee in litigation of any claim or
dispute arising hereunder between Grantee and Grantor or amounts paid
by Grantee to Grantor pursuant to a final order entered by a court of
competent jurisdiction resolving any such claim or dispute or amounts
paid by Grantee to Grantor in connection with the settlement of any
such claim or dispute;
(c) All taxes (except income, transfer, inheritance,
estate, franchise and like taxes) attributable to the ownership of the
Subject Hydrocarbons or the extraction of the Subject Hydrocarbons
after the Effective Date, including without limitation production,
severance, and/or excise and other similar taxes assessed against,
and/or measured by, the production of (or the proceeds or value of
production of) Subject Hydrocarbons (without regard to the period of
ownership for which such taxes are assessed), occupation taxes, sales
and use taxes, and ad valorem taxes assessed against or attributable
to the Subject Hydrocarbons or any equipment located on any of the
Subject Interests, as such equipment is required for the production of
Subject Hydrocarbons;
(d) Insurance premiums attributable to the ownership or
operation of the Subject Hydrocarbons for insurance
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actually carried for periods after the Effective Date, or any
equipment located on any of the Subject Interests, as such equipment
is required for the production of Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date;
(e) All amounts attributable to the Subject Hydrocarbons
(to the extent attributable to periods after the Effective Date) and
consisting of (i) rent and other consideration attributable to the use
or damage to the surface and (ii) delay rentals, shut-in well
payments, minimum royalties and similar payments pursuant to the
provisions of agreements in force and effect before the Effective
Date;
(f) Amounts attributable to the Subject Hydrocarbons (to
the extent attributable to periods after the Effective Date) and
charged by the relevant operator as overhead charges specified in
applicable operating agreements (including applicable COPAS charges);
(g) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject
Hydrocarbons any amounts previously included in Gross Proceeds or
Other Income are reclaimed from Grantee or its representative, then
the amounts reclaimed as promptly as practicable following Grantee's
payment thereof;
(h) The Management Fee (as defined in the Management
Agreement) paid pursuant to the Management Agreement;
(i) If Grantee shall be a party as to any non-consent
operations conducted with respect to all or any of the Subject
Hydrocarbons after the Effective Date, all costs to be debited to the
Net Profits Account with respect thereto shall be governed by Section
5.8;
(j) Except as otherwise provided elsewhere in this
Assignment, all other direct expenditures attributable to the Subject
Hydrocarbons paid by Grantee after the Effective Date for the
necessary or proper development, operation, maintenance and
administration, after the Effective Date, of the Subject Hydrocarbons,
if reasonably incurred; provided, however, that notwithstanding
anything herein provided to the contrary, the Net Profits Account
shall not be debited with any cost or expense which is deducted or
taken into account in determining Gross Proceeds or Other Income,
including, without limitation, the value of any component of Gross
Proceeds or Other Income.
4.4 ACCOUNTING FOR NET PROFITS. All debits to the Net Profits
Account calculated pursuant to Section 4.3 which are attributable to costs and
expenses incurred during a Payment
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Period, up to and including the last day of such Payment Period, shall be
debited against the Net Profits Account as of the last day of such period. All
credits to the Net Profits Account calculated pursuant to Section 4.2 which are
attributable to the sale of Subject Hydrocarbons during a Payment Period, shall
be credited to the Net Profits Account as of the last day of such Payment
Period.
4.5 MEASUREMENT AMOUNT AND PAYMENT. As of the end of each Payment
Period, Grantee shall calculate an amount (the "Measurement Amount"), equal to
the sum of (a) any Measurement Amount carried forward from a prior Payment
Period and (b) the Net Profits for the then current Payment Period. Not more
than 75 days following a Payment Period, Grantee shall pay Grantor the lesser
of (i) the Measurement Amount for such Payment Period or (ii) Gross Proceeds
for the Payment Period in question. If the Measurement Amount for a Payment
Period is a negative amount, no payment shall be due and payable by Grantee to
Grantor hereunder for such Payment Period, and the negative amount shall be
carried forward for the next and succeeding Payment Periods until such deficit
is wiped out and liquidated. If the Measurement Amount for the Payment Period
is a positive amount and exceeds Gross Proceeds for the Payment Period, the
excess Measurement Amount shall be carried forward to the next Payment Period.
Grantee shall send to Grantor at the same time set for the payment a
statement showing the calculation of the Measurement Amount, the reason for any
nonpayment, the condition of the Net Profits Account as of the close of
business on the last day of the relevant Payment Period and clearly showing
(with sufficient description so that Grantor can identify such items and the
particular Subject Hydrocarbons involved) those items which gave rise to debits
and credits to the Net Profits Account during such Payment Period and clearly
showing for each Subject Interest the quantities of Subject Hydrocarbons
produced therefrom during the Payment Period covered by such statement, the
volumes of such production sold, the prices at which such volumes were sold,
and the taxes paid with respect to such sales.
Although the books for the Net Profits Account shall be kept on an
accrual basis, for purposes of this Section 4.5, Net Profits will be
tentatively computed and paid in accordance with Grantor's standard billing and
disbursement procedures, which shall be consistent with standard industry
practices, until the Termination Date. Within 90 days following the
Termination Date, the Net Profits Account shall be reconciled to the accrual
method and Grantor and Grantee shall make such payments or refunds to each
other as are necessary to effect such reconciliation.
4.6 ACCOUNTING FOR INTEREST EXPENSE. For federal income tax
purposes, interest with respect to payments under the Production Payment shall
be taken into account under the noncontingent bond method of Prop. Treas. Reg.
Section 1.1275-4(b)(2) (or any successor provision of final Treasury
Regulations) in
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accordance with the projected payment schedule attached as Schedule 2.
4.7 ALLOCATION OF COSTS AND EXPENSES. Costs and expenses shall be
allocated in accordance with Section 12.6 of the Purchase Agreement, if
applicable.
ARTICLE 5
OPERATION OF SUBJECT INTERESTS
5.1 RIGHTS AND DUTIES OF GRANTEE. Grantee (subject to the terms
and provisions of any applicable operating agreements and subject to the other
provisions of this Assignment and the Management Agreement) as between Grantor
and Grantee, has exclusive charge, management and control of all operations to
be conducted on the Subject Interests and may take any and all actions which a
reasonably prudent operator would deem necessary or advisable in the
management, operation and control thereof. Grantee shall promptly (and, unless
the same are being contested in good faith and by appropriate proceedings,
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
developing, operating and maintaining the Subject Interests. Grantee shall be
obligated to operate and maintain the Subject Interests as would a reasonable
and prudent operator under similar circumstances in accordance with good oil
field practices. For the Subject Interests which Grantee does not operate,
Grantee shall take all such action and exercise all such rights and remedies as
are reasonably available to it to cause the operator to so maintain and operate
such Subject Interests. Grantee shall be deemed to have fully discharged all
of its obligations under this Section 5.1, and shall have no liability to
Grantor under this Section 5.1 during any period when the Management Agreement
is in effect and Grantee is in compliance with the Management Agreement.
5.2 SALES OF SUBJECT HYDROCARBONS. Grantee shall have the
obligation to market or cause to be marketed the Subject Hydrocarbons in
accordance with its good faith business judgment and sound oil field practices.
Grantee shall fully discharge its obligations to Grantor under this Section 5.2
during any period when the Management Agreement is in effect and Grantee is not
in default thereunder. As to any third parties, all acts of Grantee in
marketing the Subject Hydrocarbons and all Production Sales Contracts executed
by Grantee shall be binding on Grantor and the Production Payment; it being
understood that the right and obligation to market the Subject Hydrocarbons is
at all times vested in Grantee and Grantor does not have any such right or
obligation or any possessory interest in all or part of the
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Subject Hydrocarbons, except as may be granted by separate agreement or
instrument. Accordingly, it shall not be necessary for Grantor to join in any
new Production Sales Contracts or any amendments to existing Production Sales
Contracts.
5.3 INSURANCE. Grantee shall obtain or cause to be obtained (and
maintain or cause to be maintained during the economic life of the Subject
Interests) the types of insurance as in its reasonable good faith business
judgment a reasonable and prudent operator would carry under similar
circumstances. Grantee shall fully discharge all of its obligations under this
Section 5.3, and shall have no liability to Grantor under this Section 5.3
during any period when the Management Agreement is in effect and Grantee is in
compliance with the Management Agreement.
5.4 CONTRACTS WITH AFFILIATES. To the extent not provided for in
any applicable operating agreement, Grantee may perform services and furnish
supplies and equipment with respect to the Subject Interests, provided that the
amount of compensation, price or rental that can be charged to the Net Profits
Account therefor must be no less favorable than those available from
Non-Affiliates in the area engaged in the business of rendering comparable
services or selling or leasing comparable equipment and supplies which could
reasonably be made available to the Subject Interests.
5.5 GOVERNMENT REGULATION. All obligations of Grantee hereunder
shall be subject to and limited by all applicable federal, state and local
laws, rules, regulations and orders (including those of any applicable agency,
board, official or commission having jurisdiction).
5.6 ABANDONMENTS. Prior to releasing, surrendering or abandoning
any portion of the Subject Interests, Grantee shall first offer in writing to
reassign such interest to Grantor, with Grantor assuming all liability and
obligations for such interest after such assignment. If Grantor does not
accept the offer to reassign within 60 days from such offer, Grantee shall have
the right without the joinder of Grantor to release, surrender and/or abandon
its interest in the Subject Interests, or any part thereof, or interest therein
even though the effect of such release, surrender or abandonment will be to
release, surrender or abandon the Production Payment the same as though Grantor
had joined therein insofar as the Production Payment covers the Subject
Interests, or any part thereof or interest therein, so released, surrendered or
abandoned by Grantee.
5.7 POOLING AND UNITIZATION.
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(a) Certain of the Subject Interests may have been pooled
or unitized for the production of oil, gas and/or minerals prior to
the Effective Date or, after the Effective Date, may be so pooled or
unitized pursuant to Section 5.7(b). Such Subject Interests are and
shall be subject to the terms and provisions of such pooling and
unitization agreements, and the Production Payment in each such
Subject Interest shall apply to (and the term "Subject Hydrocarbons"
shall include) the production from such units which is attributable to
such Subject Interest (and the Net Profits Account shall be computed
giving consideration to such production and costs, expenses, charges
and credits attributable to such Subject Interest) under and by virtue
of the applicable pooling and unitization agreements.
(b) Grantee shall have the right and power to unitize,
pool or combine the lands covered by the Subject Interests, or any
portion or portions thereof, with any other land or lease or leases so
as to create one or more unitized areas (or, with respect to unitized
or pooled areas theretofore created, to dissolve the same or to amend
and/or reconfigure the same to include additional acreage or
substances or to exclude acreage or substances). If pursuant to any
law, rule, regulation or order of any governmental body or official,
any of the Subject Interests are pooled or unitized in any manner, the
Production Payment insofar as it affects such Subject Interest shall
also be deemed pooled and unitized, and in any such event the
Production Payment shall apply to (and the term "Subject Hydrocarbons"
shall include) the production which accrues to such Subject Interest
under and by virtue of such pooling and unitization arrangements and
the Net Profits Account shall be computed giving consideration to such
production and costs, expenses, charges and credits attributable to
such Subject Interest under and by virtue of such pooling and
unitization arrangement. Notwithstanding the foregoing provisions of
this Section 5.7(b), Grantee shall have no right or interest in any
well that is not specifically described on Exhibit B or in the
production from any such well.
5.8 NON-CONSENT OPERATIONS.
(a) If Grantee elects (subject to Section 5.1) to be a
non-participating party (whether pursuant to an operating agreement or
other agreement or arrangement, including without limitation,
non-consent rights and obligations imposed by statute or regulatory
agency) with respect to any operation on any Subject Interest or
elects to be an abandoning party with respect to a Well located on any
Subject Interest, the consequence of which election is that Grantee's
interest in such Subject Interest or part thereof is temporarily
(i.e., during a recoupment period) or permanently forfeited to the
parties participating in such operations, or electing not to abandon
such Well, then the
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costs and proceeds attributable to such forfeited interest shall not,
for the period of such forfeiture (which may be a continuous and
permanent period), be debited or credited to the Net Profits Account
and such forfeited interest shall not, for the period of such
forfeiture, be subject to the Production Payment.
(b) If Grantee elects (subject to Section 5.1) to be a
participating party to such an operation, or elects to be a
non-abandoning party with respect to such a Well, and any other party
or parties have elected not to participate in such operation (or have
elected to abandon such Well) with the result that (pursuant to an
operating agreement or other agreement or arrangement, including
without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) Grantee becomes entitled to receive,
either temporarily (i.e., through a period of recoupment) or
permanently, interests belonging to such other party or parties, then
the costs and proceeds attributable to such non-participating parties'
interests to which Grantee becomes so obligated and entitled shall be
debited and credited to the Net Profits Account as though such
interests were part of the Subject Interests.
5.9 RENEWALS AND EXTENSIONS OF LEASES. The Production Payment
and the Reversion Interest shall apply to all renewals, extensions and other
similar arrangements (and/or interests therein) of or with respect to any Lease
which is included in the Subject Interests, whether or not such renewals,
extensions or arrangements have heretofore been obtained by Grantor, or
Grantor's predecessors in title, or are hereafter obtained by Grantee as well
as to each new lease covering any minerals covered by one or more of the Leases
if same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
ARTICLE 6
GRANTOR LIABILITY AND EQUIPMENT
6.1 NO PERSONAL LIABILITY OF GRANTOR. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS ASSIGNMENT, GRANTOR SHALL NOT, BY VIRTUE OF THE
PRODUCTION PAYMENT OR REVERSION INTEREST RESERVED IN THIS ASSIGNMENT,
PERSONALLY BE RESPONSIBLE FOR PAYMENT OF ANY PART OF THE COSTS, EXPENSES OR
LIABILITIES INCURRED IN CONNECTION WITH EXPLORING, DEVELOPING, OPERATING,
OWNING AND/OR MAINTAINING THE SUBJECT INTERESTS; PROVIDED, HOWEVER, ALL SUCH
COSTS, EXPENSES AND LIABILITIES SHALL, TO THE EXTENT THE SAME RELATE TO PERIODS
AFTER THE EFFECTIVE DATE, NEVERTHELESS BE CHARGED AGAINST THE NET PROFITS
ACCOUNT AS AND TO THE EXTENT HEREIN PERMITTED.
6.2 OWNERSHIP OF EQUIPMENT. The Production Payment does not
include any right, title or interest in and to any of the
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personal property, fixtures, structures or equipment now or hereafter placed
on, or used in connection with, the Subject Interests.
ARTICLE 7
TRANSFERS
7.1 ASSIGNMENTS BY GRANTEE. Upon prior written notice to Grantor,
but under no circumstance requiring Grantor's consent, Grantee shall have the
right to transfer all or any portion of the Subject Interests; provided,
however, that (i) the Subject Interests shall at all times be subject to this
Assignment, the Production Payment, the Reversion Interest, the Purchase
Agreement and the Limited Power of Attorney contemplated thereunder, the Option
and the Management Agreement, (ii) if such transfer or transfers result in less
than all of the Subject Interests being transferred to and held by the same
Person, Grantee shall retain the obligation to administer and pay the
Production Payment in accordance with the provisions hereof in the same manner
as if the Production Payment was held by a single Person, and (iii) Grantee may
not make an assignment, transfer, sale, alienation or other disposition of any
Subject Interests which would result in any of the Subject Interests becoming
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended. An assignment of the Subject Interests by Grantee shall not
release Grantee from any obligation to Grantor under this Assignment, the
Purchase Agreement, the Management Agreement or the Option.
7.2 ASSIGNMENTS BY GRANTOR. Upon prior written notice to Grantee,
Grantor shall have the right to transfer, pledge, or mortgage at any time and
from time to time all or any portion of the Production Payment or Reversion
Interest. Any such assignment shall not release Grantor from any obligation to
Grantee under this Assignment, the Purchase Agreement, the Management Agreement
or the Option, except to the extent provided for in such agreements.
Notwithstanding the foregoing provisions of this Section 7.2, but subject to
Section 7.3, Grantor shall be entitled without any prior written notice or
consent to assign or otherwise convey to HS Resources, Inc., a Delaware
corporation ("HS") or its wholly-owned subsidiary Orion Acquisition, Inc., a
Delaware corporation ("Orion"), all or any portion of the Production Payment,
Reversion Interest or Grantor's obligations to Grantee under this Assignment,
the Purchase Agreement, the Management Agreement or the Option. Such an
assignment or conveyance of obligations to HS or Orion shall serve to release
Grantor from any such obligations and to substitute HS or Orion, as
appropriate, to be the obligor under such obligations; provided, however, that
such an assignment or conveyance to Orion shall not release HS from its
obligations under this Assignment, the Purchase Agreement, the Management
Agreement or the Option.
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7.3 CHANGE IN OWNERSHIP OF PRODUCTION PAYMENT OR REVERSION
INTEREST. No change of ownership or right to receive payment of the Production
Payment or the Reversion Interest, or of any part thereof, however accomplished
shall be binding upon Grantee until notice thereof has been furnished by the
person claiming the benefit thereof, and then only with respect to payments
thereafter made. Notice of the sale or assignment shall consist of a copy of
the recorded instrument accomplishing the same or if there be no recorded
instrument then a copy of the applicable document accomplishing same; notice of
change of ownership or right to receive payment accomplished in any other
manner (for example by reason of incapacity, death or dissolution) shall
consist of copies of recorded documents and complete proceedings legally
binding and conclusive of the rights of all parties. Until such notice has
been furnished to Grantee as provided above, the payment or tender of all sums
payable on the Production Payment and delivery of all notices may be made in
the manner provided herein precisely as if no such change in interest or
ownership or right to receive payment had occurred. The kind of notice herein
provided shall be exclusive, and no other kind, whether actual or constructive,
shall be binding on Grantee.
ARTICLE 8
MISCELLANEOUS
8.1 GOVERNING LAW. The validity, effect and construction of this
Assignment shall be governed by the law of the State of Colorado, exclusive of
the conflict of laws provisions thereof.
8.2 INTENTIONS OF THE PARTIES. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income
tax purposes, the parties elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A of the IRC, and agree not to take any
position inconsistent with such election. In addition, the parties hereto
intend that the Production Payment reserved hereby by Grantor shall at all
times be treated as an incorporeal (i.e., a non-possessory) interest in real
property or land and as a production payment under Section 636 of the IRC,
payable out of Gross Proceeds (rather than as a working or any other interest).
8.3 NOTICES. All notices and other communications required or
permitted under this Assignment shall be in writing and, unless otherwise
specifically provided, shall be delivered personally, by prepaid telecopy or
similar means (with signed confirmed copy to follow by mail in the manner
provided below), or (except for quarterly statements provided for under Section
4.5 above which may be sent by regular mail) by registered or certified mail,
postage prepaid, or by delivery service for which a receipt is obtained, at the
following
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addresses for Grantor and Grantee, and shall be deemed delivered on the date of
receipt.
If to Grantor:
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Telephone: (303) 762-9991
Fax: (303) 762-9992
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Grantee:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Either party may specify an alternative address by giving notice to the other
party, in the manner provided in this Section 8.3.
8.4 FURTHER ASSURANCES. Grantor and Grantee agree to execute and
deliver to the other all such other and additional
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instruments, notices, division orders, transfer orders and other documents and
to do all such other and further acts and things as may be necessary to more
fully and effectively grant, convey and assign to Grantee and to reserve to
Grantor the rights, titles, interests and estates conveyed to Grantee and
reserved by Grantor hereby or intended to be so conveyed and reserved.
8.5 EXECUTION BY HS AND ORION. HS and Orion are signatories to
this Assignment to confirm the conveyance to Grantee hereby of a working
interest or royalty interest, as applicable, for tax purposes and HS and Orion
hereby grant, bargain, sell, transfer, assign and convey such rights and
interests as are necessary to effect such intent; subject, however, to
Grantor's reservation of the Production Payment and Reversion Interest under
this Assignment, and subject to Grantor's Option and the provisions of the
Management Agreement.
8.6 COUNTERPARTS. This Assignment may be executed in multiple
originals, all of which are identical except that, for the convenience of
recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A and Exhibit B which include descriptions of
properties located in the recording jurisdiction in which the particular
counterpart is being recorded. All of such counterparts together shall
constitute one and the same instrument.
8.7 BINDING EFFECT. All the covenants and agreements of Grantor
and Grantee herein contained shall be deemed to be covenants running with
Grantor's and Grantee's interest in the Subject Interests and the lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be binding upon, each of the parties hereto and their respective
successors and, subject to the provisions of this Section 8.6, their assigns.
Any sale, conveyance, assignment, sublease or other transfer of the Subject
Interests, or any interest therein or any part thereof, shall provide that the
assignee assume all of the obligations of the assignor with respect to the
interest so transferred, and unless the non-assigning party otherwise expressly
consents in writing, the assigning party shall also remain liable for the
discharge of its obligations.
8.8 PARTITION. Grantor and Grantee acknowledge that Grantor and
Grantee have no right or interest that would permit either to partition any
portion of the Subject Interests, and Grantor and Grantee waive any such right.
8.9 SPECIFIC PERFORMANCE. In addition to any other remedy which
Grantor may enjoy under this Agreement, at law or in equity, Grantor shall have
the right to seek and enforce the remedy of specific performance by Grantee of
its obligations under this Agreement.
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8.10 EFFECTIVE DATE. This Assignment shall become effective for
all purposes as of 7:00 a.m. (at the respective locations of the Subject
Interests) on the Effective Date.
IN WITNESS WHEREOF, the parties have executed this Assignment
effective as of the Effective Date.
GRANTOR:
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
GRANTEE:
WATTENBERG GAS INVESTMENTS, LLC,
By its Manager, Fontenelle, Inc.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Gary L. Greenstein
- - ---------------------------------- Vice President
Name: Roger D. Tullberg
Title: Assistant Secretary
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - ---------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
- - ---------------------------------- Vice President
Name: James M. Piccone
Title: Secretary
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<PAGE> 65
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company, on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc. in
its capacity as Manager of Wattenberg Gas Investments, LLC, a Delaware limited
liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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<PAGE> 66
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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SCHEDULE 1
SIDETRACK WELLBORE TERMS
1. DEFINITIONS:
"Sidetrack Wellbore" as used in this agreement shall mean and
include all down hole operations performed in an existing well (a "Well") in an
attempt to establish production through a sidetrack wellbore from a formation
in which the Well may or may not currently be completed.
2. EXPENSES OF SIDETRACK WELLBORES:
The costs and expenses of all Sidetrack Wellbore operations
shall be borne in accordance with the provisions of Section 12.6 of the
Purchase Agreement.
3. OWNERSHIP OF WELL AND EQUIPMENT:
The wellhead equipment and down hole equipment through the
depth where the Sidetrack Wellbore commences shall be owned equally by the
owners of the Sidetrack Wellbore and the Wellbore. The tubing and equipment
run on or in the tubing string shall be owned by the owners of the Well and/or
Sidetrack Wellbore being served by the tubing. The casing in the Well below
the depth where the Sidetrack Wellbore commences shall be owned by the owners
of the Well. The lease facilities shall be owned by the owners of the Well or
Sidetrack Wellbore being served thereby, and if both the Well and Sidetrack
Wellbore are being served, they shall be owned equally by such owners.
4. OPERATING RIGHTS OF OWNERS:
The rights, duties and obligations of the owners of Wells
containing a Sidetrack Wellbore, as set out in the operating or other
agreements governing the operation of such wellbores, are not changed, altered
or amended by these terms except as specifically provided herein.
(a) Subject to the further provisions hereof, the owners of a
Well and the owners of the associated Sidetrack Wellbore each have the right to
enter the Well. If the owners of a Sidetrack Wellbore desire to drill, operate
and maintain a Sidetrack Wellbore in the Well and such work will necessitate
the shutting in of the existing production in the Well, the owners of the Well
shall be given reasonable notice of such Sidetrack Wellbore and the estimated
number of days required to complete such work. Such notice shall be given
promptly, either before or after Sidetrack Wellbore drilling or rework
operations commence.
(b) Should a blowout, explosion, fire or other sudden
emergency occur during the course of drilling or rework of any
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Sidetrack Wellbore, the owners drilling such Sidetrack Wellbore shall, at their
expense, take such steps as are necessary to deal with the emergency and to
safeguard life and property, and shall, as promptly as possible, report the
emergency and the action taken to the owners of the Well.
(c) Should a blowout, explosion, fire or other sudden
emergency occur at any time other than during the course of drilling or rework
of a Sidetrack Wellbore, the cost of dealing with any such emergency shall be
borne equally by the owners of the Well and the Sidetrack Wellbore.
5. LIABILITIES OF THE OWNERS:
If a Sidetrack Wellbore is drilled in a Well, the liabilities
of the owners of the Well and the Sidetrack Wellbore shall be as follows:
(a) No liability shall be incurred by the owners of the
Sidetrack Wellbore for causing production to cease from the Well during the
time drilling or rework operations are being conducted on the Sidetrack
Wellbore, as long as such operations are conducted with diligence and without
unreasonable delay; provided, however that if the number of days required to
complete Sidetrack Wellbore operations results in a cessation of production
from the Well for a period greater than 90 days, the owners of the Sidetrack
Wellbore shall pay to the owners of the Well an amount equal to the lesser of
(i) the product of $0.15 multiplied by the average daily production rate from
the Well (in MMBTU/day) prior to the cessation of production for each day that
the Well does not produce after such 90-day period, or (ii) an amount equal to
the fair market value of the last 5% of the reserves associated with the Well
as of the date the Well was acquired by the owners of the Well, based on a
reserve evaluation conducted in accordance with the procedures of the
Securities and Exchange Commission and using an annual discount rate of 10%.
Such payment shall be made within 60 days of the date such obligation accrues.
As an alternative to making a payment under (i) or (ii) immediately above, the
owners of the Sidetrack Wellbore may exercise their rights under the Option to
Purchase Oil and Gas Interests between Wattenberg Resources Land, L.L.C. and
Wattenberg Gas Investments, LLC and such exercise may be made without an
obligation to make any penalty payment thereunder.
(b) If the Sidetrack Wellbore drilling or rework operations
are continued for a period which might cause the termination of a lease being
maintained by production from the Well and any such lease terminates because of
the Sidetrack Wellbore operations, the owners of the Sidetrack Wellbore shall
be liable to the owners of the Well for an amount equal to the fair market
value of the last 5% of the reserves associated with the Well as of the date
the Well was acquired by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities and Exchange
Commission and
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<PAGE> 69
using an annual discount rate of 10%. Such payment shall be made within 60
days of the date such obligation accrues. As an alternative to making a
payment under the foregoing provisions of this Section 5(b), the owners of the
Sidetrack Wellbore may exercise their rights under the Option to Purchase Oil
and Gas Interests between Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC and such exercise may be made without an obligation to make
any penalty payment thereunder.
(c) If the Sidetrack Wellbore drilling operations disturb or
remove the means of separation of the reserves in the Well from the reserves to
be exploited from the Sidetrack Wellbore, or otherwise cause a permanent
cessation or reduction of production from the Well, the Operator shall, before
and after the operation, conduct a test of the Well for the purpose of
determining whether or not the producing capacity of the formation completed in
the Well has been impaired, by employing the procedure set forth as follows:
(1) The producing capacity of the Well shall be
determined by comparing the actual production before and after
the Sidetrack Wellbore drilling operations during the thirty
(30) days in which there was actual production immediately
before and after such operations, with the Well producing
under similar pressure differential and other conditions. If
the producing conditions or equipment size are different, an
appropriate applicable method as jointly agreed to by owners
of the Sidetrack Wellbore and the owners of the Well will be
utilized to determine the effect on deliverabilities which the
Sidetrack Wellbore drilling operations caused.
(2) If the producing capacity of the Well has been
reduced in excess of fifty percent (50%), and there is no
cause for such reduction other than the Sidetrack Wellbore
operations, damages will be deemed to have occurred. If
damage has occurred, the rights and liabilities between the
owners of the Sidetrack Wellbore and the owners of the Well
shall be adjusted in accordance with the following provisions
of this Section 5(c)(2), which adjustments shall constitute
the sole and exclusive remedies of the owners of the Well for
damage to the producing Well(s).
The owners of the Sidetrack Wellbore may, at their sole cost,
risk and expense, attempt to restore the Well to 50% or more
of its former capacity. If the attempt is unsuccessful, or if
no attempt is made, the owners of the Sidetrack Wellbore shall
pay damages to the owners of the Well in an amount equal to
the fair market value of the last 5% of the reserves
associated with the Well as of the date the Well was acquired
by the owners of the Well, based on a reserve evaluation
conducted in
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accordance with the procedures of the Securities and Exchange
Commission and using an annual discount rate of 10%. Such
payment shall be made within 60 days of the date such
obligation accrues. As an alternative to making a payment
under the foregoing provisions of this Section 5(c)(2), the
owners of the Sidetrack Wellbore may exercise their rights
under the Option to Purchase Oil and Gas Interests between
Wattenberg Resources Land, L.L.C. and Wattenberg Gas
Investments, LLC and such exercise may be made without an
obligation to make any penalty payment thereunder.
6. CLASSIFICATION OF PAYMENTS
Any payment under Section 5 above, received by the owners of
the Well(s), shall not be considered as Gross Proceeds or Other Income for
purposes of the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated June 14, 1996 between Wattenberg Resources Land,
L.L.C. and Wattenberg Gas Investments, LLC.
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<PAGE> 71
SCHEDULE 2
PAYMENT SCHEDULE OF THE PRODUCTION PAYMENT
Date Payment Interest
- - --------------------------------------------------------------------------------
<PAGE> 72
EXHIBIT D
OPTION TO PURCHASE OIL AND GAS INTERESTS
This Option to Purchase Oil and Gas Interests (this "Option")
is granted effective as of June 1, 1996 (the "Effective Date") by Wattenberg
Gas Investments, LLC, a Delaware limited liability company, 82 Devonshire
Street, R22C, Boston, Massachusetts 02109 ("Grantor") to Wattenberg Resources
Land, L.L.C., a Delaware limited liability company, whose manager has an office
of 3300 South Columbine Circle, Englewood, Colorado 80110 ("Grantee").
For $10.00 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Grantor grants and
conveys to Grantee the exclusive and irrevocable option to purchase from time
to time all or any portion of the following (the "Subject Interests") upon the
terms and conditions set forth herein (the "Option"):
A. All of Grantor's right, title and interest
in and to the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the right to
produce the wells described in Exhibit B from the intervals in
such wells identified in Exhibit B as of the Option Effective
Date (the above described interests in such leases being
herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions,
limitations, burdens, contracts, agreements and other matters
applicable to the Leases and the Wells, and excluding such
portion of the Leases and the Wells which were not conveyed to
Grantor because of Defective Interests or which were
determined to be Excluded Assets (as such terms are defined in
the Purchase and Sale Agreement (Tax Partnership Properties)
between Grantor and Grantee dated June 14, 1996 (the "Purchase
Agreement"), and such exclusions being referred to herein as
the "Reserve Reductions");
B. The right, title and interest of Grantor in
and to overriding royalty interests in the Leases insofar and
only insofar as the Leases cover the wellbores associated with
the Wells from the producing intervals identified in Exhibit
B;
C. To the extent affected, the right, title and
interest of Grantor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization, pooling,
operating and communitization agreements, declarations and
orders affecting the
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<PAGE> 73
Leases and Wells, and in and to the properties covered and the
units created thereby;
D. To the extent affected, the right, title and
interest of Grantor in and to the personal property and
fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and
other personal property and oil field equipment appurtenant to
such Wells; provided, however, that Grantor shall remain
co-owner of any personal property appurtenant to any property
owned by Grantor that is not exclusively part of the Wells;
E. To the extent affected, the right, title and
interest of Grantor in and to and under, or derived from, the
presently existing and valid gas sales, purchase, gathering
and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way,
easements, permits and surface leases and other contracts,
agreements and instruments (but specifically excluding any
management agreements), only in relevant part to the extent
and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in item C above; provided, however,
that Grantor shall remain co-owner of any agreements,
including unitization and pooling agreements, if they pertain
to any property owned by Grantor that is not exclusively part
of the Leases or Wells.
1. EXERCISE OF THE OPTION. The Option may be exercised
as follows:
a. PRIOR TO JANUARY 1, 2003. From the date
of this Option until January 1, 2003, Grantee has the right to exercise the
Option, without penalty, one or more times to purchase up to a cumulative total
of 15% of the Subject Interests (by volume of the sum of the estimated reserves
for such Subject Interests under the Reserve Report, less Reserve Reductions,
if any (such difference, the "Total Reserves")). If Grantee exercises the
Option to purchase a portion of the Subject Interests and such portion by
itself, or when added to any other portion of the Subject Interests previously
purchased by Grantee pursuant to an earlier exercise of the Option, exceeds 15%
of the Subject Interests by volume of the Total Reserves then, in addition to
the Option Price, Grantee shall pay to Grantor a penalty payment as set forth
below, subject to certain exceptions. At the time Grantee exercises the Option
and for the first time a cumulative total of more than 15% of the Subject
Interests have been or are to be repurchased, then the penalty payment shall be
determined based on the cumulative total of the Subject Interests purchased.
If the Grantee exercises the Option again for an additional incremental group
of Subject Interests,
D-2
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then the penalty payment shall be determined based on the incremental Subject
Interests purchased.
(1) Penalty Payment Before 2000.
If the Option Effective Date is on or before December 31,
1999, Grantee shall pay to Grantor an amount equal to the
product obtained by multiplying $65,000 by a fraction, the
numerator of which is the sum of the volume of estimated
reserves for the Subject Interests (as set forth in the
Reserve Report, less applicable Reserve Reductions) which
Grantee desires to purchase and the denominator of which is
the volume of Total Reserves (the "Reserve Fraction").
(2) Penalty Payment, 2000 through
2002. If the Option Effective Date is between January 1, 2000
and December 31, 2002, Grantee shall pay to Grantor an amount
equal to the product obtained by multiplying $40,000 by the
applicable Reserve Fraction.
The foregoing penalty payment amounts shall not be payable if Grantee exercises
the Option on or before December 31, 2002 in its entirety with respect to
paragraphs (i) through (vii) below, or in part with respect to paragraphs (vi)
and (vii) below, in each case which it may do from time to time, because:
(i) Credit Payment Amounts (as defined in the
Purchase Agreement) are no longer paid or
credited to Grantee;
(ii) a Tax Audit (as defined in the Purchase
Agreement) has commenced and Grantor has not
waived its right to an escrow pursuant to
Section 8.3 of the Purchase Agreement;
(iii) the Management Agreement dated effective as
of the Effective Date between Grantor and
Grantee, or any successor agreement (the
"Management Agreement") is terminated (other
than by, or on account of a breach thereof
by, Grantee), is held invalid or void, or
Grantor or its successors or assigns fail to
perform thereunder;
(iv) Grantor breaches the Purchase Agreement or
any agreement contemplated thereunder, which
breach if uncured would have a material
adverse effect on Grantee and which has not
been cured by Grantor within 60 days of
receipt of a written notice from Grantee of
such breach;
D-3
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(v) payments remain unsatisfied for a period
exceeding 60 days under one or both of the
Contribution Agreements or one or both of
the Guaranty Agreements contemplated by the
Ratification of Obligations under the
Purchase Agreement;
(vi) Grantor denies approval of certain
operations on the Subject Interests in
accordance with Section 2.1(p) or (q) of the
Management Agreement and Grantee elects to
exercise the Option on the properties
affected by the proposed operations rejected
by Grantor; and
(vii) an aggregate of $300,000 in Credit Payment
Amounts under the Purchase Agreement has
been credited or paid to Grantee.
Exercises of the Option by Grantee pursuant to paragraph (vi) or (vii) above
shall not be counted towards the cumulative total of 15% of the Subject
Interests in Paragraph 1.a.
Notwithstanding anything herein provided to the contrary, prior to December 31,
1997, Grantee agrees that it will not exercise the Option and purchase the
Subject Interests so that Grantee may enter into a transaction with a third
party under a substantially similar arrangement as the transaction contemplated
by the Purchase Agreement for the primary purpose of monetizing the tax credits
under Section 29 of the Internal Revenue Code, as amended from time to time
(the "Code"), attributable to production from the Subject Interests at a more
favorable rate. If Grantee breaches its agreement set forth in the immediately
preceding sentence, Grantee shall be obligated to pay Grantor all profits
received by Grantee from such third party as a result of the consummation of
such transaction with the third party.
b. ON OR AFTER JANUARY 1, 2003 UNTIL
JANUARY 1, 2005. From January 1, 2003 until January 1, 2005, Grantee has the
right to exercise the Option one time to purchase the remaining Subject
Interests as an entirety without penalty for the associated Option Price.
c. PARTIAL EXERCISE LIMITED. Grantee may
not exercise the Option to purchase in the aggregate more than 25% of the Total
Reserves unless Grantee exercises the Option as to all of the Subject
Interests; provided, however that this limitation shall not apply to exercises
of the Option contemplated by Paragraphs 1.a.(vi) and (vii) above.
d. MINIMUM PAYMENT. If the Option is
exercised by Grantee, from time to time, on or prior to December 31, 1998,
Grantee shall pay to Grantor a payment equal to (i) $110,000, if the Option is
exercised in full, or (ii)
D-4
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$110,000 multiplied by the Reserve Fraction if the Option is exercised in part,
which amount shall apply to, and be a direct off-set of, the Option Price for
all purchased Subject Interests. In no event shall the aggregate of payments
under the immediately preceding sentence ever exceed $110,000. The penalties
set forth in Paragraph 1.a. are in addition to the minimum payment set forth in
the immediately preceding sentence.
2. OPTION TERM. The Option shall terminate on January
1, 2005 (the "Option Term").
3. METHOD OF EXERCISE. To exercise the Option within
the Option Term, Grantee must deliver written notice of such exercise,
delivered personally, by prepaid telecopy or similar means (with signed
confirmed copy to follow by mail in the manner provided below), or by
registered or certified mail, postage prepaid, or by delivery service for which
a receipt is obtained, at the addresses set forth below, and shall be deemed
delivered on the date of receipt.
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
and a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
D-5
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Grantor may specify an alternative address by giving written notice to Grantee
of such change.
4. OPTION EFFECTIVE DATE. The effective date of a
purchase of all or any portion of the Subject Interests pursuant to the Option
(the "Option Effective Date") shall be the first day of the month following the
date Grantor receives the notice of exercise of the Option specifying the
Subject Interests which Grantee desires to purchase pursuant to such exercise
of the Option.
5. OPTION PRICE. The purchase price (the "Option
Price") for the Subject Interests, or any portion thereof, shall be the
appraised current fair market value of the Subject Interests in question as of
the Option Effective Date. Unless Grantor and Grantee agree otherwise, the
appraised fair market value of the Subject Interests in question shall be the
present value as of the Option Effective Date of the future net revenue
estimated to be received therefrom, determined in accordance with generally
accepted engineering principles in effect at the time, by Williamson Petroleum
Consultants, Inc. or some other nationally recognized petroleum engineering
firm agreed upon by Grantor and Grantee. The price of natural gas used in the
forecast shall be based on an unescalated average gas price for the most recent
12-month period, as quoted in the first monthly publication of Inside FERC's
Gas Market Report for the Colorado Interstate Gas Co. ("CIG") Index (or a
mutually agreeable substitute index if such index is no longer published), less
an unescalated average gathering and transportation cost from wellhead to the
CIG mainline for the most recent 12-month period, multiplied by a BTU/SCF
factor appropriate to the affected properties; the price of hydrocarbon liquids
used in the forecast shall be based on the unescalated actual price received on
the Subject Interests during the most recent 12- month period; and the costs
used in the forecast shall be the unescalated average of the monthly costs
attributable to the Subject Interests in question during the most recent
12-month period preceding the Option Effective Date. The discount rate to be
applied shall be the 6-month London Interbank Offered Rate in effect on the
date on which the fair market value determination is made plus 6%.
6. TERMS OF PURCHASE. Upon the closing of the purchase
of all or any portion of the Subject Interests pursuant to an exercise of the
Option, Grantee shall be entitled to receive the proceeds, accounts receivable,
income, revenues, monies and other items attributable to the Subject Interests
in question from and after the Option Effective Date in question and same shall
be paid over to Grantee, and Grantee shall be liable to pay the expenses
attributable to the Subject Interests in question from and after the Option
Effective Date in question. Subject to the terms of the Assignment, Grantor
shall be entitled to receive the production from the Subject Interests in
question prior to the Option Effective Date in question and shall be liable to
pay the expenses attributable to the Subject Interests
D-6
<PAGE> 78
in question prior to the Option Effective Date in question. Upon the closing
of the purchase of all or any portion of the Subject Interests pursuant to an
exercise of the Option, Grantee shall assume all obligations and liabilities
attributable to the ownership or operation of the Subject Interests in question
on and after the Option Effective Date in question, including the contractual
and regulatory obligations in connection with the Subject Interests in
question, and Grantee shall defend, indemnify and hold harmless Grantor (and
its successors, assigns, members, officers, managers (including the employees,
representatives, agents, successors and assigns of such members), employees,
representatives, agents and consultants) from and against all claims, demands,
actions, obligations, liabilities and expenses (including reasonable attorney,
consultant and expert witness fees) arising from such obligations and
liabilities assumed by Grantee hereunder.
7. PAYMENT AND CLOSING. The closing of a purchase
pursuant to an exercise of the Option shall occur at the offices of Grantee at
9:00 a.m., on a mutually agreed upon business day no later than 30 days from
the date Grantor receives the notice of an exercise of the Option. At the
closing, Grantee shall deliver by wire transfer of immediately available U.S.
funds, to the account designated by Grantor, the Option Price for the Subject
Interests in question, and Grantor shall deliver to Grantee an assignment fully
executed and in recordable form of the Subject Interests in question dated
effective as of the Option Effective Date in question and in form and substance
reasonably satisfactory to Grantee with warranty of title as to all matters
arising by, through or under Grantor, but not otherwise.
8. GOVERNING LAW. The validity, effect and construction
of this Option shall be governed by the law of the State of Colorado, without
reference to its conflict of laws provisions.
9. SPECIFIC PERFORMANCE. In addition to any other
remedy which Grantee may enjoy under this Option, at law or in equity, Grantee
shall have the right to seek and enforce the remedy of specific performance by
Grantor of its obligations under this Option.
10. FURTHER ASSURANCES. Grantor and Grantee agree to
execute and deliver to the other all such other and additional instruments,
notices, division orders, transfer orders and other documents and to do all
such other and further acts and things as may be necessary to more fully and
effectively grant, convey and assign to Grantee the rights, titles, interests
and estates conveyed to Grantee hereby or intended to be so conveyed.
11. COUNTERPARTS. This Option may be executed in
multiple originals, all of which are identical except that, for the convenience
of recording, counterparts hereof which are being
D-7
<PAGE> 79
recorded include only those certain portions of Exhibit A which include
descriptions of properties located in the recording jurisdiction in which the
particular counterpart is being recorded. All of such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Option
effective as of the Effective Date.
GRANTOR:
Wattenberg Gas Investments, LLC
By: its Manager, Fontenelle, Inc.
Attest: By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
- - ---------------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
GRANTEE:
Wattenberg Resources Land, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
D-8
<PAGE> 80
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company, on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware Corporation, in its capacity as Manager of Wattenberg Gas Investments,
LLC, a Delaware limited liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
D-9
<PAGE> 81
EXHIBIT E
RESERVE REPORT
SEE ATTACHED
E-1
<PAGE> 82
EXHIBIT F
PREFERENTIAL RIGHTS AND CONSENTS
WELL NAME AGREEMENT RESPONSE
--------- --------- --------
F-1
<PAGE> 83
EXHIBIT G
PREPAYMENTS
NONE
G-1
<PAGE> 84
EXHIBIT H
GAS IMBALANCES
NONE
H-1
<PAGE> 85
EXHIBIT I
OPERATIONS IN PROGRESS
NONE
I-1
<PAGE> 86
EXHIBIT J
HYDROCARBON SALES CONTRACTS
1. Gas Purchase and Sale Agreement, No. 146740 (NIE Prospect),
dated 2-19-92, with Amoco Production Company.
2. Gas Purchase and Processing Agreement, No. GPA.001.S (SPI
Prospect), dated 11-8-91, with PanEnergy Field Services
(formerly ANGI).
3. Gas Purchase and Processing Agreement, No. GPA.020.S (SPI
Prospect), dated 7-28-93, with PanEnergy Field Services
(formerly ANGI).
4. Gas Purchase and Processing Agreement, No. GPA.027.BT (SUN
Prospect), dated 7-24-85, with PanEnergy Field Services
(formerly ANGI).
5. Gas Purchase and Processing Agreement, No. GPA.111.K dated
1-7-86, with PanEnergy Field Services (formerly ANGI).
6. Gas Purchase and Processing Agreement, No. GPA.232.K (NIE
Prospect), dated 10-12-90, with PanEnergy Field Services
(formerly ANGI).
7. Gas Purchase and Processing Agreement, No. GPA.289.K (ALA
Prospect), dated 11-30-93, with PanEnergy Field Services
(formerly ANGI).
8. Gas Purchase and Sale Agreement (ALA Prospect), dated
10-29-93, with PanEnergy Field Services (formerly ANGI).
9. Gas Purchase and Sale Agreement (NIE Prospect), dated
11-10-78, with KN Gas Marketing (formerly PEPL).
10. Gas Purchase and Sale Agreement (NIE Prospect), dated 8-1-87,
with Vessels Oil and Gas Company.
11. Crude Oil Purchase Agreement, No. P-930116, dated 1-5-93, with
PanEnergy Trading & Transportation (ATTCO).
12. Master Swap Agreement dated 3-26-96 between Wattenberg
Resources Land, L.L.C. and HS Resources, Inc.
J-1
<PAGE> 87
EXHIBIT K
LEGAL PROCEEDINGS
1. During 1994, HS Resources, Inc. (the "Company") was named as a
defendant, in addition to three other companies, in an action brought by
certain landowners in Colorado. The action challenges certain mineral
reservations of one of the Company's assignor in its original surface
conveyance involving two small tracts of the Company's minerals.
2. In February of 1995, the Company was named as one of many
defendants in a suit brought by several royalty owners in Northeast Colorado
seeking royalty payments on certain deductions from gas sales.
3. Potential claims of royalty owners in wells in the Spindle
Field for underpayment of royalty during the period of ownership of the
Company's assignor, based on the differential in price paid for gas produced
from the Spindle Field and gas produced from other fields or properties in the
area.
4. Participation in Joint Defense Agreement, and potential
participation in clean-up or payment of costs, damages or penalties related to
claims made by the United States Environmental Protection Agency against Weld
County Waste Disposal et al.
5. Potential claims of Northern Natural Gas or Gerrity Oil and
Gas Corporation against one of the Company's assignors for ceasing operation of
the natural gas pipeline located in Superior, Colorado based on a determination
that the line was no longer safe or economic.
6. Audit by Rockport-Essex relative to payment of royalties in
Spindle Field.
While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of any of these matters will have a material impact on its
financial condition or the results of operations.
K-1
<PAGE> 88
EXHIBIT L
TAX PARTNERSHIPS
1. Amended Tax Partnership Agreement between Basin Exploration,
Inc. and Amoco Production Company, made a part of the First
Amendment to Farmout Agreement dated October 15, 1992.
L-1
<PAGE> 89
EXHIBIT M
NO NGPA CERTIFICATE FILED
NONE
M-1
<PAGE> 90
EXHIBIT N
NON-FOREIGN OWNERSHIP AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a
buyer of a United States real property interest must withhold tax if the seller
is a foreign person. To inform Wattenberg Gas Investments, LLC (the "Buyer")
that withholding of tax is not required upon the disposition of a United States
real property interest owned by Wattenberg Resources Land, L.L.C. (the
"Seller"), the undersigned hereby certifies the following on behalf of Seller:
1. The Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, or
foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The United States employer/taxpayer identification
number of the Seller is 84-1338601; and
3. Seller's address is:
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Seller understands that this affidavit may be disclosed to the Internal Revenue
Service by the Buyer and any false statement contained herein may be punished
by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
affidavit and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of Seller.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
N-1
<PAGE> 91
Subscribed and sworn before me this 14th day of June, 1996.
-------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - -----------------------
N-2
<PAGE> 92
NON-FOREIGN OWNERSHIP AFFIDAVIT
SEE ATTACHED FORM - DR 1083
REGARDING
COLORADO REAL PROPERTY WITHHOLDING TAX
N-3
<PAGE> 93
EXHIBIT O
RATIFICATION OF OBLIGATIONS
THIS RATIFICATION OF OBLIGATIONS (this "Ratification") dated
June 14, 1996, but effective June 1, 1996 is entered into by FMR Corp., a
Massachusetts corporation ("FMR"), State Street Boston Corporation, a
Massachusetts corporation ("State Street"), Fontenelle, Inc., a Delaware
corporation and affiliate of FMR ("Fontenelle"), Bald Prairie, Inc., a Delaware
corporation and affiliate of FMR ("Bald Prairie"), and SSB Investments, Inc., a
Massachusetts corporation and affiliate of State Street ("SSBI"). FMR, State
Street, Fontenelle, Bald Prairie and SSBI are collectively referred to herein
as the "Parties," and singularly as a "Party."
Recitals
A. Fontenelle, Bald Prairie and SSBI are members (the
"Members") of Wattenberg Gas Investments, LLC, a Delaware limited liability
company ("WGI"), in accordance with the terms of the Operating Agreement of WGI
dated as of November 8, 1995, and amended and restated April 25, 1996, May 21,
1996 and June 14, 1996 (the "LLC Agreement").
B. Pursuant to Article 3 of the LLC Agreement, the
Members are obligated to make certain capital contributions with respect to
WGI.
C. WGI entered into (i) that certain Purchase and Sale
Agreement dated December 1, 1995 with HS Resources, Inc. ("HS") (the "Original
Purchase Agreement"), as amended by that First Amendment to Purchase and Sale
Agreement, Assignment, Option, Management Agreement, Gas Purchase Agreement and
Limited Power of Attorney dated April 25, 1996 (the "First Amendment"), and
(ii) that certain Purchase and Sale Agreement dated May 21, 1996 with
Wattenberg Resources Land, L.L.C., a Delaware limited liability company
("WRL"), whereby WGI acquired certain oil and gas interests located in Colorado
(the "WRL Agreement"). WGI has negotiated a Purchase and Sale Agreement dated
June 14, 1996 (including all exhibits, schedules, related documents and
conveyances, the "Agreement") with WRL to acquire certain additional oil and
gas interests located in Colorado, as further described on the attached Exhibit
A and Exhibit B (the "Assets").
D. Pursuant to the Original Purchase Agreement,
Fontenelle and Bald Prairie executed a Contribution Agreement with WGI dated
December 14, 1995 (the "FMR Contribution Agreement"), wherein they agreed to
contribute funds to WGI in accordance with the LLC Agreement. FMR entered into
a Guaranty Agreement with WGI dated December 14, 1995 (the "FMR Guaranty")
O-1
<PAGE> 94
to guarantee the payment and performance of the obligations of Fontenelle and
Bald Prairie under the FMR Contribution Agreement.
E. Pursuant to the Original Purchase Agreement, SSBI
executed a Contribution Agreement with WGI dated December 14, 1995 (the "SS
Contribution Agreement"), wherein it agreed to contribute funds to WGI in
accordance with the LLC Agreement. By an Assignment of Contribution
Obligations dated December 14, 1995, SSBI acknowledged an assignment of the SS
Contribution Agreement from WGI to HS. State Street entered into a Guaranty
Agreement with WGI dated December 14, 1995 (the "SS Guaranty") to guarantee the
payment and performance of SSBI's obligations under the SS Contribution
Agreement. By an Assignment of Guaranty Rights dated December 14, 1995, State
Street acknowledged an assignment of the SS Guaranty from WGI to HS.
F. The Parties entered into a Ratification of
Obligations dated April 25, 1996 regarding matters covered by the First
Amendment and providing for certain amendments to the FMR Contribution
Agreement. The Parties also entered into a Ratification of Obligations dated
May 21, 1996 regarding matters covered by the Purchase and Sale Agreement of
same date with WRL.
G. To induce WGI to enter into the Agreement, the
Parties desire to ratify and amend their respective obligations under the FMR
Contribution Agreement, as amended, the FMR Guaranty, the SS Contribution
Agreement and the SS Guaranty which were given with respect to the Original
Purchase Agreement, the First Amendment and the WRL Agreement and to provide
that the Assets will be covered by the terms of such documents. The Parties
desire to provide for an Assignment of Contribution Obligations and an
Assignment of Guaranty Rights, and their respective acknowledgments, if any,
thereunder, to assign such obligations and rights with respect to the Assets to
WRL and to allow for the assignment of such obligations and rights to HS or to
Orion Acquisition, Inc., a Delaware corporation.
NOW THEREFORE, in consideration of the mutual benefits the
Parties will each receive as a result of WGI entering into the Agreement, the
Parties each respectively agree as follows:
1. Ratification. The Parties hereby ratify and amend
their respective individual and joint, if any, obligations under (i) the FMR
Contribution Agreement, as amended, (ii) the FMR Guaranty, (iii) the SS
Contribution Agreement, and (iv) the SS Guaranty, as such documents apply to
the Agreement, in the same manner and to the same extent as such documents
apply to (1) the Original Purchase Agreement, as amended by the First
Amendment, and (2) the WRL Agreement.
2. Assignment of Rights. To the extent and in the
capacity so provided, the Parties agree to execute and acknowledge, as
appropriate, the Assignment of Contribution
O-2
<PAGE> 95
Obligations and the Assignment of Guaranty Rights attached hereto (the
"Assignments").
3. No Conditions. Each Party represents as to itself
that (i) there are no conditions precedent to the effectiveness of this
Ratification and the Assignments that have not been satisfied or waived, (ii)
this Ratification and the Assignments have been duly authorized by all
necessary corporate action, (iii) this Ratification, and the Assignments if
applicable, is/are binding upon and enforceable against the Party, and (iv)
that the undersigned officer of the Party has determined that this
Ratification, and the Assignments if applicable, may reasonably be expected to
benefit, directly or indirectly, the Party.
4. Counterparts. This Ratification may be executed in
one or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each Party.
5. Governing Law. This Ratification shall be governed
by and construed in accordance with the law of the Commonwealth of
Massachusetts, without reference to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the Parties have caused this Ratification
to be duly executed and delivered by their respective duly authorized
representatives as of the date first written above.
FMR CORP. STATE STREET BOSTON CORPORATION
By: By:
------------------------------- ---------------------------------
Name: Gary L. Greenstein Name: William M. Reghitto
Title: Vice President Title: Vice President
FONTENELLE, INC. SSB INVESTMENTS, INC.
By: By:
------------------------------- ---------------------------------
Name: Gary L. Greenstein Name: Susan A. Feig
Title: Vice President Title: Vice President
BALD PRAIRIE, INC.
By:
-------------------------------
Name: Gary L. Greenstein
Title: Vice President
O-3
<PAGE> 96
ASSIGNMENT OF CONTRIBUTION OBLIGATIONS
This Assignment of Contribution Obligations (this
"Assignment") dated June 14, 1996, and effective as of June 1, 1996, is by and
between Wattenberg Gas Investments, LLC, a Delaware limited liability company
("WGI") and Wattenberg Resources Land, L.L.C., a Delaware limited liability
company ("WRL").
1. As used herein, the term "Contribution Agreement"
shall mean the Contribution Agreement by and between SSB Investments, Inc., a
Massachusetts corporation ("SSBI") and WGI dated December 14, 1995, setting
forth the obligation of SSBI to contribute funds to WGI subject to the limits
provided therein.
2. WGI has incurred or will incur certain obligations to
WRL under the Purchase and Sale Agreement (Tax Partnership Properties) dated
June 14, 1996 between WRL and WGI (the "Purchase Agreement").
3. WGI hereby assigns to WRL all of WGI's right, title
and interest under the Contribution Agreement with respect to the Assets
contemplated under the Purchase Agreement. SSBI hereby acknowledges the
foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of WRL and WGI and their respective successors and assigns. WRL
may assign all of its right, title and interest under this Assignment to HS
Resources, Inc. or Orion Acquisition, Inc., both Delaware corporations,
provided that such an assignment shall not be effective until WGI and SSBI are
given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein, Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Acknowledged: David G. Stolfa, Manager
SSB INVESTMENTS, INC.
By: ------------------------------
Susan A. Feig, Vice President
O-4
<PAGE> 97
ASSIGNMENT OF GUARANTY RIGHTS
This Assignment of Guaranty Rights (this "Assignment") dated
June 14, 1996, and effective as of June 1, 1996, is by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company ("WGI") and
Wattenberg Resources Land, L.L.C., a Delaware limited liability company
("WRL").
1. As used herein, the term "Guaranty Agreement" shall
mean the Guaranty Agreement by and between State Street Boston Corporation, a
Massachusetts corporation ("SSBC") and WGI dated December 14, 1995, setting
forth the guarantee by SSBC of the performance of the obligations of SSB
Investments, Inc., a Massachusetts corporation, under the Contribution
Agreement dated as of December 14, 1995 between SSB Investments, Inc. and WGI.
2. WGI hereby assigns to WRL all of WGI's right, title
and interest to the Guaranty Agreement with respect to the Assets covered by
the Purchase and Sale Agreement (Tax Partnership Properties) dated June 14,
1996 between WGI and WRL.
3. SSBC hereby acknowledges the foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of WRL and WGI and their respective successors and assigns. WRL
may assign all of its right, title and interest under this Assignment to HS
Resources, Inc. or Orion Acquisition, Inc., both Delaware corporations,
provided that such an assignment shall not be effective until WGI and SSBC are
given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Acknowledged: David G. Stolfa, Manager
STATE STREET BOSTON CORPORATION
By:
----------------------------
William M. Reghitto
Vice President
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EXHIBIT P
SELLER'S MANAGER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
David G. Stolfa, in his capacity as Manager of Wattenberg Resources Land,
L.L.C., who, after being duly sworn, did state as follows:
1. This certificate is being given pursuant to Section 11.9 of
that certain Purchase and Sale Agreement (Tax Partnership
Properties) dated June 14, 1996 ("Agreement") between
Wattenberg Resources Land, L.L.C. ("Seller") and Wattenberg
Gas Investments, LLC ("Buyer"). Unless defined otherwise, the
capitalized terms used herein shall have the meaning set forth
in the Agreement.
2. All of the representations and warranties of Seller contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Seller in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Seller has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it prior to the Closing Date.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
Subscribed and sworn before me June 14, 1996.
---------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street,
Suite 4700
Denver, Colorado 80202
- - -----------------------
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EXHIBIT Q
Form of Opinion on Behalf of Seller
June 14, 1996
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, MA 02109
Attn: Roger D. Tullberg
Ladies and Gentlemen:
I am General Counsel to HS Resources, Inc. ("HS") and its
wholly-owned subsidiary Orion Acquisition, Inc. ("Orion") (collectively, the
"Companies" and singularly, a "Company"). In my capacity as General Counsel
for the Companies, I am familiar with the provisions of the Purchase and Sale
Agreement (Tax Partnership Properties) dated June 14, 1996 between Wattenberg
Resources Land, L.L.C. and Wattenberg Gas Investments, LLC, to which HS and
Orion are signatories (the "Agreement").
I have examined the Agreement, the Assignment, the Option and
the Management Agreement (as such terms are defined in the Agreement) and the
other documents and instruments affecting the Companies with respect to the
transactions contemplated by the Agreement (collectively the "Documents"), and
have made such other factual and legal investigations as I have deemed
necessary.
In examining and reviewing the Documents, I have assumed (i)
the genuineness of all signatures and (ii) the due authorization, execution,
and delivery by parties to the Documents other than the Companies.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. Each Company is a corporation duly organized and validly
existing under the laws of the State of Delaware, and is duly qualified to
carry on its business, and is in good standing, in the States of Delaware and
Colorado and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse impact on the Assets or the
transactions contemplated by the Agreement.
2. Each Company has all requisite corporate power and
authority to carry on its business as presently conducted, to execute the
Agreement and each of the documents contemplated to
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be executed by the Company at Closing, and to perform its obligations under the
Agreement and under such documents. The obligations of each Company
contemplated by the Agreement and each of the documents contemplated to be
executed by the Company at Closing will not violate, nor be in conflict with,
(i) any provision of the Company's certificate of incorporation, bylaws or
governing documents, (ii) any material agreement or instrument to which the
Company is a party or is bound, or (iii) any judgment, decree, order, statute,
rule or regulation applicable to the Company.
3. The execution, delivery and performance of the Agreement
and each of the documents contemplated to be executed by the Companies at
Closing and the transactions contemplated thereby have been duly and validly
authorized by all requisite corporate action on the part of each Company.
4. The Agreement has been duly executed and delivered on
behalf of each Company, and all documents and instruments required thereunder
to be executed and delivered by the Companies have been duly executed and
delivered. Based on and assuming the application of Colorado law, the
Agreement and the other documents to which the Companies are signatories do and
shall, constitute legal, valid and binding obligations of the Companies
enforceable in accordance with their terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application with respect to creditors, (ii) general principles of
equity and (iii) the power of a court to deny enforcement of remedies generally
based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter states my opinion on the points
covered if the substantive law of Colorado were applied, even though certain of
the Documents may be governed by the law of other jurisdictions. No opinion is
given as to the effect of the application of such other laws.
B. This opinion letter is rendered solely for the use
and benefit of FMR Corp., State Street Boston Corporation, their respective
affiliates, and Wattenberg Gas Investments, LLC and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without my prior
written consent.
C. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Companies' attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
<PAGE> 101
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
HS RESOURCES, INC.
James M. Piccone
General Counsel
<PAGE> 102
EXHIBIT R
BUYER'S MANAGER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Gary L. Greenstein, a Vice President of Fontenelle, Inc., in its capacity as
Manager of Wattenberg Gas Investments, LLC, who, after being duly sworn, did
state as follows:
1. This certificate is being given pursuant to Section 11.11 of
that certain Purchase and Sale Agreement (Tax Partnership
Properties) dated June 14, 1996 ("Agreement") between
Wattenberg Resources Land, L.L.C. ("Seller") and Wattenberg
Gas Investments, LLC ("Buyer"). Unless defined otherwise, the
capitalized terms used herein shall have the meaning set forth
in the Agreement.
2. All of the representations and warranties of Buyer contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Buyer in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Buyer has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it on or as of the Closing Date.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
Subscribed and sworn before me June 17, 1996.
---------------------------------------
Notary Public in and for
the Commonwealth of Massachusetts
Name:
My Commission Expires: Address:
- - ----------------------
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EXHIBIT S
Form of Opinions on Behalf of Buyer
June 14, 1996
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Re: Wattenberg Gas Investments, LLC
Ladies and Gentlemen:
I am Associate General Counsel to FMR Corp. ("FMR"). In my
capacity as Associate General Counsel, I am familiar with the transactions
contemplated by the Purchase and Sale Agreement (Tax Partnership Properties)
dated June 14, 1996 (the "Agreement") between Wattenberg Resources Land, L.L.C.
and Wattenberg Gas Investments, LLC ("WGI"). Any capitalized terms used herein
which are not defined herein shall have the meanings given to them in the
Agreement.
I have examined the Agreement, the Ratification of Obligations
(the "Ratification") and the other documents and instruments associated with
the closing (the "Closing") of the transactions contemplated by the Agreement,
and have made such other factual and legal investigations as I deemed
necessary.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. FMR is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, is duly qualified
to carry on its business, and is in good standing in the Commonwealth of
Massachusetts and in each jurisdiction in which the failure to so qualify would
have a material adverse impact on FMR's ability to fulfill its obligations
under the Ratification.
2. FMR has all requisite corporate power and authority
to carry on its business as presently conducted, to
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enter into the Ratification and to perform its obligations under the
Ratification. The consummation of the transactions contemplated by the
Ratification and any other collateral documents to be executed by FMR at
Closing will not violate, nor be in conflict with, (i) any provision of its
articles of incorporation, bylaws or governing documents, (ii) any material
agreement or instrument to which FMR is a party or is bound, or (iii) any
judgment, decree, order, statute, rule or regulation applicable to FMR.
3. The execution, delivery and performance of the
Ratification and any collateral documents to be executed by FMR at Closing and
the transactions contemplated thereby have been duly and validly authorized by
all requisite corporate action on the part of FMR.
4. All documents and instruments required to be executed
and delivered by FMR under the Agreement have been duly executed and delivered
on behalf of FMR. Such documents and instruments do and shall, constitute
legal, valid and binding obligations of FMR, enforceable in accordance with
their terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy.
The Opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Wattenberg Resources Land, L.L.C. and their
lender banks, including The Chase Manhattan Bank, N.A., and their respective
counsel in connection with the transactions contemplated by the Agreement and
may not be relied upon by any other person or for any other purpose without my
prior written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my
attention or to the attention of FMR subsequent to the date hereof and that may
affect the opinions expressed herein, including, without limitation, future
changes in applicable law.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
D. I have made such examination of law as in my judgment
is necessary or appropriate for purposes of this opinion. I am a member of the
bar of the Commonwealth of Massachusetts. I do not express any opinion herein
with respect to the laws of any jurisdiction other than the law of the
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Commonwealth of Massachusetts and the law of the United States of America.
Very truly yours,
FMR CORP.
Jay Freedman
Associate General Counsel
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June 14, 1996
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Ladies and Gentlemen:
I am Counsel to SSB Investments, Inc. (the "Company") and to
State Street Boston Corporation (the "Guarantor"). The Company is a member of
Wattenberg Gas Investments, LLC, a Delaware limited liability company ("WGI").
In my capacity as Counsel for the Company and Guarantor, I have examined the
Operating Agreement for WGI dated effective as of November 8, 1995, as amended
and restated April 25, 1996, May 21, 1996 and June 14, 1996 (the "LLC
Agreement") and the Ratification of Obligations dated June 14, 1996
(collectively, the "Documents"), and have made such other factual and legal
investigations as I have deemed necessary.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase and Sale Agreement (Tax Partnership Properties) dated June 14,
1996 between Wattenberg Resources Land, L.L.C. ("WRL") and WGI (the "Purchase
Agreement") or on the Assets as defined therein.
2. The Company has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
LLC Agreement, the Ratification of Obligations and the Assignment of
Contribution Obligations and to perform its obligations contemplated under such
documents. The consummation of the transactions contemplated by the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
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Obligations will not violate, nor be in conflict with, (i) any provision of the
Company's Certificate of Incorporation, bylaws or governing documents, (ii) any
material agreement or instrument to which the Company is a party or is bound,
or (iii) any judgment, decree, order, statute, rule or regulation applicable to
the Company.
3. The execution, delivery and performance of the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
Obligations have been duly and validly authorized by all requisite corporate
action on the part of the Company.
4. The LLC Agreement, the Ratification of Obligations and the
Assignment of Contribution Obligations have been duly executed and delivered on
behalf of the Company.
5. The Guarantor is a corporation duly organized and validly
existing under the laws of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase Agreement or on the Assets as defined therein.
6. The Guarantor has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
Ratification of Obligations and the Assignment of Guaranty Rights and to
perform its obligations under such documents. The consummation of the
transactions contemplated by the Ratification of Obligations and the Assignment
of Guaranty Rights will not violate, nor be in conflict with, (i) any provision
of the Guarantor's Certificate of Incorporation, bylaws or governing documents,
(ii) any material agreement or instrument to which the Guarantor is a party or
is bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to the Guarantor.
7. The execution, delivery and performance of the
Ratification of Obligations and the Assignment of Guaranty Rights and the
transactions contemplated thereby have been duly and validly authorized by all
requisite corporate action on the part of the Guarantor.
8. The Ratification of Obligations and the Assignment of
Guaranty Rights have been duly executed and delivered on behalf of the
Guarantor and does and shall, constitute the legal, valid and binding
obligation of the Guarantor enforceable in accordance with their terms, subject
to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
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The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., WRL and their lender banks, including The
Chase Manhattan Bank, N.A., and their respective counsel in connection with the
transactions contemplated by the Documents and may not be relied upon by any
other person or for any other purpose without my prior written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Company's attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
SSB INVESTMENTS, INC.
STATE STREET BOSTON CORPORATION
Charles C. Cutrell, III
Counsel
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June 14, 1996
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Ladies and Gentlemen:
We are counsel to Wattenberg Gas Investments, LLC, a Delaware
limited liability company (the "Company"). In our capacity as counsel for the
Company, we are familiar with the transactions contemplated by the Purchase and
Sale Agreement (Tax Partnership Properties) dated as of June 14, 1996 (the
"Agreement") between Wattenberg Resources Land, L.L.C. (the "Seller") and the
Company as the Buyer. Any capitalized terms used herein which are not defined
herein shall have the meanings given to them in the Agreement.
We have examined the Agreement, the Assignment, the Option,
the Management Agreement and the Ratification of Obligations, as such terms are
defined in the Agreement (collectively the "Documents"). We have reviewed and
are relying on the opinion to the Seller dated May _____, 1996 of Morris,
Nichols, Arsht & Tunnell, special Delaware counsel of the Company, and we have
made such other factual and legal investigations as we have deemed necessary.
In addition, in rendering this opinion we have examined and relied upon
certificates of the Manager of the Company with respect to certain factual
matters.
In examining and reviewing the Documents, we have assumed (i)
the genuineness of all signatures; (ii) the conformity to originals of all
documents submitted to us as copies; (iii) the authenticity of all original
documents of which we have received copies; (iv) the due authorization,
execution, and delivery by the Seller of the Agreement and the other Documents
to which it is a signatory; and (v) that the Documents to which the Seller is a
signatory are binding on and enforceable against the Seller.
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Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, we are of the opinion that
the Documents to which the Company is a signatory are binding on and
enforceable against the Company by the Seller or by other signatories thereto,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to the assumption that enforcement of remedies
will be undertaken in good faith and in a commercially reasonable manner and
subject, as to enforceability, to general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or law.
The opinion expressed in this letter is subject to the
following qualifications and limitations:
A. The opinion expressed in this letter is limited
solely to the law of the State of Colorado and applicable federal laws of the
United States of America.
B. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Seller, their lender banks, including The
Chase Manhattan Bank, N.A., and their respective legal counsel in connection
with the transactions contemplated by the Documents and may not be relied upon
by any other person or for any other purpose without our prior written consent.
C. This opinion letter is rendered as of the date
hereof. We do not undertake to advise you of matters that may come to our
attention subsequent to the date hereof and that may affect the opinions
expressed herein.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
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EXHIBIT T
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement"), dated effective
as of June 1, 1996 (the "Effective Date"), is by and between Wattenberg Gas
Investments, LLC, a Delaware limited liability company, (the "Company" or
"WGI") and Wattenberg Resources Land, L.L.C., a Delaware limited liability
company ("WRL" or "Manager") (collectively, the "Parties").
RECITALS
A. The Company owns certain working interests and
overriding royalty interests in oil and gas leases and wells, as identified on
the attached Exhibits A and B, respectively (collectively, the "Assets");
B. WRL has the resources and expertise necessary to
operate and manage the Assets and to provide management services to the Company
as set forth in this Agreement (collectively, the "Services" as defined in
Article 2 below); and
C. The Company desires to retain Manager to provide such
Services and Manager desires to provide such Services, all pursuant to the
terms of this Agreement.
AGREEMENT
In consideration for the Parties entering other agreements
concurrently herewith and the mutual promises hereunder, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
All capitalized terms used herein without definition shall
have the have the meaning given in the Wellbore Assignment of Oil and Gas
Leases with Reservation of Production Payment dated June 14, 1996, between WRL
and the Company (the "Assignment"), or in the case of the terms "Assets,"
"Credit Payment Amount," "IRC," "Post-Effective Date Liabilities" and "Losses,"
in the Purchase and Sale Agreement (Tax Partnership Properties) dated June 14,
1996, by and between WRL and the Company (the "Purchase Agreement").
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ARTICLE 2
SERVICES
2.1 Subject to Section 2.2 hereof, the constraints of
applicable operating and other agreements to which all or any portion of the
Assets are now or hereafter subject and the other terms of this Agreement,
Manager agrees to and shall have the exclusive right and authority to manage
the Assets for and on behalf of the Company, such management to include,
without limitation, performance of the following management functions (the
"Services"):
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed, conditioned, marketed,
delivered, transported or sold) gas, oil and related hydrocarbons produced by
the Company from the Assets, and pay or cause to be paid all royalties,
production payments (including, without limitation, the Production Payment),
net profits interests and all other such payment obligations arising in
connection with the Assets or the production of hydrocarbons therefrom;
provided, however, that Manager shall obtain the approval of the Company to
enter into any sales or marketing agreements which have terms of one year or
greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly constituted
federal or state regulatory body), and local laws, ordinances, rules,
regulations and orders applicable to the Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or cause to be
implemented and completed, any remedial, removal or other response action
required on the Assets under applicable environmental laws, with such actions
to be implemented and completed in accordance with customary industry practices
and in compliance with applicable environmental laws.
(e) Inform the Company of any pending or
threatened action or investigation of which Manager receives written notice and
which Manager believes in good faith could have a material adverse effect on
the Assets, including all actions initiated or investigations threatened by a
third party or governmental authority under applicable environmental laws.
(f) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of the Assets in
material compliance with applicable environmental laws and to initiate and
complete any remedial, removal or other response actions required under
applicable environmental laws in response to any release of a hazardous
substance on the Assets.
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(g) Employ or contract for the services of any
Person required by Manager, in its reasonable discretion, to assist Manager in
the performance of any of its duties and responsibilities under this Agreement,
including, without limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as Manager deems
advisable, in its reasonable discretion, from any Person.
(h) Except for payment of the Production Payment,
pay and perform all obligations of the Company which relate to the Assets,
including, without limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of all money to
which it becomes entitled pursuant to the Assignment, and payment to third
parties, on behalf of the Company, of working interest expenses attributable to
the Assets.
(i) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with respect to all such
insurance, cause the Company to be named as an additional insured party on all
such insurance policies.
(j) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits, applications,
requests or regulatory documents or instruments relating to the Assets.
(k) Establish and maintain all bank accounts,
books and records, capital accounts, the Net Profits Account and other accounts
as are required or convenient to operate the Assets.
(l) Perform all accounting and reporting as
required by the Assignment, the Purchase Agreement, and any other agreement
relating to the Assets and to which the Company is subject; provided, however,
for purposes of this Agreement, the Operating Agreement for Wattenberg Gas
Investments, LLC dated effective as of November 8, 1995, as amended and
restated April 25, 1996, May 21, 1996 and June 14, 1996, shall not be deemed to
be an agreement relating to the Assets to which the Company is subject; and
provided further that Manager shall not adopt an entitlement accounting method
for gas imbalances that causes the parties subject to the imbalance to be
treated as a partnership for federal income tax purposes.
All accounting and reporting shall be performed in
accordance with the provisions of this Agreement, consistently applied. Such
accounting and reporting may initially be performed based on estimated figures,
and subsequently based on actual figures. Beginning with the partial calendar
quarter commencing on June 1, 1996, and every applicable calendar quarter
thereafter, Manager shall prepare and furnish to the Company within 60 days
after the end of each calendar quarter a Quarterly Report. "Quarterly Report"
shall mean a report detailing gas
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production and sales from the Assets attributable to the Wells for the most
recent calendar quarter. Such Quarterly Report shall include (1) an accounting
of the Net Profits Account, including a summary of all credits and debits, and
Production Payments determined in accordance with the Assignment, (2) an
accounting of the Company's share of all tax credit qualified gas sales and
production, total gas sales and production attributable to the Assets and
produced from the Wells, and (3) all other information necessary and sufficient
for the Company to calculate and verify Credit Payment Amounts.
On or before March 15th of each year, with respect to
the preceding calendar year, Manager shall furnish to the Company a report
(referred to herein as the "Annual Report"), based upon mutually agreeable
procedures, of (1) the Net Profits Account, including all credits and debits,
and all Production Payments determined in accordance with the Assignment, (2)
the Company's share of all tax credit qualified gas sales and production, total
gas sales and production attributable to the Assets and produced from the
Wells, (3) credits under IRC Section 29 which are attributable to the Assets,
(4) Credit Payment Amounts determined in accordance with the Purchase
Agreement, and (5) all other information necessary and sufficient for the
Company to calculate and prepare its tax return for such year. If the
production figures reported by Manager are amended by it or other producers
subsequent to Manager furnishing an Annual Report to the Company, an amended
Annual Report for the affected time period shall be furnished to the Company
within 60 days after the end of a calendar quarter during which Manager
received the amended production figures. Notwithstanding the immediately
foregoing, Manager shall have no obligation to amend a prior Annual Report if
the applicable period of limitations for the Internal Revenue Service to make
assessments with respect to the year in question has expired.
(m) Calculate, supply adequate substantiation,
and invoice the Company for the Credit Payment Amounts determined in accordance
with the Purchase Agreement and the Production Payment determined in accordance
with the Assignment.
If the production information is amended after a
Credit Payment Amount or Production Payment for any given quarter has been
calculated, the Credit Payment Amount and/or the Production Payment for that
quarter shall be recalculated using the amended information (the "Amended
Payment Amount").
Manager shall invoice the Company for all Credit
Payment Amounts and Production Payments within 60 days after the end of each
calendar quarter, or partial calendar quarter, and the receipt of all
supporting data. Manager shall invoice the Company for all Amended Payment
Amounts within 60 days after the end of the quarter during which Manager
received the amended production information from WRL or other producers.
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(n) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the Purchase Agreement).
(o) Receive and collect all revenues and income
attributable to the Assets, including, without limitation, all Gross Proceeds
and Other Income; the parties understand that all Credit Payment Amounts are
deemed not to be revenues and income attributable to the Assets for the
purposes of this subsection (o), however, submitting invoices and sufficient
supporting documentation to the Company for Credit Payment Amounts is a
required obligation of Manager under this Agreement.
(p) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and agreements affecting
the Assets which Manager believes are necessary or desirable in connection with
the ownership, development, operation, production and maintenance of the Assets
or to perform any of the Services hereunder; provided, however, that Manager
shall obtain the approval of the Company to enter into any such contract or
agreement which has a cost exceeding $25,000 per well (or per separately owned
formation within a well), net to the interest of the Company. Unless Manager
obtains the prior approval of the Company, Manager shall not intentionally
undertake or approve any of the Services described in this Section 2.1(p) if
any such Services will exceed by more than 10% the cost levels or estimates
upon which the Company's approval was based; provided that if Manager should
decide to conduct such Services in excess of permitted cost levels, in
circumstances other than to remedy an emergency situation, Manager shall be
personally responsible for all expenditures in excess of the permitted levels.
(q) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits, mediations,
arbitrations and other forms of dispute resolutions and other proceedings which
relate in any way to the Assets or the Services performed pursuant to this
Agreement; provided, however, that Manager shall obtain the approval of the
Company to settle any claim, demand, cause of action or other proceeding if the
cost exceeds $25,000 per well, net to the interest of the Company.
(r) Serve as the Company's representative as to all
hearings, proceedings, filings, permits, bonds, licenses or such other similar
matters as they relate to the drilling of sidetrack wellbores from the Wells
and which relate to any governmental, quasi-governmental or regulatory body or
agency (other than the Internal Revenue Service), and to execute all
applications, permits, orders, consents, waivers and agreements, as such relate
to the Wells with respect to such body or agency. Should a conflict arise
between the interests of Manager and the Company regarding the foregoing
matters, Manager shall advise the
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Company of (i) any such conflict, and (ii) Buyer's right to represent itself
with respect to such matters.
(s) All other acts and things as are necessary to
carry out Manager's responsibilities under this Agreement.
If Manager is not at any time the operator of a particular portion of the
Assets, the obligations of Manager under this Agreement with respect to such
portion of the Assets shall be construed to require only that Manager use its
reasonable best efforts to cause the operator of such portion of the Assets to
take such actions or render such performance within the constraints of the
applicable contracts.
2.2 The Parties anticipate that the aggregate of Gross
Proceeds and Other Income from the Assets will be sufficient to perform all of
the Services hereunder. Unless Manager obtains the prior approval of the
Company and except for emergency situations, Manager will not undertake or
approve Services or operations on the Assets that in any instance are
anticipated to involve costs and expenses exceeding the aggregate of Gross
Proceeds and Other Income for such period when such costs and expenses are
payable and which excess costs and expenses cannot reasonably in good faith be
expected to be recouped from the aggregate of Gross Proceeds and Other Income
from a subsequent period or periods. If Manager reasonably in good faith
anticipates that costs and expenses which will need to be incurred during a
particular period in order to perform the Services hereunder for such period
will exceed the aggregate of Gross Proceeds and Other Income for that same
period, and that the excess of costs and expenses over the aggregate of Gross
Proceeds and Other Income cannot reasonably in good faith be expected to be
recouped from the aggregate of Gross Proceeds and Other Income from a
subsequent period or periods, then Manager shall forward to the Company a
timely request for the amount of funds required for Manager to timely perform
such Services, together with documentation supporting Manager's request. The
Company shall respond to Manager's request on or before 10 business days after
receipt of such request. If the Company in its reasonable and sole discretion
elects to grant Manager's request, Manager will undertake such Services or
operations on the Assets and the Company shall pay to Manager the funds
required for Manager to timely perform such Services, with the Company to
recoup all such funds out of the revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company pursuant to
Section 2.2 on a schedule to be determined by the Parties.
2.3 The Company hereby covenants and agrees with Manager
as follows:
(a) All revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company
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pursuant to Section 2.2 shall be used by Manager to perform the Services
hereunder.
(b) Any Person is entitled to rely on this
Agreement as granting to Manager the power and authority to manage the Assets
and to perform the Services on behalf of the Company. In order to allow
Manager to carry out its duties and to exercise its powers hereunder, the
Company has executed a Memorandum of Management Agreement and Power of Attorney
(the "Power of Attorney") in the form set forth on Schedule 1. The Company
shall execute such counterparts of the Power of Attorney as are necessary to
carry out the purpose of this Agreement and to evidence that Manager has the
power and authority to manage the Assets and to perform the Services on behalf
of the Company. The Company and Manager acknowledge that, for purposes of
administrative convenience, certain limitations on the authority of Manager
which are set forth in this Agreement are not set forth in the Power of
Attorney, and that this circumstance shall not result in any expansion in the
authority of Manager. The Company shall, for all purposes of this Agreement,
be deemed to have elected to participate in any actions properly taken by
Manager in accordance with the Power of Attorney.
ARTICLE 3
PERFORMANCE OF SERVICES
Manager agrees to use reasonable best efforts to perform all
of the Services in a reasonable prudent and timely manner consistent with good
oil field and business practices.
ARTICLE 4
FEES AND EXPENSES
4.1 Management Fee. Commencing on the Effective Date and
continuing throughout the term of this Agreement, the Company shall pay Manager
a fee of $100 per month (the "Management Fee"). The Management Fee is intended
to reimburse Manager for all of its corporate level internal administrative
expenses incurred in managing the Assets. The Management Fee does not cover
and the Manager shall pay all COPAS overhead charges payable to any Person
(including Manager) with respect to the Assets under any applicable operating
or other agreements, in accordance with Section 2.1(h) as part of the Company's
obligations relating to the Assets. With respect to any Well which is not
covered by an operating agreement, Manager shall charge the Company and pay to
itself out of the revenue and income collected by it pursuant to Section 2.1(o)
above or paid to it pursuant to Section 2.2, a monthly overhead charge of $350
per Well; provided, however that such well rate shall be adjusted in the manner
provided in Paragraph 1(A)(3) of Section III of the 1985 COPAS Accounting
Procedure.
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4.2 Expenses Attributable to the Assets. As the owner of
the Assets, the Company is obligated to pay the expenses associated with the
Assets and it is recognized and agreed that during each Payment Period for
which a Credit Payment Amount is due, the Company must fund the expenses from
sources other than Gross Proceeds and Other Income from the Assets during such
Payment Period. In connection with providing the Services, if and to the
extent that Manager pays or advances expenses associated with the Assets on
behalf of the Company, the Company agrees to reimburse Manager for such
expenses from Gross Proceeds and Other Income during subsequent Payment
Periods, plus interest on any such amount at the Agreed Rate (defined below)
from the end of the Payment Period in which such excess expenses were to be
satisfied, until the date when such expenses are satisfied. The term "Agreed
Rate" shall mean the annual rate of interest equal to the lesser of (i) the
prime rate in effect at The Chase Manhattan Bank, N.A. (or its successor, or if
such bank no longer exists, the U.S. prime rate generally recognized in the
financial media from time to time) and (ii) the maximum rate of interest
allowed by applicable law.
(a) Each invoice delivered by WRL to the Company
pursuant to this Section 4.2 shall include the calculation of the expenses
which are the subject thereof, together with supporting documentation.
ARTICLE 5
INDEMNIFICATION
5.1 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all Losses
which arise directly or indirectly from or in connection with Manager's breach
of its duties or obligations under this Agreement; provided that the Company is
not in material default under the terms and conditions of this Agreement and
does not remain in material default under the terms and conditions of this
Agreement after Manager has given the Company written notice of such material
default and given the Company a reasonable amount of time to cure such material
default; and provided further, Manager's indemnity obligations under the terms
of this Agreement shall not extend to any Losses which arise or result directly
or indirectly from or in connection with the Company's gross negligence,
willful misconduct, and/or material non-compliance with its obligations under
this Agreement if the Company continues to be in material non-compliance with
its obligations under this Agreement after Manager has given the Company
written notice of material non-compliance and given the Company a reasonable
amount of time to cure said material non-compliance or correct the results of
the Company's gross negligence or willful misconduct.
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5.2 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all losses
which arise directly or indirectly from or in connection with Post-Effective
Date Liabilities involving environmental matters, to the extent that WRL, or
its successors and assigns, is jointly liable with the Company and such
environmental matters are attributable to the period of time during which this
Agreement is in force and effect. WRL shall be responsible for and liable for
all costs, expenses, liabilities and obligations accruing or relating to the
owning, operating, or maintaining of the Assets or the producing, transporting
and marketing of hydrocarbons from the Assets relating to periods before the
Effective Date in accordance with Section 13.2 of the Purchase Agreement.
ARTICLE 6
ASSIGNMENT AND DELEGATION
6.1 This Agreement may be assigned by the Company with
the prior written consent of Manager, which consent shall not be unreasonably
withheld. Without the prior written consent of the Company, the accounting
functions to be performed by Manager hereunder and Manager's indemnity
obligations hereunder may not be assigned and shall remain the obligations of
Manager. With respect to all of the other rights, authority, duties and
obligations, this Agreement may be assigned by Manager in whole or in part at
the same time and to the same extent as Manager is entitled to assign the
Production Payment pursuant to the Assignment. Upon any such assignment of
this Agreement and except for the indemnity obligations and accounting
obligations of Manager, Manager shall have no further liability to the Company
with respect to any obligations or duties accruing following the effective date
of such assignment as to the portion of the Agreement so assigned.
Notwithstanding anything herein provided to the contrary, WRL shall have the
right to assign, pledge or mortgage its rights under Article 4 without the
prior written consent of the Company.
Notwithstanding the foregoing provisions of this Section 6.1,
Manager shall be entitled without prior consent, but upon written notice within
a reasonable time thereafter, to assign or otherwise transfer to HS Resources,
Inc., a Delaware corporation ("HS") or its wholly-owned subsidiary Orion
Acquisition, Inc., a Delaware corporation ("Orion"), all or any portion of its
obligations to the Company under this Agreement, and such an assignment or
transfer of obligations shall serve to release Manager from any such
obligations, to substitute HS or Orion, as appropriate, to be the obligor under
such obligations, and to authorize HS or Orion, as appropriate, to serve as
successor to Manager; provided, however, that such an assignment or transfer to
Orion shall not release HS from its obligations
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under the Purchase Agreement or the documents contemplated thereunder.
6.2 Manager shall have the right to delegate, at any time
and from time to time, any of its duties or obligations under this Agreement to
either HS or Orion and to authorize such delegatee to fulfill such duties or
obligations on behalf of Manager; provided, however, that such a delegation to
Orion shall not release HS from its obligations under the Purchase Agreement or
the documents contemplated thereunder; and provided further, that any such
delegation shall not release Manager of its obligations hereunder.
6.3 In recognition of the authorization under Section 6.1
and the delegation under Section 6.2, of the Manager's obligations and
authority hereunder, HS and Orion shall each be empowered as an
Attorney-in-Fact of the Company under the Power of Attorney.
ARTICLE 7
TERM / TERMINATION
7.1 This Agreement shall be effective for the period from
the Effective Date until June 1, 1997. Thereafter, this Agreement shall
continue on a year-to-year basis, but may be terminated by either party upon 90
days written notice to the other party. Notwithstanding the foregoing, if the
Internal Revenue Service ("IRS") publishes a Revenue Procedure or other
guidance in the IRS Cumulative Bulletin allowing for a longer term with respect
to management agreements contemplated under a transaction essentially similar
to the Purchase Agreement, the Company and Manager agree to extend the term of
this Agreement in accordance with such guidance, but in no event shall the term
of this Agreement extend beyond January 1, 2005. This Agreement shall not be
applicable to any portion of the Assets as to which WRL has effected a partial
exercise of the Option.
7.2 If Manager is in breach of its obligations set forth
in Article 3, and the Company is materially damaged as a result of such breach,
the Company shall so inform Manager in writing of such breach (an "Event of
Default"). Thereafter, Manager shall have 30 days in which to cure the Event
of Default or such longer period of time as is reasonably necessary under the
circumstances so long as Manager undertakes to commence the cure of such Event
of Default within such 30-day period and such cure is diligently prosecuted
thereafter. If Manager does not cure the Event of Default within that time
frame, the Company, at its sole option and discretion, may terminate this
Agreement, and retain any legal and equitable rights and remedies it may have
against Manager on account of such breach.
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ARTICLE 8
MISCELLANEOUS
8.1 This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
of the Parties and delivered to the other.
8.2 This Agreement shall be governed by and construed in
accordance with the law of the State of Colorado without reference to the
conflict of laws provisions thereof.
8.3 All notices hereunder shall be sufficiently given for
all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
by United States mail, telecopy, telefax or other electronic transmission
service to the appropriate address as set forth below.
If to Manager:
Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa, Manager
Telephone: (303) 762-9991
Fax: (303) 762-9992
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Company:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Fax: (617) 476-6248
Telephone: (617) 563-4791
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with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
or at such other address and to the attention of such other person as such
Party may designate by written notice to the other Party.
8.4 Notwithstanding anything herein provided to the
contrary, the Company shall be deemed to have given its approval to Manager for
any matter requiring the Company's approval if the Company fails to deny its
approval to Manager within 7 days of receipt from Manager of a request for
approval under this Agreement, or within such shorter time period if the
situation requires Manager to act before the 7-day period has expired and
Manager notifies Company of such shorter time frame.
8.5 Subject to Article 6 hereof, this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors and assigns. Further, this Agreement, and the rights and
obligations hereunder, shall be a covenant running with the lands attributable
to the Assets.
8.6 This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the Parties. Any party
hereto may, only by an instrument in writing, waive compliance by another Party
with any term or provision of this Agreement on the part of such other Party to
be performed or complied with. The waiver by any Party of a breach of any term
or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
8.7 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
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<PAGE> 123
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.
8.8 In addition to any other remedy which Manager may
enjoy under this Agreement, at law or in equity, Manager shall have the right
to seek and enforce the remedy of specific performance by the Company of its
obligations under this Agreement.
8.9 The provisions of Section 2.2 and of Article 5 shall
survive the termination of this Agreement for any reason with respect to
liabilities or obligations under such provisions that accrue or arise during
the period of time that this Agreement, including any amendments, replacements
or renewals of this Agreement, is valid and in effect.
8.10 This Agreement is subject to that Management
Agreement dated March 26, 1996 between the Company and HS and HS' rights and
obligations thereunder with respect to management of the Assets.
8.11 This Agreement is not intended to create, and shall
not be construed to create, a relationship of partnership or an association for
profit between Manager and the Company.
8.12 The Parties agree not to record this Management
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first above written.
Wattenberg Gas Investments, LLC
By: Its Manager, Fontenelle, Inc.
By:
--------------------------------
Name: Gary L. Greenstein
Title: Vice President
Wattenberg Resources Land, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
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SCHEDULE 1
MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
This MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
(this "Power of Attorney") is dated as of June 14, 1996 and effective as of
June 1, 1996 (the "Effective Date"), and is executed by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company having an office at
82 Devonshire Street, R22C, Boston, Massachusetts 02109 (the "Company");
Wattenberg Resources Land, L.L.C., a Delaware limited liability company whose
manager has an office at 3300 South Columbine Circle, Englewood, Colorado 80110
(the "Manager") (with the Company and the Manager collectively referred to as
the "Parties"); HS Resources, Inc., a Delaware corporation ("HS"), and its
wholly-owned subsidiary Orion Acquisition, Inc., a Delaware corporation
("Orion"), both having an office at 1999 Broadway, Suite 3600, Denver, Colorado
80202.
The Parties hereby give notice that they entered into a
Management Agreement dated June 14, 1996 (the "Agreement"), whereby the Company
contracted with Manager for Manager to perform certain operating and management
services relative to the lands and leases identified on Exhibit A and to the
wells identified on Exhibit B (collectively, the "Assets" as further defined in
that Purchase and Sale Agreement (Tax Partnership Properties) dated June 14,
1996 between the Parties (the "Purchase Agreement")). Manager hereby delegates
to HS and Orion all of Manager's authority, duties and obligations with respect
to the Company under the Agreement. HS and Orion hereby accept such delegation
by Manager and agree to be bound by the terms of the Agreement. In recognition
of the delegation of such authority and obligations, the Company does hereby
appoint and constitute HS and Orion, individually, as its duly authorized
Attorney-in-Fact with the powers and obligations set forth herein. HS and
Orion may present this Power of Attorney to any third party as evidence of its
respective authority to perform the duties and obligations of Manager under the
Agreement.
Manager has agreed to manage the Assets for and on behalf of
the Company, by performing certain management services, as limited and
described in more detail in the Agreement (the "Services").
Effective as of the Effective Date, the Company does hereby
revoke all prior powers of attorney granted in connection with the following
matters and does hereby appoint and constitute Manager as its duly authorized
Attorney- in-Fact with power and authority for the Company and in its name,
place and stead to execute, acknowledge and deliver such instruments as Manager
deems necessary or convenient in connection with the following
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<PAGE> 125
matters relating to real or personal property constituting the Assets:
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed,
conditioned, marketed, delivered, transported or sold) gas,
oil and related hydrocarbons produced by the Company from the
Assets, and pay or cause to be paid all royalties, production
payments, net profits interests and all other such payment
obligations arising in connection with the Assets or the
production of hydrocarbons therefrom; provided, however, that
Manager shall obtain the approval of the Company to enter into
any sales or marketing agreements which have terms of one year
or greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly
constituted federal or state regulatory body), and local laws,
ordinances, rules, regulations and orders applicable to the
Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or
cause to be implemented and completed, any remedial, removal
or other response action required on the Assets under
applicable environmental laws, with such actions to be
implemented and completed in accordance with customary
industry practices and in compliance with applicable
environmental laws.
(e) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of
the Assets in material compliance with applicable
environmental laws and to initiate and complete any remedial,
removal or other response actions required under applicable
environmental laws in response to any release of a hazardous
substance on the Assets.
(f) Employ or contract for the services of any
person required by Manager, in its reasonable discretion, to
assist Manager in the performance of any of its duties and
responsibilities under the Agreement, including, without
limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as
Manager deems advisable, in its reasonable discretion, from
any person.
(g) Pay and perform all obligations of the
Company which relate to the Assets, including, without
limitation, the payment to itself, on behalf of the
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<PAGE> 126
Company, of working interest expenses attributable to the
Assets and of all money to which it becomes entitled, and
payment to third parties, on behalf of the Company, of working
interest expenses attributable to the Assets.
(h) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with
respect to all such insurance, cause the Company to be named
as an additional insured party on all such insurance policies.
(i) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits,
applications, requests or regulatory documents or instruments
relating to the Assets.
(j) Establish and maintain all bank accounts,
books and records, capital accounts, Net Profits Account and
other accounts as are required or convenient to operate the
Assets.
(k) Perform all accounting and reporting related
to the Assets.
(l) Calculate and invoice the Company for amounts
due under the Purchase Agreement.
(m) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the
Purchase Agreement and the Operating Agreement of the
Company).
(n) Receive and collect all revenues and income
attributable to the Assets.
(o) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and
agreements affecting the Assets which Manager believes are
necessary or desirable in connection with the ownership,
development, operation, production and maintenance of the
Assets or to perform any of the Services under the Agreement.
(p) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits,
mediations, arbitrations and other forms of dispute
resolutions and other proceedings which relate in any way to
the Assets or the Services performed pursuant to the
Agreement.
(q) Act on behalf of and bind the Company with
respect to all hearings, proceedings, filing, permits, bonds,
licenses or such other similar matters as they
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<PAGE> 127
relate to the Assets (including, but not limited to the
drilling of sidetrack wellbores from the Wells) or a portion
thereof and which relate to any governmental,
quasi-governmental or regulatory body or agency (other than
the Internal Revenue Service), and to execute all
applications, permits, orders, consents, waivers and
agreements, as such relate to the Assets or a portion thereof,
with respect such body or agency.
(r) Exercise on behalf of the Company the right
to not participate or to non-consent any proposal.
(s) Pool or unitize the Company's interests in
the Assets.
(t) All other acts and things as are necessary to
carry out Manager's responsibilities under the Agreement.
The powers herein conferred shall extend to all acts and
transactions described in (a) - (t) above affecting the Assets and extend to
all forms of interests in the Assets. This Power of Attorney is irrevocable by
the Company and is coupled with an interest in the lands covered by the Assets
for the period from the Effective Date until the Agreement is terminated. If
Manager should elect to exercise its rights under the Option to Purchase Oil
and Gas Interests dated June 14, 1996 between the Parties (the "Option"), this
Power of Attorney shall no longer be effective as to the Assets on which
Manager has exercised the Option.
If Manager is not at any time the operator of a particular
portion of the Assets, the obligations of Manager under the Agreement with
respect to such portion of the Assets shall be construed to require only that
Manager use reasonable best efforts to cause the operator of such portion of
the Assets to take such actions or render such performance within the
constraints of the applicable contracts.
Manager shall use reasonable best efforts to perform the
Services in a reasonable and prudent manner consistent with good oil field and
business practices.
[the remainder of this page is intentionally blank}
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<PAGE> 128
Any person is entitled to rely on this Power of Attorney as
notice that Manager has been given the power and authority to manage the Assets
and to perform the Services on behalf of the Company.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
HS RESOURCES, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
ORION ACQUISITION, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
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<PAGE> 129
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company, on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
STATE OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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<PAGE> 130
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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EXHIBIT U
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this ____ day
of ______________, by and between Wattenberg Resources Land, L.L.C. ("Seller"),
Wattenberg Gas Investments, LLC ("Buyer"), and __________________ BANK ("Escrow
Agent"). Seller and Buyer are sometimes herein jointly referred to as the
"Parties."
RECITALS
A. Seller and Buyer are the Seller and Buyer,
respectively, under that certain Purchase and Sale Agreement (Tax Partnership
Properties) dated June 14, 1996 (the "Purchase Agreement"), and Grantor and
Grantee, respectively, under the Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment dated June 14, 1996 (the "Assignment"); and
B. Pursuant to Section 8.3 of the Purchase Agreement,
Seller and Buyer have agreed that Buyer shall deposit certain amounts in an
escrow account; and
C. Escrow Agent has agreed to act as such in accordance
with the terms, provisions and conditions of this Escrow Agreement and to hold
the funds described herein in accordance with the terms and provisions hereof.
AGREEMENT
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Of even date herewith, Buyer has delivered to Escrow
Agent and Escrow Agent hereby acknowledges the receipt of an Credit Payment
Amount (as defined in the Purchase Agreement) for deposit into the account set
up hereunder (the "Escrow Account"). Seller and Buyer have advised Escrow
Agent that Buyer will deliver additional Credit Payment Amounts for deposit
into the Escrow Account. Such sums, together with any interest or other
earnings of the money so deposited shall be referred to herein as the "Escrow
Funds."
2. During the term of this Escrow Agreement, Escrow
Agent shall hold and maintain the Escrow Funds and said funds shall be invested
or reinvested by Escrow Agent at the joint written direction of Seller and
Buyer. Seller and Buyer hereby
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direct Escrow Agent to invest the Escrow Funds in the _______________________
Fund.
The Escrow Agent shall sell all or any designated part of such
investments so directed in writing jointly by Seller and Buyer. All
commissions, brokerage taxes, fees and expenses, if any, applicable to the
acquisition or sale of the investments under this paragraph shall be paid
initially from the interest or income generated from the Escrow Funds and
thereafter from any remaining amounts in the Escrow Funds. The Escrow Agent
shall not be liable for losses on any investments made by it pursuant to and in
compliance with such instructions.
3. The Escrow Agent shall hold and disburse the Escrow
Funds during the term of this Escrow Agreement in accordance with the joint
written instructions from Seller and Buyer. The Escrow Agent shall deliver the
Escrow Funds or any part thereof to the party designated to receive such funds
if Escrow Agent receives joint written instructions from both Seller and Buyer
to do so. The Escrow Agent shall hold the Escrow Funds until it has received a
joint written instruction notice from Seller and Buyer as to how delivery of
the Escrow Funds shall be made. Should any controversy arise between Seller
and Buyer and/or the Escrow Agent with respect to this Escrow Agreement or with
respect to the right to receive the Escrow Funds, the Escrow Agent shall have
the right to consult counsel and/or to institute a bill of interpleader in any
court of competent jurisdiction to determine the rights of the Parties. Should
such actions be necessary, or should the Escrow Agent become involved in
litigation in any manner whatsoever on account of this Escrow Agreement or the
Escrow Funds held hereunder, the Parties bind and obligate themselves, their
successors, assigns and legal representatives to pay the Escrow Agent, in
addition to any charge made hereunder for acting as Escrow Agent, reasonable
attorney's fees incurred by the Escrow Agent, and any other disbursements,
expenses, losses, costs and damages in connection with and resulting from such
actions.
4. Duties of the Escrow Agent
(a) The duties of the Escrow Agent are only such
as are herein specifically provided, being purely ministerial in nature, and
the Escrow Agent shall incur no liability whatsoever except for gross
negligence or willful misconduct. The Escrow Agent is not a party to any other
agreement regarding the subject matter contained herein and as such shall only
be bound by the terms and conditions of this Escrow Agreement.
(b) The Escrow Agent shall be under no
responsibility for the recitals in this Escrow Agreement, the covenants or
undertakings set forth in the Purchase Agreement, the Assignment, or in respect
of any of the items deposited with the Escrow Agent other than to comply with
the specific duties and responsibilities set forth herein and with any written
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instructions or other communications herein provided for; and, without limiting
the generality of the foregoing, the Escrow Agent shall have no obligation or
responsibility to determine the correctness of any statement or calculation
made by any party hereto in any written instruction or other communication or
the genuineness or validity of any document. The Escrow Agent shall be fully
protected in acting in accordance with any written instructions or other
communications from Seller and Buyer given to it in accordance with the
provisions hereof and reasonably believed by it to have been signed by the
proper parties. The Escrow Agent shall have no liability for losses arising
from any cause beyond its control, including (but not limited to) the
following: (i) the act, failure or neglect of any agent or correspondent
selected by the Escrow Agent for the remittance of funds; (ii) any delay,
error, omission or default of any mail, delivery, cable or wireless agency or
operator; (iii) the acts or edicts of any government or governmental agency or
other group or entity exercising governmental powers. The Escrow Agent shall
be entitled to pay from the Escrow Funds the cost and expense of defending any
legal proceedings which may be instituted against it with respect to the
subject matter of this Escrow Agreement (including counsel and investigatory
fees); provided, however, the Escrow Agent shall consult with Seller and Buyer
prior to incurring any such legal expenses. The Escrow Agent shall not be
required to institute legal proceedings of any kind.
5. The Escrow Agent may resign at any time by giving
written notice to Seller and Buyer. Such resignation shall not be effective
until a new Escrow Agent has been appointed by the joint written agreement of
Seller and Buyer. The Escrow Agent may at any time be removed by notice in
writing delivered to the Escrow Agent by Seller and Buyer. The Escrow Agent's
sole responsibility thereafter shall be to keep safely all Escrow Funds then
held by it and to deliver the same to a person designated by the Parties or in
accordance with the directions of a final order or judgment from a court having
competent jurisdiction.
6. For its services pursuant to this Escrow Agreement,
the Escrow Agent shall be entitled to a fee of _______________________ DOLLARS
($______.00 U.S.). Any fees and expenses due the Escrow Agent shall be borne
one- half (1/2) by Seller and one-half (1/2) by Buyer and shall be paid within
10 days after the receipt of an invoice from the Escrow Agent for such fees and
expenses. The Parties jointly and severally agree to pay to the Escrow Agent
its fees for the services rendered by it pursuant to the provisions of this
Escrow Agreement and will reimburse the Escrow Agent for its reasonable
expenses, including reasonable attorney's fees incurred in connection with the
negotiations, drafting and performance by it of such services. Except as
otherwise noted, this fee covers account acceptance, set-up and termination
expenses, plus usual and customary related administrative services such as
safekeeping, investment, collection and distribution of assets, including
normal record
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keeping and reporting requirements. Any additional services beyond the
receipt, investment and payment of funds specified in this Escrow Agreement, or
activities requiring excessive administrator time or out-of-pocket expenses
such as optional substitution of collateral or securities, shall be deemed
extraordinary fees for which related costs, transaction charges and additional
fees will be billed at the Escrow Agent's standard charges for such items.
7. The Parties agree to jointly and severally indemnify,
defend and hold the Escrow Agent harmless from and against any and all loss,
damage, tax, liability and expense that may be incurred by the Escrow Agent
arising out of or in connection with its acceptance or appointment as the
Escrow Agent hereunder, including the legal costs and expenses of defending
itself against any claim or liability in connection with its performance
hereunder. Any fees and expenses resulting from the foregoing indemnification
shall be borne one-half (1/2) by Seller and one-half (1/2) by Buyer.
8. The Escrow Agent is hereby given a lien on the Escrow
Funds for all indebtedness that may become owing to the Escrow Agent hereunder,
which lien may be enforced by the Escrow Agent by setoff or appropriate
foreclosure proceedings.
9. The Parties warrant to the Escrow Agent that there
are no federal, state or local tax liabilities or filing requirements
whatsoever concerning the Escrow Agent's actions contemplated hereunder and
warrant and represent to the Escrow Agent that the Escrow Agent has no duty to
withhold or file any report regarding any tax liability (other than with
respect to interest on the Escrow Funds) under any federal or state income tax,
local or state property tax, local or state sales or use taxes, or any other
tax by any taxing authority. The Parties agree to jointly and severally
indemnify the Escrow Agent fully for any tax liability, penalties or interest
incurred by the Escrow Agent arising hereunder and agree to pay in full any
such tax liability together with penalty and interest if any tax liability is
ultimately assessed against the Escrow Agent for any reason as a result of its
actions hereunder (except for the Escrow Agent's individual income tax
liability with respect to its fees).
10. All notices, requests, directions, instructions,
waivers, approvals or other communications to any party hereto shall be made or
delivered in person or by registered mail or certified mail, postage prepaid,
addressed to such party as provided below, or to such other address as such
party may hereafter specify in a written notice to the other parties named
herein, and all such notices or other communications shall be in writing so
addressed and shall be effective upon receipt by the addressee thereof:
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<PAGE> 135
Escrow Agent: _____________________ BANK
Corporate Trust Department
Attn: ______________________
Telephone: ( )
Fax: ( )
Seller: Wattenberg Resources Land, L.L.C.
3300 South Columbine Circle
Englewood, Colorado 80110
Attn: David G. Stolfa
Telephone: (303) 762-9991
Fax: (303) 762-9992
Buyer: Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attn: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
and a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
11. No agreement shall be effective to amend or
supplement this Escrow Agreement unless such agreement is in writing and signed
by the parties hereto. This Escrow Agreement may be executed in any number of
execution counterparts.
12. This Escrow Agreement shall be governed by and
construed in accordance with the law of the State of Colorado, except that
statutory provisions regarding fiduciary duties and liabilities of Trustees
shall not apply to this Escrow Agreement. The Parties expressly waive such
duties and liabilities, it being their intent to create solely an agency
relationship and hold the Escrow Agent liable only in the event of its gross
negligence or
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<PAGE> 136
willful misconduct in order to obtain lower fee schedule rates as specifically
negotiated with the Escrow Agent.
13. This Escrow Agreement shall terminate by its own
terms when no funds remain in the Escrow Account, unless sooner terminated in
writing by the Parties, in which case the balance of any funds remaining in the
Escrow Account upon such termination shall promptly be paid in accordance with
written instructions signed by Seller and Buyer.
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date first above written.
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
BANK,
---------------------------------
as Escrow Agent
By:
-----------------------------------
Name:
Title: President
------------------------
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<PAGE> 137
EXHIBIT V
LIMITED POWER OF ATTORNEY
Wattenberg Gas Investments, LLC, a Delaware limited liability
company, having an office at 82 Devonshire Street, R22C, Boston, Massachusetts
02109 (the "Company") does hereby make, constitute and appoint Thomas H.
McCarthy, Jr. having an office at 3047 S. Claude Court, Denver, Colorado 80210,
to be its true and lawful attorney (attorney-in-fact), for it and in its name
and behalf, to execute and deliver the Assignment, Bill of Sale and Conveyance
attached hereto as Schedule 1, requiring execution and delivery in the name of
the Company pursuant to the terms of that certain Purchase and Sale Agreement
(Tax Partnership Properties) dated June 14, 1996 between the Company and
Wattenberg Resources Land, L.L.C. ("WRL"), for the leases and wells identified
by exhibit therein (the "Assets").
The attorney-in-fact shall execute and is obligated to execute
from time to time the attached Assignment, Bill of Sale and Conveyance, in any
number of counterparts and covering all or any portion of the Assets, upon the
written request of WRL, regardless of any objection by any party including the
Company. Such written request shall include a copy of a written notice from
WRL to the Company, which WRL represents has been received by the Company at
least 60 days prior to the submittal to the attorney-in-fact (which the
attorney-in-fact shall not be required to verify), stating that (a) the Company
failed to perform an obligation under (i) the Purchase and Sale Agreement, (ii)
the Wellbore Assignment of Oil and Gas Leases with Reservation of Production
Payment dated June 14, 1996 between WRL and the Company, (iii) the Option to
Purchase Oil and Gas Interests dated June 14, 1996 between the Company and WRL
(the "Option"), or (iv) the Management Agreement dated June 14, 1996 between
the Company and WRL, and (b) that WRL tendered any required payment to WGI for
the Assets to be conveyed by the Assignment, Bill of Sale and Conveyance in
accordance with the terms of the Option. The written request shall also
include a signed statement by an officer of WRL, that the Company has not
remedied such failure to perform in the 60 days since the Company's receipt of
the written notice of such failure to perform.
This Limited Power of Attorney is irrevocable by the Company
and is coupled with an interest in the lands covered by the Assets. The
foregoing power of attorney shall be effective from the date hereof until WRL
receives a conveyance of all of the Assets or until the Option expires, which
ever is earlier.
Gary L. Greenstein, Vice President of Fontenelle, Inc., in its
capacity as Manager of the Company, hereby certifies that the execution of this
Limited Power of Attorney is authorized by
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<PAGE> 138
the Operating Agreement of the Company dated effective as of November 8, 1995,
as amended and restated April 25, 1996, May 21, 1996 and June 14, 1996 and
other governing authority of the Company and that the Company will ratify and
confirm all lawful actions taken by Thomas H. McCarthy, Jr., or his successor,
on behalf of the Company which are authorized by this Limited Power of
Attorney. The Company and WRL each waive any and all claims against the
attorney-in-fact and the right to enjoin the attorney-in-fact for any actions
authorized herein. The Company and WRL each shall indemnify and release the
attorney-in-fact from any damages incurred by or claims made against the
attorney-in-fact for any exercise of authority granted herein.
Thomas H. McCarthy, Jr. may not resign as attorney-in-fact
under this Limited Power of Attorney until he appoints a successor
attorney-in-fact and notifies the Company and WRL of such appointment, and the
successor agrees to such appointment in a writing delivered to WRL. In the
event that Thomas H. McCarthy, Jr. is deceased, is permanently incapacitated or
otherwise is unable to perform under this Limited Power of Attorney, Dante L.
Zarlengo, having an office at 621 - 17th Street, Suite 2200, Denver, Colorado
80293 is appointed as the successor attorney-in-fact for the Company.
WRL may assign all of its right, title, interest and
obligation under this Limited Power of Attorney to HS Resources, Inc. ("HS") or
Orion Acquisition, Inc. ("Orion") (both being Delaware corporations) without
any prior notice or consent of WGI. Upon satisfaction of the requirements set
forth above and receipt of evidence of such an assignment by WRL, the
attorney-in-fact shall execute and deliver requested Assignment, Bill of Sale
and Conveyances to HS or Orion, as appropriate.
[the remainder of this page is intentionally blank]
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<PAGE> 139
This Limited Power of Attorney is executed on June 14, 1996,
and effective for all purposes as of June 1, 1996.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-------------------------------
Name: Gary L. Greenstein
Title: Vice President
WATTENBERG RESOURCES LAND, L.L.C.
By:
-----------------------------------
Name: David G. Stolfa
Title: Manager
THOMAS H. MCCARTHY, JR.
By:
-----------------------------------
Name: Thomas H. McCarthy, Jr.
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<PAGE> 140
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by David G. Stolfa, in his capacity as Manager of Wattenberg
Resources Land, L.L.C., a Delaware limited liability company on behalf of such
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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<PAGE> 141
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Thomas H. McCarthy, Jr., an individual.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
(SEAL) ------------
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<PAGE> 142
SCHEDULE 1
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE ("Assignment") is
dated this ____ day of _________, but effective as of _______________ (the
"Effective Date"), from WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited
liability company with an office at 82 Devonshire Street, R22C, Boston,
Massachusetts 02109 (herein called "Assignor"), to WATTENBERG RESOURCES LAND,
L.L.C., a Delaware limited liability company whose manager has offices at 3300
South Columbine Circle, Englewood, Colorado 80110 (herein called "Assignee").
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor does hereby GRANT,
BARGAIN, SELL, CONVEY, ASSIGN, and DELIVER unto Assignee all of the following:
A. All of Assignor's right, title and interest in and to
the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B
from the intervals in such wells identified in
Exhibit B as of the Effective Date (the above
described interests in such leases being herein
called the "Leases" and the above described interest
in such wells being herein called the "Wells"),
subject to any restrictions, exceptions,
reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to
the Leases and the Wells, and excluding such portion
of the Leases and the Wells which were not conveyed
to Assignor because of Defective Interests or which
were determined to be Excluded Assets (as such terms
are defined in the Purchase and Sale Agreement (Tax
Partnership Properties) between Assignor and Assignee
dated June 14, 1996 (the "Purchase Agreement");
B. The right, title and interest of Assignor in and to
overriding royalty interests in the Leases insofar
and only insofar as the Leases cover the wellbores
associated with the Wells from the producing
intervals identified in Exhibit B;
C. To the extent affected, the right, title and interest
of Assignor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization,
pooling, operating and communitization agreements,
declarations and orders affecting the Leases and
Wells, and in and
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<PAGE> 143
to the properties covered and the units created
thereby;
D. To the extent affected, the right, title and interest
of Assignor in and to the personal property and
fixtures that are appurtenant to the Wells, including
all wells, casing, tubing, pumps, separators, tanks,
lines and other personal property and oil field
equipment appurtenant to such Wells; provided,
however, that Assignor shall remain co-owner of any
personal property appurtenant to any property owned
by Assignor that is not exclusively part of the
Wells;
E. To the extent affected, the right, title and interest
of Assignor in and to and under, or derived from, the
presently existing and valid gas sales, purchase,
gathering and processing contracts and operating
agreements, joint venture agreements, partnership
agreements, rights- of-way, easements, permits and
surface leases and other contracts, agreements and
instruments (but specifically excluding any
management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the
Leases, Wells and the units referred to in Paragraph
C above; provided, however, that Assignor shall
remain co-owner of any agreements, including
unitization and pooling agreements, if they pertain
to any property owned by Assignor that is not
exclusively part of the Leases or Wells.
All of the foregoing leases, interests, rights and properties
described in Paragraphs A through E, above, are herein called the "Properties"
and are located in the various counties identified in Exhibits A and B.
To have and to hold the Properties forever, subject to the
following:
1. THIS ASSIGNMENT IS MADE WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, EXCEPT AS TO PARTIES CLAIMING BY,
THROUGH OR UNDER ASSIGNOR.
2. Assignor shall execute such forms of assignment
conveying Assignor's interest in the Properties as may be required by any
governmental authority to conform to governmental regulation and such
assignments shall not serve to enlarge or diminish the rights herein conveyed.
3. This Assignment shall be binding upon and inure to
the benefit of Assignee and Assignor and their respective successors and
assigns.
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<PAGE> 144
Executed and effective as of the day and year first above
written.
WATTENBERG GAS INVESTMENTS, LLC
By:
-----------------------------------
Name: Thomas H. McCarthy, Jr.
Title: Attorney-in-Fact
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this ____
day of ______________ by Thomas H. McCarthy, Jr. as Attorney-in-Fact of
WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited liability company, on
behalf of such company.
Witness my hand and official seal.
My Commission Expires:
-----------------------------------
Notary Public
- - ----------------------------- Name:
Address:
[seal]
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<PAGE> 1
================================================================================
PURCHASE AND SALE AGREEMENT
(TAX PARTNERSHIP PROPERTIES)
BETWEEN
ORION ACQUISITION, INC.
AND
WATTENBERG GAS INVESTMENTS, LLC
DATED: JUNE 14, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Leases and Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Incidental Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Credit Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Apportionment of Production, Revenues, Taxes and other Expenses . . . . . . . . . . . . . . . . . . . . . 3
6. Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.5 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.6 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. Seller's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.6 Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.8 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.9 Preferential Purchase Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.10 No Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.11 Gas Balancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.12 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.13 Operations in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.14 Hydrocarbon Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.15 Proceeds of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.17 Bills in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.18 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.21 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.22 Tax Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.23 Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<TABLE>
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8. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Opinion of Tax Counsel, Right to Request Ruling . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.3 Escrow in the Event of Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 Settlements Resulting from a Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.1 Cooperation and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.1 Seller's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.2 Buyer's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.1 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.2 Section 15.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.3 Notice of Preferential Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.4 Release of Mortgages and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.5 Assignment; Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.6 Non-Foreign Ownership Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.7 Ratification of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.8 Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.9 Seller's Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.10 Opinion on Behalf of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.11 Buyer's Manager's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.12 Opinions on Behalf of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.13 Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.14 Performance Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.15 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.16 Consent to Amendments of LLC Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.17 Additional Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12. Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.1 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.2 Sales Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.3 Purchase Price Rebates for Defective Interests . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.4 Purchase Price and Other Rebates for Exercised Preferential Purchase Rights, Failure to
Obtain Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.5 Reconveyance of Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.6 Allocation of Commingled Production and Costs . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.7 Performance of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.8 Overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.9 Review of Aggregate Credit Payment Amount Figure . . . . . . . . . . . . . . . . . . . . . . . . 25
12.10 Representations of Seller and Buyer to Survive Closing . . . . . . . . . . . . . . . . . . . . . 26
13. Apportionment of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.1 Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.2 Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<TABLE>
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14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.1 Buyer's Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.2 Seller's Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.4 HS Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.6 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.9 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.10 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A Leases (Weld and Adams County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Officer's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
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<PAGE> 6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (Tax Partnership Properties)
(this "Agreement"), dated June 14, 1996, is between Orion Acquisition, Inc., a
Delaware corporation ("Seller" or "Orion") and Wattenberg Gas Investments, LLC,
a Delaware limited liability company ("Buyer" or "WGI").
RECITALS
A. Seller is the owner of certain oil and gas leasehold
interests in Weld and Adams County, Colorado, as more specifically described
below in Section 2 (the "Assets").
B. Seller desires to sell and Buyer desires to purchase
the Assets pursuant to the terms and conditions of this Agreement.
AGREEMENT
IN CONSIDERATION of the Purchase Price set forth below in
Section 4.1, the Credit Payment Amounts set forth below in Section 4.2, the
reservation of the "Production Payment" (defined below) and the grant of the
"Option" (defined below), and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
agree as follows:
1. Purchase and Sale. Seller agrees to convey the
Assets to Buyer and Buyer agrees to purchase the Assets from Seller, all
pursuant to the terms and conditions of this Agreement. Seller will convey the
Assets subject to (i) a production payment (the "Production Payment"), a
reversionary interest (the "Reversion Interest") and other reservations and
obligations as specifically set forth in the Wellbore Assignment of Oil and Gas
Leases With Reservation of Production Payment in a form substantially similar
to Exhibit C (the "Assignment"), and (ii) the Option To Purchase Oil and Gas
Interests to be granted to Seller in a form substantially similar to Exhibit D
(the "Option").
2. The Assets. The "Assets" shall be all of the
following:
2.1 Leases and Wells. Seller's right, title
and interest in and to the oil and gas leases and mineral interests described
in Exhibit A, including any and all overriding royalty interests owned by
Seller in such leases, but insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B from the intervals referenced
in Section 7.23 and identified in Exhibit B in such wells as of the Effective
Date (the above described interest in such leases being herein called the
"Leases" and the above described interest in
<PAGE> 7
such wells being herein called the "Wells"), and subject to any restrictions,
exceptions, reservations, conditions, limitations, burdens, contracts,
agreements and other matters applicable to such Leases and Wells.
2.2 Incidental Rights. All of Seller's right,
title and interest in and to the following insofar and only insofar as same are
attributable to the Leases and the Wells:
(a) Unitization and Pooling
Agreements. All presently existing and valid oil, gas or mineral
unitization, pooling, operating and communitization agreements,
declarations and orders affecting the Leases and Wells, and in and to
the properties covered and the units created thereby;
(b) Personal Property. The personal
property and fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and other
personal property and oil field equipment appurtenant to such Wells;
(c) Agreements. All presently
existing and valid oil and gas sales, purchase, production swap,
gathering and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way, easements,
permits, surface leases and other contracts, agreements and
instruments, but specifically excluding any management agreements.
Seller shall remain co-owner of any "Agreements," "Personal Property" and
"Unitization and Pooling Agreements" to the extent they pertain to any property
or formation owned by Seller that is not exclusively part of the Wells.
3. Effective Date. The purchase and sale of the Assets
shall be effective, for all purposes, including allocation of revenue, expenses
and taxes, as of June 1, 1996 at 7:00 a.m. local time at the site of the Assets
(the "Effective Date").
4. Purchase Payments. Buyer shall pay to Seller the
Purchase Price defined in Section 4.1 and the Credit Payment Amounts defined in
Section 4.2
4.1 Purchase Price. The purchase price for
the Assets shall be $230,000 (the "Purchase Price"). Buyer shall pay the
Purchase Price to Seller in immediately available funds at Closing.
4.2 Credit Payment Amount. "Credit Payment
Amount" shall mean, for any Payment Period (as that term is defined in the
Assignment), an amount equal to $0.70 of each dollar of tax credits (the "Tax
Credit") available to Buyer under Section 29 of the Internal Revenue Code of
1986, as amended from time
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<PAGE> 8
to time ("IRC"), as a result of the sale of Subject Hydrocarbons by or on
behalf of Buyer, to the extent that such Subject Hydrocarbons (i) constitute
"qualified fuels" within the meaning of IRC Section 29(c), (ii) meet the
requirements of IRC Sections 29(d)(1), 29(d)(4) and 29(f), during (x) such
Payment Period and (y) any earlier Payment Period to the extent the dollar
amount of Tax Credits attributable thereto was not taken into account in a
Credit Payment Amount for a previous Payment Period, and (iii) are produced
from the Wells (defined in Section 2.1 above). For purposes of the preceding
sentence, Tax Credits available to Buyer under IRC Section 29 shall be
determined after taking into account any phase-out of Tax Credits under IRC
Section 29(b)(1) and any applicable inflation adjustment under IRC Section
29(b)(2), but shall be determined without regard to limitations on Buyer's or
its affiliate's use of Tax Credits imposed by IRC Section 29(b)(6) and without
regard to whether Buyer or its affiliates actually utilize such Tax Credits.
The Credit Payment Amount for any given Payment Period shall initially be based
on estimated Subject Hydrocarbon production and sales data available at the
time of the calculation of such amount and later corrected when actual data is
available. The Credit Payment Amount shall be determined on the assumption
that (i) the Production Payment is treated as a production payment for federal
income tax purposes, and (ii) Buyer is treated as owning the economic interest
in minerals in place in the Assets. Credit Payment Amounts shall be calculated
and, unless otherwise provided, will be due and payable with respect to gas
produced and sold from June 1, 1996 until the earlier of (x) the aggregate of
all Credit Payment Amounts paid pursuant to this Agreement equals $600,000, (y)
December 31, 2002, or (z) the first day on which Tax Credits are no longer
permitted for gas attributable to the Subject Hydrocarbons and produced and
sold from the Wells. The Credit Payment Amount shall include payments for Tax
Credits attributable to natural gas liquids produced from the Subject
Hydrocarbons and for Tax Credits attributable to Wells that were recompleted
between November 5, 1990 and December 31, 1992, subject to the provisions of
Sections 7.23 and 12.8 below. If for any reason the Tax Credits are repealed
by Congressional statute or resulting regulation, no Credit Payment Amount
shall be due with respect to Subject Hydrocarbons subject to such repeal. If
for any reason the amount of Tax Credits contemplated under this Agreement are
reduced by Congressional statute or resulting regulation, the Credit Payment
Amounts due under this Agreement shall be reduced commensurate with such
reduction in Tax Credits. For purposes of this Section 4.2, the term "Subject
Hydrocarbons" shall have the meaning given it in the Assignment.
5. Apportionment of Production, Revenues, Taxes and
other Expenses. Buyer shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells on or after the Effective Date, subject to
the Production Payment, Reversion Interest and the Option. Buyer shall pay for
costs and expenses incurred with respect to the Assets on or after the
Effective Date. Seller shall be entitled to revenue from the sale of
hydrocarbons
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<PAGE> 9
produced from the Wells before the Effective Date, and shall pay for costs and
expenses incurred with respect to the Assets prior to the Effective Date.
Taxes relating to the Assets, including ad valorem, property, production,
severance and other taxes (other than income taxes) shall be allocated in the
same manner as other expenses. Taxes that are measured by or that relate to
production shall be treated as expenses in connection with such production
regardless of the period for which such taxes are assessed.
6. Buyer's Representations and Warranties. Buyer makes
the following representations and warranties as of the date of execution of
this Agreement:
6.1 Existence. Buyer is a limited liability
company, duly organized, validly existing and formed under the laws of the
State of Delaware, and Buyer is duly qualified to carry on its business, and is
duly qualified and in good standing, in each of the states in which the nature
of its business and activities requires it to be so qualified.
6.2 Power and Authority. Buyer has all
requisite power and authority to carry on its business as presently conducted,
to enter into this Agreement and each of the documents contemplated to be
executed by Buyer at Closing, and to perform its obligations under this
Agreement and under such documents. The consummation of the transactions
contemplated by this Agreement and each of the documents contemplated to be
executed by Buyer at Closing will not violate, nor be in conflict with, (i) any
provision of Buyer's organizational or governing documents, (ii) any material
agreement or instrument to which Buyer is a party or is bound, or (iii) any
judgment, decree, order, statute, rule or regulation applicable to Buyer.
6.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Buyer at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action on the
part of Buyer.
6.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Buyer, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Buyer shall have been duly executed and delivered. This Agreement
does, and such documents and instruments shall, constitute legal, valid and
binding obligations of Buyer enforceable in accordance with their terms,
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application with respect to creditors, (ii)
general principles of equity and (iii) the power of a court to deny enforcement
of remedies generally based upon public policy.
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<PAGE> 10
6.5 Securities Laws. Buyer is purchasing the
Assets for Buyer's own account, not for public distribution thereof, and Buyer
shall not sell or transfer all or any part of, or any interest in, the Assets
in violation of the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or the securities laws of any state.
6.6 Brokers' Fees. Buyer has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Seller shall have any
responsibility whatsoever.
7. Seller's Representations and Warranties. Seller
makes the following representations and warranties as of the date of this
Agreement:
7.1 Existence. Seller is a corporation duly
organized and validly existing under the laws of the State of Delaware, and
Seller is duly qualified to carry on its business, and is in good standing in
the State of Colorado.
7.2 Power and Authority. Seller has all
requisite authority to carry on its business as presently conducted, to enter
into this Agreement and each of the documents contemplated to be executed by
Seller at Closing, and to perform its obligations under this Agreement and
under such documents. The consummation of the transactions contemplated by
this Agreement and each of the documents contemplated to be executed by Seller
at Closing will not violate, nor be in conflict with, (i) any provision of
Seller's Certificate of Incorporation, bylaws or other governing documents,
(ii) any material agreement or instrument to which Seller is a party or is
bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to Seller; provided that, the representations and warranties
contained in clauses (ii) and (iii) of this Section 7.2 are subject to (a)
consents of or filings with the United States Department of Interior or the
applicable state agencies or authorities in connection with the assignment of
any federal or state leases or any interest therein to the extent such consents
are typically received or filings typically made subsequent to such assignment
("Governmental Consents"), (b) preferential rights to purchase all or any
portion of the Assets and consent to or notices of assignment necessary to
convey all or any portion of the Assets which are not Governmental Consents,
(c) any violation of any maintenance of uniform interest provision in any
applicable operating agreement, and (d) the consent of the banks and other
required actions as set forth in Sections 10.1(d) and 10.2(d).
7.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Seller at Closing and the transactions contemplated hereby and
thereby have been duly and
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<PAGE> 11
validly authorized by all requisite corporate action on the part of Seller.
7.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Seller, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Seller will be duly executed and delivered. This Agreement does,
and such documents and instruments shall, constitute legal, valid and binding
obligations of Seller enforceable in accordance with their terms, subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
7.5 Brokers' Fees. Seller has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever.
7.6 Reserve Report. The term "Reserve Report"
shall mean the reserve report prepared by Seller and dated as of June 1, 1996,
which is based on reserves as of December 31, 1995, as adjusted by estimated
production from January 1, 1996 through June 1, 1996, and attached hereto as
Exhibit E. To Seller's best knowledge, the average price for sales of
hydrocarbons (based on contract prices for existing effective contracts and
estimates of regional spot prices adjusted for regional transportation costs),
historical costs of operations, production volumes, and payout data used by
Seller in the preparation of the Reserve Report were, on the dates so used,
accurate in all material respects.
7.7 Liens. Except for the burdens and
obligations created by or arising under the Leases and except for Permitted
Encumbrances, the Assets are free and clear of all Encumbrances. As used
herein, the term "Encumbrances" shall mean all royalties, overriding royalties,
production payments, debts, liens, mortgages, security interests, and
encumbrances. As used herein, the term "Permitted Encumbrances" shall mean the
following:
(i) the burdens, encumbrances and
obligations attributable to mortgages and liens held on or against the
Assets, or any portion thereof, as of the date of this Agreement by
The Chase Manhattan Bank, N.A., for itself and as agent on behalf of
those banks that are or become a party to that certain Credit
Agreement with Seller's corporate affiliate HS Resources, Inc., a
Delaware corporation ("HS"), dated as of July 15, 1994 (as it has or
may be amended or supplemented from time to time, the "Credit
Agreement"), which mortgages and liens will be released with respect
to the Assets conveyed pursuant to the Assignment on or before the
Closing;
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<PAGE> 12
(ii) the burdens, encumbrances and
obligations created by or arising under the Wells and other agreements
affecting the Assets, and all royalties, overriding royalties, net
profits interests, carried interests, reversionary interests, back-in
rights and other burdens taken into account in computing the net
revenue interests ("NRI") and working interests ("WI") set forth on
Exhibit B for the Wells;
(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 the Assets if
the same are customarily obtained subsequent to such sale or
conveyance;
(iv) rights of reassignment upon
surrender of the Leases held by predecessors in interest to Seller;
(v) easements, rights-of-way,
servitudes, permits, licenses, surface leases and other rights in
respect of surface use to the extent these do not materially interfere
with operations or production on or from the Assets;
(vi) rights and regulatory powers
reserved to or vested in any municipality or governmental, statutory
or public authority;
(vii) all Material Contracts to the
extent same do not reduce Seller's interest in the production from the
Wells to less than the NRI set forth on Exhibit B;
(viii) any (a) undetermined or
inchoate liens or charges constituting or securing the payment of
expenses which were incurred incidental to maintenance, development,
production or operation of the Assets or for the purpose of
developing, producing or processing oil, gas or other hydrocarbons
therefrom or therein and (b) materialman's, mechanics', repairman's,
employees', contractors', operators' or other similar liens, security
interests or charges for liquidated amounts arising in the ordinary
course of business incidental to construction, maintenance,
development, production or operation of the Assets or the production
or processing of oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary course of
business or, if delinquent, that are being contested in good faith;
(ix) any liens for taxes not yet
delinquent or, if delinquent, that are being contested in good faith
in the ordinary course of business;
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<PAGE> 13
(x) any liens or security interests
created by law or reserved in Leases for royalty, bonus or rental or
for compliance with the terms of the Leases;
(xi) any prohibitions or restrictions
similar to the Maintenance of Uniform Interest Provisions contained in
Article VIII.D. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement and any contribution obligations under provisions similar to
Article VII.B of such Model Form Operating Agreement;
(xii) all preferential rights to
purchase all or any portion of the Assets and consents to or notices
of assignment necessary to convey all or any portion of the Assets
which are not described in item (iii) of this definition of Permitted
Encumbrances;
(xiii) all agreements and obligations
relating to imbalances with respect to the production, transportation
or processing of gas or calls or purchase options on oil or gas
production;
(xiv) all agreements and obligations
relating to gathering, transportation or processing of gas or oil
production;
(xv) all treating, processing, sales
or marketing agreements which have a fee which is based on a
percentage of proceeds or an obligation to transfer certain volumes of
gas or oil production in-kind;
(xvi) all obligations by virtue of a
prepayment, advance payment or similar arrangement under any contract
for the sale of gas production, including by virtue of "take or pay"
or similar provisions, to deliver gas produced from or attributable to
the Wells after the Effective Date without then or thereafter being
entitled to receive full payment therefor;
(xvii) all liens, charges,
encumbrances, contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting any Asset which
individually or in the aggregate will not interfere materially with
the operation, value or use of such Asset;
(xviii) the burdens, encumbrances and
obligations created by or arising under this Agreement, the
Assignment, Option or Management Agreement.
7.8 Title. Seller has Defensible Title to the
Assets. The term "Defensible Title" means such title of Seller in the Leases
that, subject to and except for the Permitted Encumbrances, entitles Seller to
receive an interest in production from the Wells not less than the respective
NRIs in
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the Wells as set forth on Exhibit B, and entitles Seller to own the respective
WIs in the Wells as set forth on Exhibit B under applicable state law and for
federal income tax purposes. Any Well or Lease for which Seller has less than
Defensible Title as of the date of this Agreement shall be called a "Defective
Interest." Buyer's exclusive remedy for Seller's breach of this representation
and warranty is set forth in Section 12.3. Buyer and Seller shall cooperate
fully and consult in good faith with each other in the litigation of any matter
identified in this Section 7.8
7.9 Preferential Purchase Rights and Consents.
To Seller's best knowledge, except as set forth in Exhibit F, there do not
exist any preferential rights to purchase all or any portion of the Assets. To
Seller's best knowledge, except for consents from its lender banks,
Governmental Consents and other matters as set forth in Exhibit F, there are no
consents or waivers necessary to convey any material portion of the Assets
pursuant to this Agreement. Buyer's exclusive remedy for Seller's breach of
this representation and warranty (other than for consents from the lender
banks) is set forth in Section 12.4.
7.10 No Prepayments. To Seller's best knowledge,
except as set forth in Exhibit G, Seller is not obligated, by virtue of a
prepayment arrangement, a "take or pay" arrangement, a production payment,
hedging or any other arrangement, to deliver any material portion of
hydrocarbons produced from the Wells at some future time without then or
thereafter receiving full payment therefor.
7.11 Gas Balancing. To Seller's best knowledge,
except as set forth in Exhibit H, no material portion of hydrocarbons produced
from the Wells are subject to a gas imbalance or other arrangement requiring
delivery of hydrocarbons after the Effective Date without receiving full
payment therefor.
7.12 Leases. To Seller's best knowledge, all
royalties, rentals and other payments due by Seller under the Leases have been
properly and timely paid except where the failure to pay same will not have a
material adverse effect on the value of the particular Asset. To Seller's best
knowledge, all Leases are presently in full force and effect. To Seller's best
knowledge, Seller has not received a written notice of material default under
any Lease that could result in cancellation of the Lease. Any Lease which is
not presently in full force and effect, or for which Seller has not paid all
royalties, rentals or other payments due by Seller, or for which Seller is in
material default as of the date of this Agreement shall be treated as a
Defective Interest. Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3.
7.13 Operations in Progress. Except for
operations disclosed on Exhibit I and normal daily operating
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expenses, as of the date of this Agreement there are no operations in progress
with respect to the Assets which are reasonably expected to exceed $35,000 in
cost net to Seller's interest and which shall be payable in whole or in part on
or after the Effective Date.
7.14 Hydrocarbon Sales Contracts. Except as
specifically indicated in Exhibit J and for calls on production, options to
purchase or similar rights with respect to production from the Wells, no
material portion of the hydrocarbons produced from the Wells is subject to a
sales contract or other agreement relating to the production, gathering,
transporting, processing, treating or marketing of hydrocarbons except those
which can be terminated by Seller upon not more than three months notice.
7.15 Proceeds of Production. To Seller's best
knowledge, Seller is currently receiving from all purchasers of production from
the Wells at least the NRI set forth in Exhibit B without suspense or any
indemnity other than the normal division order warranty of title, except where
the failure to receive same would not have a material adverse effect on the
value of the Assets.
7.16 Material Contracts. To Seller's best
knowledge, and subject to the execution of new contracts in the ordinary course
of business if a contract has expired or has been terminated, all contracts
material to the Assets are in full force and effect (the "Material Contracts").
Seller has not received written notices of material default under the Material
Contracts that remain uncured, or that Seller has not made provisions for so
that such event of default will not have a material adverse effect on the
Assets.
7.17 Bills in the Ordinary Course. In the
ordinary course of business and to Seller's best knowledge, Seller is current
on its payments for all costs and expenses pertaining to the Assets, except
where such payments are being contested with good faith or except where the
failure to make such payments would not have a material adverse effect on the
Assets.
7.18 Legal Proceedings. Except as set forth on
Exhibit K, no suit, action or other proceeding is pending against Seller or, to
Seller's best knowledge, threatened in writing against Seller before any court,
governmental agency, arbitrator or other panel that relates to the Assets or
the transaction contemplated by this Agreement that might (i) impair Seller's
ability to consummate the transaction contemplated by this Agreement or (ii)
cause the impairment or loss of Seller's title to any material portion of the
Assets or the value thereof or (iii) hinder or impede the operation or
enjoyment of the Leases in any material respect insofar as they relate to the
Assets.
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7.19 Compliance with Laws. To Seller's best
knowledge, all laws, rules, regulations, ordinances and orders (of all
governmental and regulatory bodies having authority over the Assets) material
to the operation of the Assets have been complied with in all material
respects.
7.20 Environmental Matters. To Seller's best
knowledge, no conditions exist on the Assets that would subject Seller or Buyer
to any damages, remedial action, injunctive relief or other liability under any
Environmental Laws, including without limitation, all costs associated directly
or indirectly with cleanup, removal, closure or other response actions;
provided that Seller or Buyer may be subject to such matters which are (i)
routine in the operation of the Assets and (ii) in the aggregate not material
to the value of the Assets as a whole. Seller and its predecessors have
obtained and are in material compliance with all material permits, licenses and
approvals affecting the Assets and required under Environmental Laws.
As used herein, the term "Environmental Laws" shall
mean any and all existing laws (common or statutory), rules, regulations,
codes, or ordinances issued or promulgated by any federal, state or local
governmental entity relating to the management and disposal of waste materials,
the protection of public or employee health and safety, the cleanup,
remediation or prevention of pollution, or the protection of the environment.
7.21 Payment of Taxes. To Seller's best
knowledge, all ad valorem, property, production, severance, excise and similar
taxes and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on the Assets
which are currently due and payable have been properly and timely paid, except
to the extent such taxes are being contested in good faith in the ordinary
course of business.
7.22 Tax Partnerships. Except as set forth in
Exhibit L, no portion of the Assets (i) has been contributed to and is
currently owned by a tax partnership; (ii) is subject to any form of agreement
(whether formal or informal, written or oral) deemed by any state or federal
tax statute, rule or regulation to be or to have created a tax partnership; or
(iii) otherwise constitutes "partnership property" (as that term is used
throughout IRC Subchapter K of Chapter 1 of Subtitle A) of a tax partnership.
Seller retains all liability and responsibility, if any, to make all payments
to appropriate parties under the tax partnerships identified on Exhibit L. In
addition to all other remedies available to Buyer, Seller agrees to indemnify
Buyer for all costs, losses, damages, penalties or expenses incurred by Buyer
as a result of any of the Assets having been contributed to or currently owned
by a tax partnership, provided that Seller shall not be obligated to indemnify
Buyer for any reduction in Tax Credits attributable to the Assets subject to
the tax partnerships identified on Exhibit
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<PAGE> 17
L with respect to ownership interests attributable to lease operating expenses
and taxes under such tax partnerships. For purposes of this Section 7.22, a
"tax partnership" is any entity, organization or group deemed to be a
partnership within the meaning of IRC Section 761 or any similar state or
federal statute, rule or regulation, and that is not excluded from the
application of the partnership provisions of IRC Subchapter K of Chapter 1 of
Subtitle A and of all similar provisions of state tax statutes or regulations
by reason of elections made, pursuant to IRC Section 761(a) and all such
similar state or federal statutes, rules and regulations, to be excluded from
the application of all such partnership provisions. With respect to any tax
partnership identified on Exhibit L, Seller and Buyer have the power to elect a
basis adjustment under IRC Section 754 in connection with the transaction
contemplated by this Agreement.
7.23 Other Tax Matters.
(a) NGPA Determination.
(i) Applications. Except for the
Wells listed on Exhibit M, Seller or its predecessor in interest has
filed or caused to be filed with the applicable state and federal
agencies "Applications" for well determination(s) for each Well under
the Natural Gas Policy Act of 1978, as amended (the "NGPA") and the
rules and regulations of the Federal Energy Regulatory Commission (the
"FERC") under such act (the "NGPA Regulations") requesting a
determination that all or a quantifiable portion of the gas produced
from a particular Well is "natural gas produced from designated tight
formations" as defined in 18 C.F.R. Section 274.205(e). Each such
application has been approved by the indicated state and federal
agency and by the FERC and has been finally approved under and in
accordance with Section 503 of the NGPA. Such applications comply
with the requirements of the NGPA and the NGPA Regulations and do not
(1) contain any untrue statement of material fact or (2) omit any
statement of material fact necessary to make the statements therein
not misleading. No further applications are required under the NGPA
and the NGPA Regulations to allow the legal sale of all gas produced
from the Wells at a price equal to the price for such gas currently
being received.
(ii) Wells For Which Applications
Were Not Filed. With respect to the Wells listed on Exhibit M,
Seller, its predecessor in interest, or the operator of such Wells has
not to Seller's knowledge filed or caused to be filed with the
applicable state and federal agencies "Applications" for well
determinations under the NGPA and the rules and regulations of the
FERC. With respect to the Wells listed on Exhibit M, all such Wells
were (x) drilled (or recompleted in accordance with private letter
rulings issued by the Internal Revenue Service ("IRS") to third
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parties, or will be recompleted in an uphole formation in accordance
with Situation 1 of Revenue Ruling 93-54) into a "qualifying
formation" (tight formation or other qualifying formation) within the
time frames set forth in subsection (b) below or (y) drilled within
the time frames set forth in subsection (b) below but no certificate
was obtained from either the state agency or the FERC or both stating
that the Well is qualified and but for the absence of such certificate
the Well is qualified under IRC Section 29, and as to both (x) and
(y) the hydrocarbons produced and sold from such Wells qualify for the
Tax Credit.
(iii) Wells Where Commingling With
Non-Qualified Production Is Conducted. For Wells, if any, where
production from a qualifying formation and production from a non-
qualifying formation are commingled, the production has been allocated
to each producing formation on a reasonable basis, consistent with
industry standards and in accordance with procedures, if any, that
have been approved by appropriate state and federal agencies.
(b) Wells. Each Well (1) has been
timely drilled under (1) IRC Section 29(f)(1)(A) (drilled after December 31,
1979 but before January 1, 1993), or administrative interpretations thereof,
and (2) has been timely drilled under IRC Section 29(c)(2)(B)(ii) or
administrative interpretations thereof, or was committed to interstate commerce
(as defined in Section 2(18) of the Natural Gas Policy Act of 1978, as in
effect on November 5, 1990) as of April 20, 1977.
(c) No Qualified Production prior to
January 1, 1980. Prior to January 1, 1980, there was no production of oil or
gas from, nor were any wells drilled or completed on, the "property" (within
the meaning of IRC Section 29) on which any Well is located nor was any
portion of any such "property" included within a unit from which oil or gas was
produced or in which any wells were drilled or completed prior to such date.
(d) No Enhanced Oil Recovery Credit. No
oil or gas produced from the Wells qualifies or has qualified for (i) the
enhanced oil recovery credit or any other credit under IRC Section 43 and none
has been claimed or taken on such oil or gas, or (ii) the credit allowed under
IRC Section 38 by reason of the energy percentage with respect to property
used in the project.
(e) No Government Financing. No portion
of any drilling, equipping, seismic or other development costs of the Assets
paid by Seller were financed by any state, local or federal agency, directly or
indirectly, including by way of grant, loan, expenditure or loan guaranty.
(f) Seller Status. Seller is not a
non-resident alien, foreign corporation, foreign partnership, foreign
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trust or foreign estate (as those terms are defined in the IRC and the rules
and regulations promulgated thereunder), and Seller shall deliver to Buyer an
affidavit of non-foreign ownership in the form of Exhibit N.
8. Certain Tax Matters.
8.1 Opinion of Tax Counsel, Right to Request
Ruling. At Closing, Buyer at its sole cost, shall provide Seller a copy of the
opinion which Buyer has requested from Arthur Andersen LLP ("AA") regarding the
tax consequences of the transaction contemplated by this Agreement (the "Tax
Opinion"). Notwithstanding the Tax Opinion, Buyer shall have the right, but
not the obligation, to request a "private letter ruling" from the IRS to the
effect that (i) Buyer's interest in the Assets constitutes an economic interest
in minerals in place, and (ii) the Production Payment will be treated as a
mortgage loan under IRC Section 636 (a "Ruling"). Should Buyer elect to
request a Ruling, Buyer shall have no right to terminate or rescind this
Agreement if the Ruling is not acceptable to Buyer. Seller shall, in good
faith, amend this Agreement and the documents contemplated hereunder in order
that Buyer may obtain a favorable Ruling, if, in Seller's sole and reasonable
discretion, such amendments will not have a material adverse effect on Seller.
8.2 Tax Status. Seller and Buyer intend that,
for tax purposes only, the Production Payment will be treated as a mortgage
loan and not as an "economic interest" in the Assets. Buyer shall have no
recourse against Seller in the event that the Production Payment is not so
treated until the commencement of a Tax Audit, in which event the provisions of
Section 8.3 shall control.
8.3 Escrow in the Event of Tax Audit. Promptly
following the earlier to occur of (1) the date which is 90 days following
receipt by a member of Buyer of a notice from the IRS of the commencement of an
administrative proceeding at the partnership level pursuant to IRC Section
6223(a)(1) (a "Tax Audit"), or (2) the date of issuance by the IRS of either
(i) a notice of proposed adjustment with respect to any audit proceedings or
(ii) a so- called "60 day letter" (such earlier date, the "Escrow Commencement
Date"), Seller and Buyer shall enter into an Escrow Agreement with an escrow
agent, substantially in the form of Exhibit U; provided, however, that Buyer
may waive its rights to enter into such an Escrow Agreement, in which event the
provisions of Sections 8.3(a) through 8.3(e) shall not apply. If Buyer does
not waive its rights to an Escrow Agreement, the Escrow Agreement and the funds
in the "Escrow Account" established pursuant thereto shall be administered in
accordance with the following provisions:
(a) Beginning with the Payment Period
(as that term is defined in the Assignment) in which the Escrow
Commencement Date occurs and continuing for each Payment
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Period until the "Conclusion of a Tax Audit" (as that term is defined
below, with such period of time being the "Escrow Period"), Buyer
shall deposit into the Escrow Account the Credit Payment Amount for
each Payment Period (the "Escrow Amount" and the sum of all Escrow
Amounts being the "Escrowed Funds"). The Escrowed Funds shall not
include any funds which were due from Buyer to Seller prior to the
Escrow Commencement Date, but which were not paid to Seller. During
the Escrow Period, Buyer and Seller agree that Gross Proceeds plus
Other Income (as contemplated in the Assignment) will be sufficient to
perform all of the Services under the Management Agreement. For tax
purposes only, Buyer shall be treated as the owner of the Escrowed
Funds.
(b) A Tax Audit will be deemed to have
concluded upon the earliest to occur of the following events: (i) the
receipt by Buyer of written notice from the IRS that it will not
assert any adjustments with respect to the transactions contemplated
by this Agreement; (ii) Buyer entering into a settlement agreement
with the IRS which resolves the open federal income tax issues in
connection with such transactions; (iii) a judgment of a court of law
or a decision in an administrative proceeding becoming non- appealable
with respect to the federal income tax issues in connection with such
transactions; or (iv) the expiration of the applicable period of
limitations for making assessments with respect to the years under
examination in the Tax Audit if the IRS has made no assessments within
such period with respect to such transactions (such earliest event
being deemed the "Conclusion of a Tax Audit").
(c) At the Conclusion of a Tax Audit,
Buyer and Seller agree to recalculate, pursuant to the provisions of
the second paragraph of this Section 8.3(c), any amounts due Buyer and
Seller pursuant to the terms of this Agreement for the Escrow Period,
taking into account the reduction, if any, in the Credit Payment
Amounts due for each Payment Period during the Escrow Period resulting
from the Tax Audit (including any settlement described in Section
8.4). Buyer shall receive from the Escrowed Funds an amount equal to
70% of the total dollar amount of any reduction in Tax Credits
available to Buyer with respect to hydrocarbon production from the
Wells as a result of the application of the preceding sentence, or
Sections 8.3(d) and (e) as applicable, including interest thereon, for
the periods on or after the Escrow Commencement Date. Seller shall
receive all remaining Escrowed Funds, including interest thereon.
Except for such adjustment, there is no other obligation of Seller to
make any other payment to Buyer with respect to the Tax Audit, subject
to Section 12.8 below.
If, at the Conclusion of a Tax Audit, payments have been made into the
Escrow Account with respect to any Open
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Period, distributions from the Escrow Account with respect to the Open
Period (whether or not another Tax Audit has commenced and remains
outstanding with respect to such period) shall, subject to Section
8.3(e), be shared under this Section 8.3(c) in accordance with the
principles of any "no-change letter," binding settlement or final
court decision or administrative determination with respect to the Tax
Audit or, if the statute of limitations with respect to the Tax Audit
expired without an IRS adjustment having been imposed, in accordance
with the terms of this Agreement (in either case, the "Audit Terms").
An "Open Period" shall mean any period not covered by a Tax Audit if
there has been a Conclusion of such Tax Audit.
Credit Payment Amounts which are credited or paid to Seller other than
from Escrowed Funds with respect to Open Periods shall, subject to the
second paragraph of Section 8.3(e), be computed in accordance with the
Audit Terms.
(d) If a new Tax Audit (the "New Tax Audit")
is commenced with respect to an Open Period before the expiration of
the applicable statute of limitations and after the Conclusion of a
Tax Audit, then a new Escrow Account shall not be established in
accordance with Section 8.3(a) with respect to such New Tax Audit, and
Credit Payment Amounts for the Open Period shall, subject to Section
8.3(e), continue to be computed in accordance with the applicable
Audit Terms.
(e) Upon the Conclusion of a New Tax Audit
with respect to an Open Period, the Credit Payment Amounts with
respect to the Open Period shall be recomputed in accordance with any
no-change letter, binding settlement or final court or administrative
decision resulting from the New Tax Audit.
If the statute of limitations for any Open Period expires without an
IRS adjustment having been imposed for such Open Period, the Credit
Payment Amounts with respect to such Open Period shall be recomputed
in accordance with the terms of this Agreement without regard to the
result of any Tax Audit, provided that such treatment is consistent
with Buyer's federal income tax returns (as amended) for such Open
Period. Buyer shall make reasonable efforts to claim all the Tax
Credits arising from the sale of production from the Assets during
each Open Period.
Promptly following a recomputation of Credit Payment Amounts pursuant
to the first two paragraphs of this Section 8.3(e), Buyer shall pay to
Seller (or Seller shall pay to Buyer) any amount to which Seller (or
Buyer) is entitled under such recomputation.
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8.4 Settlements Resulting from a Tax Audit. If
Buyer elects to enter into a negotiated settlement with the IRS of any Tax
Audit adjustments, Buyer shall, in good faith, consult with Seller regarding
the suggested terms of such settlement; provided, however, that Buyer shall be
under no obligation to comply with any suggestion of Seller. Buyer shall
provide to Seller copies of all correspondence or pleadings between Buyer and
the IRS regarding any Tax Audit. Seller shall be entitled to monitor all
hearings and meetings with the IRS associated with such settlement
negotiations. Notwithstanding the foregoing, Section 12.8 shall govern
Seller's rights to monitor or control whether Tax Credits are available for
natural gas liquids.
9. Covenants.
9.1 Cooperation and Access. Seller shall fully
cooperate with Buyer's post-Closing due diligence efforts, both at Seller's
offices and at the site of the Assets.
9.2 Insurance. At or prior to the Closing,
Seller shall cause Buyer to be named as an additional insured on all insurance
policies Seller has that pertain in any way to the ownership and operation of
the Assets. At Closing, Seller will provide Buyer with Certificates of
Insurance naming Buyer as an additional insured, or other evidence,
satisfactory to Buyer, of compliance with this Section 9.2.
10. Closing Conditions.
10.1 Seller's Closing Conditions. The obligation
of Seller to consummate the transactions contemplated hereby is subject, at the
option of Seller, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Buyer contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Buyer to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Buyer shall have
executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Seller or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Seller resulting therefrom.
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(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
10.2 Buyer's Closing Conditions. The obligation
of Buyer to consummate the transactions contemplated hereby is subject, at the
option of Buyer, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Seller contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Seller to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Seller shall
have executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Buyer or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Buyer resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
(e) Engineering Confirmation.
Williamson Petroleum Consultants, Inc., using the same cost and
pricing assumptions as used in the Reserve Report, shall confirm that
Seller's estimates of the amount of reserves and estimated annual
production rates with respect to the Assets are, in the aggregate,
reasonable.
(f) Tax Opinion. On or before the
Closing Date, Buyer shall have received the Tax Opinion described in
Section 8.1.
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11. Closing. The consummation of the transactions
contemplated hereby (the "Closing") shall occur, either in person or by
facsimile, at the offices of Davis, Graham & Stubbs LLP on the date of this
Agreement (the "Closing Date") or at such other time and place as the parties
may agree to in writing. At 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 (except where the documents involved
indicate otherwise):
11.1 Payment of Purchase Price. Buyer shall
deliver the Purchase Price by wire transfer to Seller's account in accordance
with written instructions supplied by Seller at least three days prior to the
Closing Date.
11.2 Section 15.2 Payment. Seller and Buyer shall
pay to the other, in cash or its equivalent, the amount due pursuant to Section
15.2, if any, as reimbursement for the expenses incurred in connection with
this transaction.
11.3 Notice of Preferential Rights and Consents.
Seller shall deliver to Buyer a copy of the notices sent to and any responses
received from third parties regarding preferential rights to purchase and
consents affecting the Assets with respect to the transactions contemplated by
this Agreement.
11.4 Release of Mortgages and Liens. Seller shall
deliver to Buyer releases of mortgages and other liens held by the banks and
other lending institutions to which Seller is obligated under the Credit
Agreement.
11.5 Assignment; Option. Seller and Buyer shall
execute and deliver the Assignment and the Option. In addition, Seller shall
prepare and Seller and Buyer shall execute such other conveyances on official
forms and related documentation necessary to transfer the Assets to Buyer in
accordance with requirements of governmental regulations; provided, however,
that any such separate or additional conveyances required pursuant to this
Section 11.5 or pursuant to Section 15.1 (i) shall evidence the conveyance and
assignment of the Assets made or intended to be made in the Assignment, (ii)
shall not modify or be deemed to modify any of the terms, reservations,
covenants and conditions set forth in the Assignment, and (iii) shall be deemed
to contain all of the terms, reservations and provisions of the Assignment, as
though the same were set forth at length in such separate or additional
conveyance.
11.6 Non-Foreign Ownership Affidavits. Seller
shall deliver to Buyer the affidavits of non-foreign ownership substantially in
the form of Exhibit N, one stating that Seller is a non-foreign entity for
federal income tax purposes, and the other stating that there is no obligation
for Colorado withholding tax under C.R.S. Section 39-22-604.5.
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11.7 Ratification of Obligations. Buyer shall
cause its members (Fontenelle, Inc., Bald Prairie, Inc. and SSB Investments,
Inc.), FMR Corp. and State Street Boston Corporation to execute and deliver to
Seller a ratification of their respective obligations under the Contribution
Agreements and Guaranty Agreements contemplated in that Purchase and Sale
Agreement dated December 1, 1995 between Buyer and HS. The ratification shall
be substantially in the form of the Ratification of Obligations attached hereto
as Exhibit O.
11.8 Evidence of Insurance. Seller shall provide
Buyer with certificates from Seller's insurers or other evidence that Buyer has
been named an additional insured on Seller's policies affecting the Assets.
11.9 Seller's Officer's Certificate. Seller shall
execute and deliver to Buyer the Officer's Certificate, substantially in the
form attached as Exhibit P.
11.10 Opinion on Behalf of Seller. Seller shall
deliver to Buyer the opinion substantially in the form set forth in Exhibit Q.
11.11 Buyer's Manager's Certificate. Buyer shall
execute and deliver to Seller the Manager's Certificate substantially in the
form attached as Exhibit R.
11.12 Opinions on Behalf of Buyer. Buyer shall
deliver to Seller the following opinions, substantially in the respective forms
of opinion set forth in Exhibit S:
(a) Opinion of counsel for FMR Corp.
(b) Opinion of counsel for State Street
Boston Corporation and SSB Investments, Inc.
(c) Opinion of Davis, Graham & Stubbs
LLP regarding Wattenberg Gas Investments, LLC.
11.13 Management Agreement. Buyer shall execute
and deliver, and Seller shall cause HS to execute and deliver the Management
Agreement (the "Management Agreement") and Memorandum of Management Agreement
and Power of Attorney substantially in the forms set forth in Exhibit T.
11.14 Performance Power of Attorney. Buyer shall
execute and deliver to Seller counterparts of a Limited Power of Attorney,
substantially in the form of Exhibit V.
11.15 Tax Opinion. Buyer shall deliver to Seller
a copy of the Tax Opinion of AA.
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11.16 Consent to Amendments of LLC Agreement.
Seller shall deliver its consent and shall cause HS and Wattenberg Resources
Land, L.L.C. to deliver to Buyer their respective consent to the amendments to
Sections 2.8, 3.2(a) and 9.2 of Buyer's Limited Liability Company Operating
Agreement, amended and restated as of April 25, 1996, May 21, 1996 and June 14,
1996.
11.17 Additional Instruments. Seller and Buyer
shall execute, acknowledge and deliver to each other such additional
instruments as are reasonable and customary to accomplish the purposes of this
Agreement.
12. Post-Closing Matters.
12.1 Files and Records. Following Closing, Seller
shall retain physical possession of all lease files, land files, division order
files, production marketing files and production records in Seller's possession
relating to the Assets (the "Records"). However, except to the extent that
Buyer's inspection thereof would violate legal constraints or legal
obligations, Buyer shall have the right to inspect the Records in Seller's
offices at any reasonable time. At Buyer's request in writing (which written
request may be delivered by facsimile), to the extent that Seller's delivery
thereof would not violate legal constraints or legal obligations, Seller shall
make copies of the Records or materials in the Records at Seller's expense and
shall deliver said copies to Buyer at Seller's expense, provided that Seller
may charge Buyer the actual costs for such copies and delivery if such costs
exceed $250 per request. If Buyer requires copies of the Records for its own
account, Seller will permit Buyer, at Buyer's own expense, to make copies of
pertinent material contained in the Records to the extent such action would not
violate legal constraints or legal obligations.
12.2 Sales Taxes and Recording Fees. Seller shall
be responsible for making the payment to the proper authorities of all taxes
and fees occasioned by the sale of the Assets, including without limitation,
any transfer fees and sales taxes (which are to be apportioned one-half to
Seller and one-half to Buyer), and any documentary, filing and recording fees
required in connection with the filing and recording of any assignments or
conveyances delivered hereunder in the appropriate county, federal and/or state
records.
12.3 Purchase Price Rebates for Defective
Interests. In addition to the remedy provisions of Section 12.8, Buyer shall
be entitled to the following rebate if Seller does not have Defensible Title to
the Assets. At any time and from time to time if Buyer discovers that Seller
breached the representation and warranty set forth in Section 7.8 or 7.12,
Buyer may give Seller a Notice of Defective Interests, which notice shall
describe the Defective Interest and the basis for the Defective Interest.
Buyer shall be entitled to a rebate in
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the Purchase Price for a Defective Interest which shall equal the difference
between the Purchase Price and the product of the Purchase Price multiplied by
a fraction, the numerator of which is the volume of reserves (net to Buyer)
allocated to the Wells not affected by the Defective Interest and the
denominator of which is the total volume of reserves (net to Buyer) allocated
to all of the Wells in the Reserve Report; provided, however, that if the
Defective Interest does not remain in effect during the entire productive life
of the subject Well, such fact shall be taken into account in determining the
amount of the rebate in the Purchase Price.
The rebate of the Purchase Price calculated above shall be
paid from Seller to Buyer if and only if the aggregate amount to be rebated
with respect to all Defective Interests exceeds a threshold of $35,000, and if
such amount is exceeded, the rebate shall be made for all Defective Interests.
In addition to rebating a portion of the Purchase Price on account of Defective
Interests, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, by multiplying such amount or number,
as the case may be, by a fraction, the numerator of which is the aggregate
volume of reserves associated with the Assets without such Defective Interest
and the denominator of which is the total volume of reserves allocated to all
of the Assets.
12.4 Purchase Price and Other Rebates for
Exercised Preferential Purchase Rights, Failure to Obtain Consents. If the
holder of any preferential purchase right exercises such right and Seller
cannot validly convey the affected Asset to Buyer, or if a required consent
(except for Governmental Consents) to assign is not obtained or deemed obtained
within 45 days following Closing and the affected Asset cannot be validly
conveyed to Buyer, a portion of the Purchase Price shall be rebated for the
value of such affected Asset and such affected Asset shall be excluded from the
Assets conveyed to Buyer pursuant to the terms hereof (collectively the
"Excluded Assets"). The amount of the rebate in the Purchase Price for an
Excluded Asset shall be determined in accordance with the provisions of Section
12.3. In addition to rebating a portion of the Purchase Price on account of
Excluded Assets, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, for the Excluded Assets in accordance
with the provisions of Section 12.3.
12.5 Reconveyance of Excluded Assets. Seller
shall provide to Buyer, within 45 days following Closing, copies of all
responses from third parties regarding the notices sent to such third parties
pursuant to Section 11.3. Upon written request from Seller, Buyer shall
reconvey to Seller all Excluded Assets, free and clear of any burdens, liens
and encumbrances created by, through or under Buyer.
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12.6 Allocation of Commingled Production and
Costs. Seller may have interests in the lands covered by the Leases that are
not part of the Assets ("Seller's Interests"), which are producing hydrocarbons
into a Well and such hydrocarbons are commingled with the hydrocarbons produced
from the Assets. Seller shall use reasonable efforts to ensure that
hydrocarbon production from the Wells is allocated between Seller's Interests
and the Assets on a reasonable basis, consistent with industry standards and in
accordance with procedures, if any, that have been approved by appropriate
state and federal agencies. Costs and expenses shall be allocated between the
Seller's Interests and the Assets in accordance with the allocation of
production between the Seller's Interests and the Assets; provided that costs
and expenses directly attributable to Seller's Interests shall be allocated to
such Seller's Interests, and costs and expenses directly attributable to the
Assets shall be allocated to and debited against the Net Profits Account under
the Assignment.
12.7 Performance of Buyer. Seller shall be
entitled to the remedy of specific performance of Buyer's obligations under
this Agreement in order to be assured of the benefits contemplated under this
Agreement, the Assignment, Option or Management Agreement. Should Buyer fail
to perform any obligation under this Agreement, the Assignment, Option or
Management Agreement, which if unremedied would have a material adverse effect
on Seller, then Seller may give written notice to Buyer of such failure to
perform. If Seller gives such notice and Buyer does not remedy such failure
within 60 days of receipt of such notice, in addition to the remedy of specific
performance, Seller shall have the right to cause the attorney-in-fact of Buyer
identified in the Limited Power of Attorney to execute an Assignment, Bill of
Sale and Conveyance in a form substantially similar to that set forth in
Exhibit V covering any or all of the Assets which are adversely affected by
such failure. Seller and Buyer expressly waive any and all claims against the
attorney-in-fact named in the Limited Power of Attorney and any right to enjoin
such attorney-in-fact.
12.8 Overpayments. For purposes of this Section 12.8, the
term "Payment Period" shall have the meaning given it in the Assignment.
(i) If at any time Buyer is determined to have
paid Seller more than the amount then due with respect to any Credit
Payment Amount as a result of a breach by Seller of its
representations and warranties in Section 7, then as Buyer's exclusive
remedy, Seller shall be obligated to return any such overpayment,
limited to amounts actually paid to Seller by Buyer, after Buyer
notifies Seller of the amount of such overpayment and provides Seller
substantiation thereof. Alternatively, Buyer may elect to offset the
amount of any such overpayment against future Credit Payment Amounts.
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(ii) The Credit Payment Amount shall include
payments for credits attributable to natural gas liquids produced from
the Subject Hydrocarbons until Buyer provides Seller with (a) a copy
of a published or private ruling, court decision or other authority
which supports the position that IRC Section 29 credits are not
available for such natural gas liquids (the "IRS Position"), and (b)
an opinion reasonably satisfactory to Seller from a "big-six"
accounting firm (or other accounting or law firm acceptable to both
Seller and Buyer) that, in its view, there is not "substantial
authority" under IRC Section 6662 for taking a position that is
contrary to the IRS Position.
(iii) After Buyer provides Seller with an authority
and an opinion in accordance with Section 12.8(ii), the Credit Payment
Amount shall no longer include payments for Tax Credits which are
inconsistent with the IRS Position until Seller provides Buyer with
(a) a copy of a published or private ruling, court decision or other
authority which is contrary to the IRS Position, and (b) an opinion
reasonably satisfactory to Buyer from a "big-six" accounting firm (or
other accounting or law firm acceptable to both Seller and Buyer)
that, in its view, there is "substantial authority" under IRC Section
6662 for taking a position that is contrary to the IRS Position.
(iv) After Seller provides Buyer with a copy of an
authority and an opinion in accordance with Section 12.8(iii), (a) the
Credit Payment Amount shall thereafter include payments for Tax
Credits based upon the position of such opinion (unless and until
Buyer again provides Seller with a copy of an authority and an opinion
in accordance with Section 12.8(ii) with respect to such position),
and (b) the Credit Payment Amount for the first Payment Period
following the receipt of such opinion shall include an amount equal to
the increase in prior Credit Payment Amounts that would result from
recomputing the prior Credit Payment Amounts in accordance with the
position of such opinion.
(v) If the IRS asserts in a Tax Audit that IRC
Section 29 credits are not available for portions of production (the
"Disputed Production") from the Subject Hydrocarbons on the ground
that IRC Section 29 credits are not available for natural gas
liquids, then (a) the computation of the Credit Payment Amount shall
continue to include Tax Credits from the sale of natural gas liquids
subject to Sections 12.8(ii) and (iii) above; (b) Credit Payment
Amounts attributable to the production from the Subject Hydrocarbons
shall be escrowed and distributed as required by, and in accordance
with, the provisions of Section 8.3 (if Buyer has not waived its
rights to have such amounts escrowed pursuant to Section 8.3); and (c)
Seller shall have the right to participate, in accordance with the
provisions of Section 12.8(vii), in
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challenging the IRS Position that natural gas liquids do not qualify
for IRC Section 29 credits.
(vi) Should Buyer receive either a 90-day letter
or final partnership administrative adjustment (either, an
"Adjustment") holding that Tax Credits are not available for Disputed
Production, then Seller shall pay Buyer within 60 days of the receipt
by Seller of a copy of the Adjustment, an amount equal to 70% of the
amount of all IRC Section 29 credits with respect to Disputed
Production prior to the applicable Escrow Commencement Date which were
disallowed in the Adjustment, such payment not to exceed the Credit
Payment Amount previously paid by Buyer with respect to such Disputed
Production. Upon the Conclusion of the applicable Tax Audit, Buyer
shall repay to Seller any portion of the amount paid pursuant to the
preceding sentence that would not have been payable if the Adjustment
had conformed to the determinations reached in the Conclusion of the
Tax Audit.
(vii) Buyer agrees to keep Seller fully and
promptly informed of all administrative and court proceedings with
respect to the qualification of natural gas liquids for IRC Section
29 credits. Upon the commencement of any such proceeding, Seller
shall have the right to participate, at its own expense, in
challenging the IRS Position that natural gas liquids do not qualify
for IRC Section 29 credits. Buyer shall fully cooperate in any such
challenge, including without limitation the execution of protests,
petitions and complaints if requested by Seller in the course of such
challenge, and the determination of the nature, method, timing, forum,
strategy, issuances of and response to settlement proposals, counsel
and issues in connection with such challenge shall be at the
discretion of Seller. Seller shall indemnify and hold harmless Buyer
with respect to any liability incurred in connection with providing
such cooperation, and shall reimburse Buyer for all costs incurred (as
incurred and in no event less frequently than quarterly) in doing so,
including reimbursement for a reasonable amount of internal overhead,
and reasonable attorneys' and accountants' fees. If, in connection
with requests for cooperation with respect to such a challenge, Buyer
determines that it is likely to incur an expense to a third party
other than its own attorneys and accountants, then, before incurring
the expense, Buyer shall promptly give notice to Seller. If Seller
declines to reimburse Buyer for the actual amount to be expended in
complying with such request, then Buyer shall be excused from
complying with such request.
12.9 Review of Aggregate Credit Payment Amount
Figure. From time to time, at the written request of either Seller or Buyer,
Seller and Buyer shall in good faith reevaluate the aggregate Credit Payment
Amount figure of $600,000 set forth in Section 4.2 above, and in Paragraph
1.a(vii) of the Option to
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determine if such figure should be reduced in exchange for Seller's
identification of alternative qualified leases and wells ("Alternative Assets")
and the assignment of such Alternative Assets to Buyer in accordance with an
agreement having terms substantially similar to the terms of this Agreement.
If a determination is made to reduce such figure, Seller and Buyer shall enter
into a written agreement regarding the terms of the reduction, Seller shall
assign the Alternative Assets to Buyer, and Buyer shall grant to Seller an
option to repurchase the Alternative Assets under terms substantially similar
to those set forth in the Option.
12.10 Representations of Seller and Buyer to
Survive Closing. The representations of Seller under Section 7 above, and the
representations of Buyer under Section 6 above, shall survive Closing.
13. Apportionment of Liabilities and Obligations.
13.1 Buyer. Upon Closing, Buyer shall assume and
pay for all costs, expenses, liabilities and obligations accruing or relating
to the owning, operating or maintaining of the Assets or the producing,
transporting and marketing of hydrocarbons from the Assets, relating to periods
on and after the Effective Date, including without limitation, environmental
obligations and liabilities, off-site liabilities associated with the Assets,
the obligation to plug and abandon all Wells and reclaim all Well sites and all
obligations arising under agreements covering or relating to the Assets
(collectively, the "Post-Effective Date Liabilities").
13.2 Seller. Upon Closing, Seller shall retain,
assume and pay for all costs, expenses, liabilities and obligations accruing or
relating to the owning, operating or maintaining of the Assets or the
producing, transporting and marketing of hydrocarbons from the Assets, relating
to periods before the Effective Date, including without limitation,
environmental obligations and liabilities, the obligation to plug and abandon
wells (to the extent relating to periods prior to the Effective Date), off site
liabilities associated with the Assets, and all obligations arising under
agreements covering or relating to the Assets (collectively, the "Pre-Effective
Date Liabilities").
14. Indemnification. For the purposes of this Agreement,
"Losses" shall mean any actual loss, cost and expense (including reasonable
fees and expenses of attorneys, technical experts and expert witnesses),
liability, and damage (including those arising out of demands, suits, sanctions
of every kind and character); provided, however, that in no event shall
"Losses" be deemed to include consequential damages of a party to this
Agreement.
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14.1 Buyer's Indemnification of Seller. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Buyer shall indemnify and hold harmless Seller, its officers,
directors, shareholders, employees, representatives, agents, successors and
assigns, forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Post-Effective Date Liabilities, and (ii)
Buyer's breach of its representations, warranties and covenants in this
Agreement.
14.2 Seller's Indemnification of Buyer. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Seller shall indemnify and hold harmless Buyer; its officers;
directors; members; employees; representatives; agents; successors and assigns;
and the employees, representatives, agents, successors and assigns of such
members forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Pre-Effective Date Liabilities, and (ii)
Seller's breach of its representations, warranties and covenants in this
Agreement regardless of Seller's knowledge if such representations or
warranties are knowledge qualified, provided that the matters contemplated in
this clause (ii) shall not apply to the representations set forth in Section
7.6. Buyer and Seller shall cooperate fully and consult in good faith with
each other in the litigation of any matter identified in this Section 14.2.
Notwithstanding any of the foregoing provisions of this Section 14.2,
Buyer shall be entitled to payment for matters indemnified under this Section
14.2 only after a court of competent jurisdiction makes a final determination
regarding the matter litigated; provided that such payment shall cover only
Losses incurred by Buyer which have not been remedied by Seller under the
escrow provisions of Section 8.3 above and/or the overpayment provisions of
Section 12.8 above.
14.3 Third Party Claims. If a claim by a third
party is made against Seller or Buyer (an "Indemnified Party"), and if such
party intends to seek indemnity with respect thereto under this Section 14,
such Indemnified Party shall promptly notify Buyer or Seller, as the case may
be (the "Indemnitor"), of such claim. The Indemnitor shall have 30 days after
receipt of such notice to undertake, conduct and control, through counsel of
its own choosing and at its own expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with it in connection therewith; provided
that the Indemnitor shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified Party,
however, the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as the Indemnitor, at its cost and expense, (1) has
undertaken the defense of, and assumed full responsibility for all Losses with
respect to, such claim, and (2) is reasonably contesting such claim in good
faith, by appropriate proceedings, the Indemnified Party shall not pay or
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settle any such claim. Notwithstanding compliance by the Indemnitor with the
preceding sentence, the Indemnified Party shall have the right to pay or settle
any such claim, provided that in such event it shall waive any right to
indemnity therefor by the Indemnitor for such claim. If, within 30 days after
the receipt of the Indemnified Party's notice of a claim of indemnity
hereunder, the Indemnitor does not notify the Indemnified Party that it elects,
at Indemnitor's cost and expense, to undertake the defense thereof and assume
full responsibility for all Losses with respect thereto, or gives such notice
and thereafter fails to contest such claim in good faith, the Indemnified Party
shall have the right to contest, settle or compromise the claim but shall not
thereby waive any right to indemnity therefor pursuant to this Agreement.
14.4 HS Guarantee. HS hereby unconditionally
guarantees the punctual payment and performance by Seller of all obligations
due Buyer under this Agreement and under all instruments contemplated hereunder
to which Seller is a party, and agrees to pay all costs, expenses (including
reasonable attorneys' fees and expenses associated with claims made by Buyer
against HS, but not against Seller), liabilities and obligations incurred by
Buyer in enforcing any rights under this Agreement and the instruments
contemplated hereby with respect to owning, operating or maintaining the Assets
or producing, transporting and marketing of hydrocarbons from the Assets (all
such obligations being referred to herein as the "Obligations"). Without
limiting the generality of the foregoing, HS' liability hereunder shall extend
to all amounts which constitute part of the Obligations and would be owed by
Seller under this Agreement or the instruments contemplated hereunder but for
the fact that they are unenforceable or limited due to the existence of a
bankruptcy, reorganization or similar proceeding involving Seller.
(a) Guarantee Absolute. HS guarantees
that the Obligations will be paid or performed, as appropriate, strictly in
accordance with the terms of this Agreement and any instrument contemplated
hereby to which Seller is a party, and any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of Buyer with respect thereto. The obligations of HS under this
guarantee are independent of the Obligations, and a separate action or actions
may be brought and prosecuted against HS to enforce this guarantee,
irrespective of whether any action is brought against Seller or whether Seller
is joined in any action or actions.
(b) Notice. HS hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Obligations and this guarantee and any requirement that Buyer
exhaust any right or take any action against Seller or any other person.
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(c) Representation and Warranties. HS
hereby represents and warrants as follows:
(i) There are no conditions precedent to the
effectiveness of this guarantee that have not been satisfied or
waived.
(ii) HS is a corporation duly organized and in good
standing under the laws of the State of Delaware.
(iii) This guarantee has been duly authorized by all necessary
corporate action; is binding upon and enforceable against HS in
accordance with its terms; and will not violate or constitute a
default under its Certificate of Incorporation or by-laws, or any
agreements or indentures to which HS is a party or by which HS or its
properties are bound.
(d) Amendments, Consents. No amendment
or waiver of any provision of this guarantee, and no consent to any departure
by HS herefrom, shall in any event be effective unless the same shall be in
writing and signed by Buyer, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(e) Continuing Guarantee. This
guarantee by HS is a continuing guarantee and shall (1) remain in full force
and effect until the later of (i) the payment or performance in full of the
Obligations, and (ii) the termination of both this Agreement and the Management
Agreement contemplated hereunder; (2) be binding upon HS, its successors and
assigns; and (3) inure to the benefit of, and be enforceable by, Buyer and its
successors and assigns.
15. Miscellaneous.
15.1 Further Assurances. After Closing, Seller
and Buyer shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and take such other action as may
be reasonably necessary or advisable to carry out the purposes and intents of
this Agreement and any document, certificate or other instrument delivered
pursuant hereto.
15.2 Expenses. Seller and Buyer each agree to pay
one-half of the reasonable costs and expenses of Williamson Petroleum
Consultants, Inc., Arthur Andersen LLP and Davis, Graham & Stubbs LLP incurred
in connection with this transaction, subject to receipt of evidence and
substantiation thereof. Such costs and expenses shall not include any costs or
expenses associated with the Tax Opinion. Seller and Buyer shall pay their
respective amount of taxes and fees, apportioned to each under Section 12.2.
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15.3 Notices. All notices under this Agreement
shall be in writing and addressed as set forth below. Any communication or
delivery hereunder shall be deemed to have been duly made and the receiving
party charged with notice (i) if personally delivered or telecopied, when
received, (ii) if mailed, three business days after mailing, certified mail,
return receipt requested, or (iii) if sent by overnight courier, one day after
sending. All notices shall be addressed as follows:
If to Seller:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Buyer:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Any party may, by written notice so delivered to the other party, change the
address or individual to which delivery shall thereafter be made.
15.4 Survival. The representations, warranties,
covenants, agreements and indemnities included or provided in this Agreement
shall survive the Closing. The doctrine of merger shall not cause any
representation, warranty, covenant, agreement
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or indemnity under this Agreement to terminate as a result of Buyer and Seller
entering into the Assignment, Option or any other instrument contemplated
hereunder.
15.5 Confidentiality. Buyer and Seller shall keep
this Agreement confidential except to the extent each may be required to
disclose the contents hereof by recording the Assignment, Option, and
Memorandum of Management Agreement and Power of Attorney in the real property
records in the counties where the Assets are located or filing the official
forms of conveyances covering the Assets with appropriate governmental
authorities, the IRS or to the extent required in the operation of the Assets,
pursuant to the Management Agreement, by law, regulation or order, in
connection with obtaining third party consents and waivers of preferential
purchase rights and other matters, or in connection with any public
announcement issued in accordance with Section 15.6 hereof.
15.6 Announcements. Seller and Buyer shall
consult with each other regarding all press releases and other public
announcements issued at, prior to or following Closing concerning this
Agreement or the transactions contemplated hereby and except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange. Neither Buyer nor Seller shall issue any such press
release or other public announcement without the prior written consent of the
other party, which consent will not be unreasonably withheld. In all such
press releases and other public announcements, Seller shall refer to Buyer as
being affiliated with large east coast financial institutions.
15.7 Assignment. Neither Buyer nor Seller may
assign its rights or delegate its duties or obligations under the terms of this
Agreement without the prior written consent of the other party, provided that
either Buyer or Seller may assign its rights, but not its obligations under
this Agreement, to any party (including any affiliated or nonaffiliated party)
as long as such assignment does not relieve the assigning party of its
obligations to the other party hereto, and provided further that Buyer may not
cause or permit an assignment, transfer, sale, alienation or other disposition
of all or any portion of the Assets which would result in the transferred
Assets becoming "plan assets" under the Employee Retirement Income Security Act
of 1974, as amended. Notwithstanding the foregoing provisions of this Section
15.7, Seller shall be entitled without prior consent, but upon written notice
within a reasonable time thereafter, to assign or otherwise convey to HS or to
Wattenberg Resources Land, L.L.C. ("WRL") all or any portion of the Production
Payment, Reversion Interest or Seller's obligations to Buyer under this
Agreement, the Assignment or the Option. Such an assignment or conveyance of
obligations to HS (but not to WRL) shall serve to release Seller from any such
obligations and to substitute HS as the obligor under such obligations.
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15.8 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
successors and, subject to Section 15.7 hereof, their assigns.
15.9 Complete Agreement. When executed by the
authorized representative of Seller and Buyer, this Agreement, the Exhibits
hereto and the documents to be delivered pursuant hereto shall constitute the
complete agreement between the parties. This Agreement may be amended only by
a writing signed by both parties.
15.10 Knowledge. As used in this Agreement, the
term "knowledge," "best knowledge" or any variations thereof shall mean the
actual knowledge of any fact, circumstance or condition by the officers or
employees at a manager or higher level of the party involved as such knowledge
has been obtained in the performance of their duties in the ordinary course of
business after making reasonable and appropriate inquiries.
15.11 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF COLORADO
WITHOUT REFERENCE TO THE CONFLICT OF LAW PROVISIONS THEREOF.
15.12 Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each party and delivered to the other party.
[the remainder of this page is intentionally blank]
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EXECUTED as of the date first above mentioned.
BUYER:
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
SELLER:
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
Vice President
- - ------------------------------
Name: James M. Piccone
Title: Secretary
HS Resources, Inc., a Delaware corporation, is a signatory to this Agreement
for the purpose of confirming its obligations under Section 14.4 above.
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
Vice President
- - ------------------------------
Name: James M. Piccone
Title: Secretary
-33-
<PAGE> 39
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
-34-
<PAGE> 40
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me
this 17th day of June, 1996 by Gary L. Greenstein, Vice President of
Fontenelle, Inc., a Delaware corporation, Manager of Wattenberg Gas
Investments, LLC, a Delaware limited liability company on behalf of the
company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
<PAGE> 41
EXHIBITS
Exhibit A Leases (Weld and Adams County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Officer's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Forms of Opinions on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
<PAGE> 42
EXHIBIT C
WELLBORE ASSIGNMENT OF OIL AND GAS LEASES
WITH RESERVATION OF PRODUCTION PAYMENT
THIS WELLBORE ASSIGNMENT OF OIL AND GAS LEASES WITH
RESERVATION OF PRODUCTION PAYMENT (this "Assignment") is made effective as of
June 1, 1996 (the "Effective Date") by and between Orion Acquisition, Inc., a
Delaware corporation, 1999 Broadway, Suite 3600, Denver, Colorado 80202 (herein
called "Grantor"), and Wattenberg Gas Investments, LLC, a Delaware limited
liability company, 82 Devonshire Street, R22C, Boston, Massachusetts 02109
(herein called "Grantee").
ARTICLE 1
CERTAIN DEFINITIONS AND REFERENCES
1.1 CERTAIN DEFINED TERMS. When used in this Assignment, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Affiliate" shall mean (a) any person directly or indirectly
owning, controlling or holding with power to vote 50% or more of the
outstanding voting securities of Grantee, (b) any person 50% or more
of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by Grantee, (c) any
person directly or indirectly controlling, controlled by or under
common control with Grantee, and (d) any officer, director or partner
or member of Grantee or any person described in clause (c) of this
definition.
"Assignment" is defined in the first paragraph above.
"Business Day" shall mean a day on which commercial banks are
open for business in both the Commonwealth of Massachusetts and the
State of Colorado.
"Effective Date" is defined in the first paragraph.
"Full Production Date" shall mean the date on which the total
volume of gas attributable to the Subject Hydrocarbons produced, saved
and sold from and after the Effective Date equals a volume equivalent
to 5,554,980 MCF (wellhead gas, net to Grantee); provided that such
volume shall be decreased by an amount, if any, equal to the aggregate
volume of reserves allocated to properties on which Grantor has
exercised the Option.
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"Grantee" shall mean Grantee as defined in the first paragraph
of this Assignment, and its successors and assigns and, unless the
context in which used shall otherwise require, such term shall mean
any successor-owner at the time in question of any or all of the
Subject Interests.
"Grantor" shall mean Grantor as defined in the first paragraph
and its successors and assigns; and, unless the context in which used
shall otherwise require, such term shall mean any successor-owner at
the time in question of any or all of the Production Payment.
"Gross Proceeds" shall have the meaning assigned to it in
Section 4.2(a).
"Leases" is defined in Section 2.1(a).
"Management Agreement" means the Management Agreement between
an affiliate of Grantor and Grantee dated effective as of June 1,
1996.
"Measurement Amount" is defined in Section 4.5.
"Net Profits" for any Payment Period shall mean the net
balance, positive or negative, resulting after application of the
credits and debits as provided in Sections 4.2 and 4.3 for such
period.
"Net Profits Account" shall have the meaning assigned to it in
Section 4.1.
"Non-Affiliate" shall mean any Person who is not an Affiliate.
"Option" shall mean that Option to Purchase Oil and Gas
Interests between Grantee and Grantor dated effective as of June 1,
1996.
"Other Income" is defined in Section 4.2(b).
"Payment Period" shall mean a calendar quarter, provided that
the first Payment Period shall mean the period from the Effective Date
until the end of the calendar quarter during which the Effective Date
occurs, and the last Payment Period shall mean the portion of the
calendar quarter during which the Termination Date occurs from the
beginning of such calendar quarter until and including the Termination
Date.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation or other legal
entity.
"Production Payment" is defined in Section 3.1.
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"Production Payment Period" shall mean the period from the
Effective Date until and including the Termination Date.
"Production Sales Contracts" shall mean all contracts,
agreements and arrangements for the sale or disposition of Subject
Hydrocarbons that may be produced from or attributable to the Subject
Interests, whether presently existing or hereafter created.
"Purchase Agreement" means the Purchase and Sale Agreement
(Tax Partnership Properties) between Grantor and Grantee dated June
14, 1996.
"Reversion Interest" is defined in Section 3.3.
"Subject Hydrocarbons" shall mean that portion of the oil, gas
and other minerals in and under and that may be produced, from and
after the Effective Date, from or attributable to the Subject
Interests and after deducting the appropriate share of all royalties
and any overriding royalties (other than those overriding royalties
conveyed herein), production payments (except the Production Payment)
and other similar charges burdening the Subject Interests on the
Effective Date or additional burdens created under the Management
Agreement. There shall not be included in the Subject Hydrocarbons
any oil, gas or other minerals unavoidably lost in production or used
by Grantee in conformity with good oil field practices for production
operations (including without limitation, fuel, secondary or tertiary
recovery) conducted solely for the purpose of producing Subject
Hydrocarbons from the Subject Interests, but only so long as such
Subject Hydrocarbons are so used.
"Subject Interests" is defined in Section 2.1.
"Termination Date" shall mean the day on which the total
volume of gas attributable to Subject Hydrocarbons produced, saved and
sold from and after the Effective Date equals 4,181,548 MCF (wellhead
gas, net to Grantee); provided that such volume shall be decreased by
an amount, if any, equal to the aggregate volume of Subject
Hydrocarbons on which Grantor has exercised the Option, multiplied by
the ratio of 4,181,548 to 5,554,980.
"Wells" is defined in Section 2.1(a).
1.2 REFERENCES AND TITLES. All references in this Assignment to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Assignment
unless expressly provided otherwise. Titles appearing at the beginning of any
of such subdivisions are for convenience only and shall not constitute part of
such subdivisions and shall be disregarded
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in construing the language contained in such subdivisions. The words "this
Assignment", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Assignment (and reservation of Production
Payment) as a whole and not to any particular subdivision unless expressly so
limited. Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. All references in this
Assignment to Exhibits or Schedules refer to exhibits or schedules to this
Assignment unless expressly provided otherwise, and all such Exhibits or
Schedules are hereby incorporated herein by reference and made a part hereof
for all purposes.
ARTICLE 2
ASSIGNMENT
2.1 For and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, TRANSFER,
ASSIGN, and CONVEY unto Grantee, its successors and assigns, all of the
following (the "Subject Interests"):
(a) The right, title and interest of Grantor in and to
the oil and gas leases described in Exhibit A (attached hereto and
made a part hereof for all purposes) insofar and only insofar as said
leases cover the right to produce from the wellbores of the wells
described in Exhibit B (attached hereto and made a part hereof for all
purposes) from the intervals in such wells identified in Exhibit B as
of the Effective Date (the above described interest in such leases
being herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions, limitations,
burdens, contracts, agreements and other matters applicable to the
Leases and the Wells, and excluding such portion of the Leases and the
Wells which are not conveyed to Grantee because of Defective Interests
or which were determined to be Excluded Assets (as such terms are
defined in the Purchase Agreement);
(b) The right, title and interest of Grantor in and to
overriding royalty interests in the Leases insofar and only insofar as
the Leases cover the wellbores associated with the Wells from the
producing intervals identified in Exhibit B;
(c) To the extent affected, the right, title and interest
of Grantor in and to, or derived from, the following insofar and only
insofar as same are attributable to the Leases and the Wells:
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(i) The presently existing and valid oil,
gas or mineral unitization, pooling, operating and communitization
agreements, declarations and orders affecting the Leases and Wells,
and in and to the properties covered and the units created thereby;
(ii) The personal property and fixtures that
are appurtenant to the Wells, including all wells, casing, tubing,
pumps, separators, tanks, lines and other personal property and oil
field equipment appurtenant to such Wells; provided, however, that
Grantor shall remain co-owner of any personal property appurtenant to
any property owned by Grantor that is not exclusively part of the
Wells;
(iii) The presently existing and valid gas
sales, purchase, production swap, gathering and processing contracts
and operating agreements, joint venture agreements, partnership
agreements, rights-of- way, easements, permits and surface leases and
other contracts, agreements and instruments (but specifically
excluding any management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in (c)(i) above; provided, however, that
Grantor shall remain co-owner of any agreements, including unitization
and pooling agreements, if they pertain to any property owned by
Grantor that is not exclusively part of the Leases and Wells;
reserving to Grantor, however, the Production Payment, the Reversion Interest
and the other rights reserved herein, all as provided in Article 3 below; to
have and to hold the Subject Interests forever.
ARTICLE 3
RESERVATIONS
3.1 PRODUCTION PAYMENT. Grantor reserves unto itself, and its
successors and assigns, from this Assignment a production payment payable out
of and only from Subject Hydrocarbons equal to 100% of the Net Profits derived
from the Subject Hydrocarbons; such production payment to be effective during
the Production Payment Period and such payment, in any Payment Period, not to
exceed the Gross Proceeds during such Payment Period, (the "Production
Payment"); and subject to the terms and conditions contained herein.
3.2 SURFACE AND OTHER USE. Grantor reserves unto itself, and its
successors and assigns, from this Assignment the right to use as much of the
surface of the acreage covered by the Leases as well as the wellbores conveyed
hereunder as may be necessary in the conduct of operations in those zones,
formations and depths not assigned to Grantee herein and on other property
owned or leased by Grantor. Grantor further reserves the right to
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drill through the depths, zones and formations herein assigned to Grantee in
conducting any operations in the depths, zones and formations not assigned
herein or on other property owned or leased by Grantor, and also the right to
drill, produce, operate and maintain infill wells as permitted by regulatory
agencies having jurisdiction over such matters. Grantor reserves the right to
jointly use any easements and rights-of-way for its operations on the land
covered hereby or on other lands in the area.
3.3 REVERSION INTEREST AFTER FULL PRODUCTION DATE. Grantor
reserves unto itself, and its successors and assigns, an undivided 75% interest
in and to the Subject Interests from and after the Full Production Date (the
"Reversion Interest"); provided, however, that this reservation will not take
effect if the estimated net cash flow from operations and production of the
Subject Hydrocarbons remaining after the Full Production Date, when taken as a
whole, is not reasonably expected by Grantor in good faith to exceed the
estimated cost to plug and abandon the Wells. If the Full Production Date is
reached and this reversion becomes effective, Grantor and Grantee agree to
enter into a mutually acceptable Joint Operating Agreement to govern operation
of the Subject Interests after the Full Production Date, in form and substance
similar to the Model Form Operating Agreement typically used by Grantor at the
Full Production Date, naming Grantor as Operator. For the purposes of this
Section 3.3, net cash flow from operations and production means the excess of
revenue from production of Subject Hydrocarbons over the aggregate of operating
expenses, overhead costs and capital costs required to produce such Subject
Hydrocarbons.
3.4 SIDETRACK WELLBORE DRILLING RIGHTS. Grantor reserves unto
itself, and its successors and assigns, the right to drill sidetrack wellbores
and to produce oil, gas and other hydrocarbons from completions in such
sidetrack wellbores from the Wells with respect to the Leases, insofar and only
insofar as (i) such drilling operations are in accordance with local, state and
federal governmental authorities having jurisdiction over such operations, and
(ii) such drilling operations are conducted primarily to exploit oil and gas
reserves which cannot be economically or efficiently produced from the
wellbores of the Wells conveyed hereunder (the "Drilling Rights").
This reservation includes a corresponding right, title, interest and
estate in and to the property and rights incident to the Drilling Rights and
the lands covered thereby or unitized therewith, including, without limitation:
(1) A corresponding right to the presently existing oil, gas or
mineral unitization, pooling and communitization agreements,
declarations and orders relating to the Leases and the units
associated therewith (including, without limitation, all units formed
under orders, regulations, rules or other official acts of any
federal, state or other
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governmental agency having jurisdiction), which relate to any of the
Leases.
(2) A corresponding right to the presently existing oil and gas,
sales, purchase, exchange and processing contracts, casinghead gas
contracts, operating agreements, joint venture agreements, area of
mutual interest agreements, farmout and farmin agreements and all
other contracts, agreements and instruments which relate to any of the
Leases or Wells and to the production of oil, gas and other minerals
from or attributable to the Leases or Wells, but only insofar as such
contracts, agreements and instruments relate to the rights conveyed
herein.
(3) A corresponding right to all personal property, improvements,
lease and well equipment, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or useful or held for future use
in connection with the exploration, development or operation or
maintenance of the Leases or Wells, or any unit or units or operation
or maintenance of the Leases or Wells, or any unit or units in which
part or parts of the Leases or Wells may be included.
(4) A corresponding right, title, interest and estate, whether
real, personal or mixed, of every nature and description in and to the
lands described on Exhibit A, whether such right, title, claim or
interest be under and by virtue of an oil, gas and mineral lease, an
operating agreement, a unitization, pooling or communitization
agreement, declaration or order, a division order, a transfer order or
any type of contract, conveyance or instrument, or under and by virtue
of any type of claim or title, legal or equitable recorded or
unrecorded, and even though Grantor's interests therein be incorrectly
described in or a description of such interest be omitted from the
exhibit thereto.
(5) A corresponding and concurrent right of ingress and egress to
and from the lands covered by the Leases for the purpose of exploring
for, drilling for, producing and marketing the hydrocarbons owned by
each of them at their respective depths and locations under the terms
of the Leases. Further, each party shall own and hold proportionally
any and all rights granted in the Leases or otherwise relating thereto
pursuant to any agreements, surface leases, permits, rights-of-way,
pooling declarations, licenses, governmental regulations or other
grant or instrument as incident to and for the purpose of exploring
for, drilling for and producing the minerals owned by them in their
respective depths and locations including the right to drill pursuant
to this Assignment, lay and maintain pipelines and waterlines, dig
pits, erect structures and to perform any and all other operations
incident to the rights and interests therein.
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Grantor shall not be entitled to exercise the Drilling Rights as to
any well if such exercise would likely result in a termination of production
from the associated Well for a period exceeding 90 days. Grantor shall
promptly give Grantee reasonable notice concerning such exercise, provided that
such notice may be given either before or after the commencement of the
drilling of a sidetrack wellbore in a Well. All exercises of the Drilling
Rights must be conducted in accordance with the provisions of the Sidetrack
Wellbore Terms attached hereto as Schedule 1.
ARTICLE 4
PRODUCTION PAYMENT ACCOUNTING AND PAYMENT
4.1 ESTABLISHMENT OF NET PROFITS ACCOUNT. Grantee shall establish
and maintain a Net Profits Account (herein called the "Net Profits Account") in
accordance with the various provisions of this Assignment and at all times
during the Production Payment Period shall keep true and correct books and
records with respect thereto. Such books and records shall be open for
inspection, copying and audit by Grantor and its accountants and
representatives.
4.2 CREDITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Gross Proceeds and Other Income.
(a) "Gross Proceeds" shall mean, on an accrual basis, all
consideration, direct or indirect, from sales of Subject Hydrocarbons,
subject to the following:
(1) If a controversy exists (whether by reason of
any statute, order, decree, rule, regulation, contract, or
otherwise) as to the correct or lawful sales price of any
Subject Hydrocarbons, then at Grantor's sole election, Grantor
may choose to treat amounts and affected by such controversy
(i) as Gross Proceeds of Grantee, or (ii) not as Gross
Proceeds of Grantee and require Grantee to promptly deposit
such amounts with an escrow agent pending settlement of such
controversy, provided that all amounts, excluding any interest
or other income, thereafter paid to Grantee by such escrow
agent out of or on account of such escrow shall be considered
to be amounts from the sale of Subject Hydrocarbons. Amounts
of Grantee not deposited with an escrow agent shall be
considered Gross Proceeds;
(2) Gross Proceeds relating to any non-consent
operations conducted with respect to all or any part of the
Subject Hydrocarbons after the Effective Date shall be subject
to Section 5.8;
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(3) Gross Proceeds shall not include any amount
which Grantee shall receive as a bonus for any lease or
payments made to Grantor in connection with adjustment of the
cost of any Well and leasehold equipment upon unitization or
revision of participating areas under federal divided-type
units covering any of the Subject Hydrocarbons;
(4) Cash settlements and cash make-ups with
respect to the Subject Hydrocarbons under gas balancing or
similar agreements shall be considered derived from the sale
of Subject Hydrocarbons;
(5) The proceeds from (i) all insurance and (ii)
all judgments, claims and settlements, which are used to
remedy, replace or repair losses or damages actually incurred,
to the extent such proceeds relate to the production of
Subject Hydrocarbons; and
(6) Gross Proceeds shall not include Other
Income.
(b) "Other Income" shall mean, on an accrual basis, the following:
(1) Proceeds after the Effective Date from (i)
the sale of any materials, supplies, equipment and other
personal property or fixtures, or any part thereof or interest
therein, used in connection with the Subject Hydrocarbons,
(ii) delay rentals, (iii) lease bonuses, and (iv) rentals from
reservoir use or storage; including without limitation all
amounts attributable thereto by way of conformance of
investment in personal property and equipment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from
time to time unitized or are affected by the revision of a
participating area in a federal divided-type unit;
(2) Proceeds from all insurance, other than to
remedy or repair losses or damages actually incurred, to the
extent such proceeds relate to the production of Subject
Hydrocarbons, (i) the cost of which is charged to the Net
Profits Account, directly or indirectly, and/or (ii) that
accrue to Grantee as a consequence of the loss or damage to
any one or more of the following which occurs after the
Effective Date: the Subject Hydrocarbons, or any part thereof
or interest therein, the interest of Grantee in any materials,
supplies, equipment or other personal property or fixtures
used in connection with any of the Subject Hydrocarbons;
except to the extent such amounts are used to repair or
replace the items damaged or lost giving rise to the receipt
of such amounts;
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(3) Amounts from a purchaser of Subject
Hydrocarbons (i) as a prepayment of any portion of the sales
price for such Subject Hydrocarbons, (ii) as advance gas
payments or (iii) as payments pursuant to contractual
provisions providing for "take-or-pay" payments (including
amounts awarded by a court or agreed to by the parties in any
settlement of a claim (net of costs and attorneys' fees
incurred in connection therewith) as damages for the failure
or refusal of the purchaser to take Subject Hydrocarbons
pursuant to the contract which contains such provisions) shall
be considered to be from the sale of Subject Hydrocarbons;
provided that such amounts shall not be considered to be from
the sale of Subject Hydrocarbons at a later date when Subject
Hydrocarbons are delivered in respect of any such payments
under "make-up" or similar provisions;
(4) Proceeds from (i) all insurance and (ii) all
judgments, claims and settlements, for damages to one or more
of the following which occurs after the Effective Date: to
the extent such proceeds relate to the production of Subject
Hydrocarbons, or any part thereof or interest therein; any
materials, supplies, equipment or other personal property or
fixtures, or any part thereof or interest therein, used in
connection with any of the Subject Hydrocarbons; except to the
extent such amounts are used to repair, replace or remedy
losses or damages actually incurred, which gave rise to the
receipt of such amounts;
(5) Any interest, penalty or other amounts which
are attributable to the Subject Hydrocarbons and are not
derived from the sale of Subject Hydrocarbons;
(6) Any interest or other income earned on funds
deposited into an escrow account in accordance with the
provisions of Section 4.2(a)(1) above; and
(7) All other monies and things of value
attributable to ownership after the Effective Date of the
Subject Hydrocarbons and the materials, supplies, equipment
and other personal property and fixtures used in connection
with the Subject Hydrocarbons.
4.3 DEBITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be debited (without duplication), on an
accrual basis, with the following amounts:
(a) All direct costs which are attributable to production
of the Subject Hydrocarbons (i) for all direct labor (including fringe
benefits), other services and expenses necessary for developing,
operating, producing,
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reworking (including recompleting) and maintaining the Subject
Hydrocarbons after the Effective Date, (ii) for dehydration,
compression, separation, gathering, transportation and marketing of
the Subject Hydrocarbons after the Effective Date, and (iii) for all
materials, supplies, equipment and other personal property and
fixtures purchased for use in connection with the Subject Hydrocarbons
after the Effective Date (including without limitation (A) all amounts
necessary for conformance of investment if the Subject Hydrocarbons or
any part or parts thereof are hereafter from time to time unitized or
if any participating area in a federal divided-type unit is changed,
and (B) the cost of secondary recovery, pressure maintenance,
repressuring, recycling and other operations conducted for the purpose
of enhancing production);
(b) Costs (including without limitation outside legal,
accounting and engineering services) attributable to the Subject
Hydrocarbons and allocated in accordance with revenues therefrom of
(i) handling, investigating and/or settling litigation, administrative
proceedings and claims (including without limitation lien claims other
than liens for borrowed funds) and (ii) payment of judgments,
penalties and other liabilities (including interest thereon), paid by
Grantee (and not reimbursed under insurance maintained by Grantee or
others) and involving any of the Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date, or requiring the payment or restitution of
any proceeds of Subject Hydrocarbons, or arising from tax or royalty
audits, except that there shall not be debited to the Net Profits
Account any expenses incurred by Grantee in litigation of any claim or
dispute arising hereunder between Grantee and Grantor or amounts paid
by Grantee to Grantor pursuant to a final order entered by a court of
competent jurisdiction resolving any such claim or dispute or amounts
paid by Grantee to Grantor in connection with the settlement of any
such claim or dispute;
(c) All taxes (except income, transfer, inheritance,
estate, franchise and like taxes) attributable to the ownership of the
Subject Hydrocarbons or the extraction of the Subject Hydrocarbons
after the Effective Date, including without limitation production,
severance, and/or excise and other similar taxes assessed against,
and/or measured by, the production of (or the proceeds or value of
production of) Subject Hydrocarbons (without regard to the period of
ownership for which such taxes are assessed), occupation taxes, sales
and use taxes, and ad valorem taxes assessed against or attributable
to the Subject Hydrocarbons or any equipment located on any of the
Subject Interests, as such equipment is required for the production of
Subject Hydrocarbons;
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(d) Insurance premiums attributable to the ownership or
operation of the Subject Hydrocarbons for insurance actually carried
for periods after the Effective Date, or any equipment located on any
of the Subject Interests, as such equipment is required for the
production of Subject Hydrocarbons, or incident to the development,
operation or maintenance of the Subject Hydrocarbons after the
Effective Date;
(e) All amounts attributable to the Subject Hydrocarbons
(to the extent attributable to periods after the Effective Date) and
consisting of (i) rent and other consideration attributable to the use
or damage to the surface and (ii) delay rentals, shut-in well
payments, minimum royalties and similar payments pursuant to the
provisions of agreements in force and effect before the Effective
Date;
(f) Amounts attributable to the Subject Hydrocarbons (to
the extent attributable to periods after the Effective Date) and
charged by the relevant operator as overhead charges specified in
applicable operating agreements (including applicable COPAS charges);
(g) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject
Hydrocarbons any amounts previously included in Gross Proceeds or
Other Income are reclaimed from Grantee or its representative, then
the amounts reclaimed as promptly as practicable following Grantee's
payment thereof;
(h) The Management Fee (as defined in the Management
Agreement) paid pursuant to the Management Agreement;
(i) If Grantee shall be a party as to any non-consent
operations conducted with respect to all or any of the Subject
Hydrocarbons after the Effective Date, all costs to be debited to the
Net Profits Account with respect thereto shall be governed by Section
5.8;
(j) Except as otherwise provided elsewhere in this
Assignment, all other direct expenditures attributable to the Subject
Hydrocarbons paid by Grantee after the Effective Date for the
necessary or proper development, operation, maintenance and
administration, after the Effective Date, of the Subject Hydrocarbons,
if reasonably incurred; provided, however, that notwithstanding
anything herein provided to the contrary, the Net Profits Account
shall not be debited with any cost or expense which is deducted or
taken into account in determining Gross Proceeds or Other Income,
including, without limitation, the value of any component of Gross
Proceeds or Other Income.
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4.4 ACCOUNTING FOR NET PROFITS. All debits to the Net Profits
Account calculated pursuant to Section 4.3 which are attributable to costs and
expenses incurred during a Payment Period, up to and including the last day of
such Payment Period, shall be debited against the Net Profits Account as of the
last day of such period. All credits to the Net Profits Account calculated
pursuant to Section 4.2 which are attributable to the sale of Subject
Hydrocarbons during a Payment Period, shall be credited to the Net Profits
Account as of the last day of such Payment Period.
4.5 MEASUREMENT AMOUNT AND PAYMENT. As of the end of each Payment
Period, Grantee shall calculate an amount (the "Measurement Amount"), equal to
the sum of (a) any Measurement Amount carried forward from a prior Payment
Period and (b) the Net Profits for the then current Payment Period. Not more
than 75 days following a Payment Period, Grantee shall pay Grantor the lesser
of (i) the Measurement Amount for such Payment Period or (ii) Gross Proceeds
for the Payment Period in question. If the Measurement Amount for a Payment
Period is a negative amount, no payment shall be due and payable by Grantee to
Grantor hereunder for such Payment Period, and the negative amount shall be
carried forward for the next and succeeding Payment Periods until such deficit
is wiped out and liquidated. If the Measurement Amount for the Payment Period
is a positive amount and exceeds Gross Proceeds for the Payment Period, the
excess Measurement Amount shall be carried forward to the next Payment Period.
Grantee shall send to Grantor at the same time set for the payment a
statement showing the calculation of the Measurement Amount, the reason for any
nonpayment, the condition of the Net Profits Account as of the close of
business on the last day of the relevant Payment Period and clearly showing
(with sufficient description so that Grantor can identify such items and the
particular Subject Hydrocarbons involved) those items which gave rise to debits
and credits to the Net Profits Account during such Payment Period and clearly
showing for each Subject Interest the quantities of Subject Hydrocarbons
produced therefrom during the Payment Period covered by such statement, the
volumes of such production sold, the prices at which such volumes were sold,
and the taxes paid with respect to such sales.
Although the books for the Net Profits Account shall be kept on an
accrual basis, for purposes of this Section 4.5, Net Profits will be
tentatively computed and paid in accordance with Grantor's standard billing and
disbursement procedures, which shall be consistent with standard industry
practices, until the Termination Date. Within 90 days following the
Termination Date, the Net Profits Account shall be reconciled to the accrual
method and Grantor and Grantee shall make such payments or refunds to each
other as are necessary to effect such reconciliation.
4.6 ACCOUNTING FOR INTEREST EXPENSE. For federal income tax
purposes, interest with respect to payments under the
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Production Payment shall be taken into account under the noncontingent bond
method of Prop. Treas. Reg. Section 1.1275-4(b)(2) (or any successor provision
of final Treasury Regulations) in accordance with the projected payment
schedule attached as Schedule 2.
4.7 ALLOCATION OF COSTS AND EXPENSES. Costs and expenses shall be
allocated in accordance with Section 12.6 of the Purchase Agreement, if
applicable.
ARTICLE 5
OPERATION OF SUBJECT INTERESTS
5.1 RIGHTS AND DUTIES OF GRANTEE. Grantee (subject to the terms
and provisions of any applicable operating agreements and subject to the other
provisions of this Assignment and the Management Agreement) as between Grantor
and Grantee, has exclusive charge, management and control of all operations to
be conducted on the Subject Interests and may take any and all actions which a
reasonably prudent operator would deem necessary or advisable in the
management, operation and control thereof. Grantee shall promptly (and, unless
the same are being contested in good faith and by appropriate proceedings,
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
developing, operating and maintaining the Subject Interests. Grantee shall be
obligated to operate and maintain the Subject Interests as would a reasonable
and prudent operator under similar circumstances in accordance with good oil
field practices. For the Subject Interests which Grantee does not operate,
Grantee shall take all such action and exercise all such rights and remedies as
are reasonably available to it to cause the operator to so maintain and operate
such Subject Interests. Grantee shall be deemed to have fully discharged all
of its obligations under this Section 5.1, and shall have no liability to
Grantor under this Section 5.1 during any period when the Management Agreement
is in effect and Grantee is in compliance with the Management Agreement.
5.2 SALES OF SUBJECT HYDROCARBONS. Grantee shall have the
obligation to market or cause to be marketed the Subject Hydrocarbons in
accordance with its good faith business judgment and sound oil field practices.
Grantee shall fully discharge its obligations to Grantor under this Section 5.2
during any period when the Management Agreement is in effect and Grantee is not
in default thereunder. As to any third parties, all acts of Grantee in
marketing the Subject Hydrocarbons and all Production Sales Contracts executed
by Grantee shall be binding on Grantor and the Production Payment; it being
understood that the right and
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obligation to market the Subject Hydrocarbons is at all times vested in Grantee
and Grantor does not have any such right or obligation or any possessory
interest in all or part of the Subject Hydrocarbons, except as may be granted
by separate agreement or instrument. Accordingly, it shall not be necessary
for Grantor to join in any new Production Sales Contracts or any amendments to
existing Production Sales Contracts.
5.3 INSURANCE. Grantee shall obtain or cause to be obtained (and
maintain or cause to be maintained during the economic life of the Subject
Interests) the types of insurance as in its reasonable good faith business
judgment a reasonable and prudent operator would carry under similar
circumstances. Grantee shall fully discharge all of its obligations under this
Section 5.3, and shall have no liability to Grantor under this Section 5.3
during any period when the Management Agreement is in effect and Grantee is in
compliance with the Management Agreement.
5.4 CONTRACTS WITH AFFILIATES. To the extent not provided for in
any applicable operating agreement, Grantee may perform services and furnish
supplies and equipment with respect to the Subject Interests, provided that the
amount of compensation, price or rental that can be charged to the Net Profits
Account therefor must be no less favorable than those available from
Non-Affiliates in the area engaged in the business of rendering comparable
services or selling or leasing comparable equipment and supplies which could
reasonably be made available to the Subject Interests.
5.5 GOVERNMENT REGULATION. All obligations of Grantee hereunder
shall be subject to and limited by all applicable federal, state and local
laws, rules, regulations and orders (including those of any applicable agency,
board, official or commission having jurisdiction).
5.6 ABANDONMENTS. Prior to releasing, surrendering or abandoning
any portion of the Subject Interests, Grantee shall first offer in writing to
reassign such interest to Grantor, with Grantor assuming all liability and
obligations for such interest after such assignment. If Grantor does not
accept the offer to reassign within 60 days from such offer, Grantee shall have
the right without the joinder of Grantor to release, surrender and/or abandon
its interest in the Subject Interests, or any part thereof, or interest therein
even though the effect of such release, surrender or abandonment will be to
release, surrender or abandon the Production Payment the same as though Grantor
had joined therein insofar as the Production Payment covers the Subject
Interests, or any part thereof or interest therein, so released, surrendered or
abandoned by Grantee.
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5.7 POOLING AND UNITIZATION.
(a) Certain of the Subject Interests may have been pooled
or unitized for the production of oil, gas and/or minerals prior to
the Effective Date or, after the Effective Date, may be so pooled or
unitized pursuant to Section 5.7(b). Such Subject Interests are and
shall be subject to the terms and provisions of such pooling and
unitization agreements, and the Production Payment in each such
Subject Interest shall apply to (and the term "Subject Hydrocarbons"
shall include) the production from such units which is attributable to
such Subject Interest (and the Net Profits Account shall be computed
giving consideration to such production and costs, expenses, charges
and credits attributable to such Subject Interest) under and by virtue
of the applicable pooling and unitization agreements.
(b) Grantee shall have the right and power to unitize,
pool or combine the lands covered by the Subject Interests, or any
portion or portions thereof, with any other land or lease or leases so
as to create one or more unitized areas (or, with respect to unitized
or pooled areas theretofore created, to dissolve the same or to amend
and/or reconfigure the same to include additional acreage or
substances or to exclude acreage or substances). If pursuant to any
law, rule, regulation or order of any governmental body or official,
any of the Subject Interests are pooled or unitized in any manner, the
Production Payment insofar as it affects such Subject Interest shall
also be deemed pooled and unitized, and in any such event the
Production Payment shall apply to (and the term "Subject Hydrocarbons"
shall include) the production which accrues to such Subject Interest
under and by virtue of such pooling and unitization arrangements and
the Net Profits Account shall be computed giving consideration to such
production and costs, expenses, charges and credits attributable to
such Subject Interest under and by virtue of such pooling and
unitization arrangement. Notwithstanding the foregoing provisions of
this Section 5.7(b), Grantee shall have no right or interest in any
well that is not specifically described on Exhibit B or in the
production from any such well.
5.8 NON-CONSENT OPERATIONS.
(a) If Grantee elects (subject to Section 5.1) to be a
non-participating party (whether pursuant to an operating agreement or
other agreement or arrangement, including without limitation,
non-consent rights and obligations imposed by statute or regulatory
agency) with respect to any operation on any Subject Interest or
elects to be an abandoning party with respect to a Well located on any
Subject Interest, the consequence of which election is that Grantee's
interest in such Subject Interest or part thereof is temporarily
(i.e., during a recoupment period) or
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permanently forfeited to the parties participating in such operations,
or electing not to abandon such Well, then the costs and proceeds
attributable to such forfeited interest shall not, for the period of
such forfeiture (which may be a continuous and permanent period), be
debited or credited to the Net Profits Account and such forfeited
interest shall not, for the period of such forfeiture, be subject to
the Production Payment.
(b) If Grantee elects (subject to Section 5.1) to be a
participating party to such an operation, or elects to be a
non-abandoning party with respect to such a Well, and any other party
or parties have elected not to participate in such operation (or have
elected to abandon such Well) with the result that (pursuant to an
operating agreement or other agreement or arrangement, including
without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) Grantee becomes entitled to receive,
either temporarily (i.e., through a period of recoupment) or
permanently, interests belonging to such other party or parties, then
the costs and proceeds attributable to such non-participating parties'
interests to which Grantee becomes so obligated and entitled shall be
debited and credited to the Net Profits Account as though such
interests were part of the Subject Interests.
5.9 RENEWALS AND EXTENSIONS OF LEASES. The Production Payment
and the Reversion Interest shall apply to all renewals, extensions and other
similar arrangements (and/or interests therein) of or with respect to any Lease
which is included in the Subject Interests, whether or not such renewals,
extensions or arrangements have heretofore been obtained by Grantor, or
Grantor's predecessors in title, or are hereafter obtained by Grantee as well
as to each new lease covering any minerals covered by one or more of the Leases
if same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
ARTICLE 6
GRANTOR LIABILITY AND EQUIPMENT
6.1 NO PERSONAL LIABILITY OF GRANTOR. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS ASSIGNMENT, GRANTOR SHALL NOT, BY VIRTUE OF THE
PRODUCTION PAYMENT OR REVERSION INTEREST RESERVED IN THIS ASSIGNMENT,
PERSONALLY BE RESPONSIBLE FOR PAYMENT OF ANY PART OF THE COSTS, EXPENSES OR
LIABILITIES INCURRED IN CONNECTION WITH EXPLORING, DEVELOPING, OPERATING,
OWNING AND/OR MAINTAINING THE SUBJECT INTERESTS; PROVIDED, HOWEVER, ALL SUCH
COSTS, EXPENSES AND LIABILITIES SHALL, TO THE EXTENT THE SAME RELATE TO PERIODS
AFTER THE EFFECTIVE DATE, NEVERTHELESS BE CHARGED AGAINST THE NET PROFITS
ACCOUNT AS AND TO THE EXTENT HEREIN PERMITTED.
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6.2 OWNERSHIP OF EQUIPMENT. The Production Payment does not
include any right, title or interest in and to any of the personal property,
fixtures, structures or equipment now or hereafter placed on, or used in
connection with, the Subject Interests.
ARTICLE 7
TRANSFERS
7.1 ASSIGNMENTS BY GRANTEE. Upon prior written notice to Grantor,
but under no circumstance requiring Grantor's consent, Grantee shall have the
right to transfer all or any portion of the Subject Interests; provided,
however, that (i) the Subject Interests shall at all times be subject to this
Assignment, the Production Payment, the Reversion Interest, the Purchase
Agreement and the Limited Power of Attorney contemplated thereunder, the Option
and the Management Agreement, (ii) if such transfer or transfers result in less
than all of the Subject Interests being transferred to and held by the same
Person, Grantee shall retain the obligation to administer and pay the
Production Payment in accordance with the provisions hereof in the same manner
as if the Production Payment was held by a single Person, and (iii) Grantee may
not make an assignment, transfer, sale, alienation or other disposition of any
Subject Interests, which would result in any of the Subject Interests becoming
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended. An assignment of the Subject Interests by Grantee shall not
release Grantee from any obligation to Grantor under this Assignment, the
Purchase Agreement, the Management Agreement or the Option.
7.2 ASSIGNMENTS BY GRANTOR. Upon prior written notice to Grantee,
Grantor shall have the right to transfer, pledge, or mortgage at any time and
from time to time all or any portion of the Production Payment, Reversion
Interest or Option. Any such assignment shall not release Grantor from any
obligation to Grantee under this Assignment, the Purchase Agreement or the
Option, except to the extent provided for in such agreements. Notwithstanding
the foregoing provisions of this Section 7.2, but subject to Section 7.3,
Grantor shall be entitled without any prior written notice or consent to assign
or otherwise convey to HS Resources, Inc., a Delaware corporation ("HS"), all
or any portion of the Production Payment, Reversion Interest or Grantor's
obligations to Grantee under this Assignment, the Purchase Agreement or the
Option. Such an assignment or conveyance of obligations to HS shall serve to
release Grantor from any such obligations and to substitute HS as the obligor
under such obligations.
7.3 CHANGE IN OWNERSHIP OF PRODUCTION PAYMENT, REVERSION INTEREST
OR OPTION. No change of ownership or right to receive payment of the
Production Payment or the Reversion Interest, or of any part thereof, or change
in the ownership of the Option,
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however accomplished shall be binding upon Grantee until notice thereof has
been furnished by the person claiming the benefit thereof, and then only with
respect to payments thereafter made. Notice of the sale or assignment shall
consist of a copy of the recorded instrument accomplishing the same or if there
be no recorded instrument then a copy of the applicable document accomplishing
same; notice of change of ownership or right to receive payment accomplished in
any other manner (for example by reason of incapacity, death or dissolution)
shall consist of copies of recorded documents and complete proceedings legally
binding and conclusive of the rights of all parties. Until such notice has
been furnished to Grantee as provided above, the payment or tender of all sums
payable on the Production Payment and delivery of all notices may be made in
the manner provided herein precisely as if no such change in interest or
ownership or right to receive payment had occurred. The kind of notice herein
provided shall be exclusive, and no other kind, whether actual or constructive,
shall be binding on Grantee.
ARTICLE 8
MISCELLANEOUS
8.1 GOVERNING LAW. The validity, effect and construction of this
Assignment shall be governed by the law of the State of Colorado, exclusive of
the conflict of laws provisions thereof.
8.2 INTENTIONS OF THE PARTIES. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income
tax purposes, the parties elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A of the IRC, and agree not to take any
position inconsistent with such election. In addition, the parties hereto
intend that the Production Payment reserved hereby by Grantor shall at all
times be treated as an incorporeal (i.e., a non-possessory) interest in real
property or land and as a production payment under Section 636 of the IRC,
payable out of Gross Proceeds (rather than as a working or any other interest).
8.3 NOTICES. All notices and other communications required or
permitted under this Assignment shall be in writing and, unless otherwise
specifically provided, shall be delivered personally, by prepaid telecopy or
similar means (with signed confirmed copy to follow by mail in the manner
provided below), or (except for quarterly statements provided for under Section
4.5 above which may be sent by regular mail) by registered or certified mail,
postage prepaid, or by delivery service for which a receipt is obtained, at the
following addresses for Grantor and Grantee, and shall be deemed delivered on
the date of receipt.
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If to Grantor:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Grantee:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Either party may specify an alternative address by giving notice to the other
party, in the manner provided in this Section 8.3.
8.4 FURTHER ASSURANCES. Grantor and Grantee agree to execute and
deliver to the other all such other and additional instruments, notices,
division orders, transfer orders and other documents and to do all such other
and further acts and things as may be necessary to more fully and effectively
grant, convey and assign to Grantee and to reserve to Grantor the rights,
titles, interests and estates conveyed to Grantee and reserved by Grantor
hereby or intended to be so conveyed and reserved.
8.5 COUNTERPARTS. This Assignment may be executed in multiple
originals, all of which are identical except that, for the convenience of
recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A and Exhibit B which include descriptions of
properties located in the
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recording jurisdiction in which the particular counterpart is being recorded.
All of such counterparts together shall constitute one and the same instrument.
8.6 BINDING EFFECT. All the covenants and agreements of Grantor
and Grantee herein contained shall be deemed to be covenants running with
Grantor's and Grantee's interest in the Subject Interests and the lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be binding upon, each of the parties hereto and their respective
successors and, subject to the provisions of this Section 8.6, their assigns.
Any sale, conveyance, assignment, sublease or other transfer of the Subject
Interests, or any interest therein or any part thereof, shall provide that the
assignee assume all of the obligations of the assignor with respect to the
interest so transferred, and unless the non-assigning party otherwise expressly
consents in writing, the assigning party shall also remain liable for the
discharge of its obligations.
8.7 PARTITION. Grantor and Grantee acknowledge that Grantor and
Grantee have no right or interest that would permit either to partition any
portion of the Subject Interests, and Grantor and Grantee waive any such right.
8.8 SPECIFIC PERFORMANCE. In addition to any other remedy which
Grantor may enjoy under this Agreement, at law or in equity, Grantor shall have
the right to seek and enforce the remedy of specific performance by Grantee of
its obligations under this Agreement.
8.9 EFFECTIVE DATE. This Assignment shall become effective for
all purposes as of 7:00 a.m. (at the respective locations of the Subject
Interests) on the Effective Date.
[the remainder of this page is intentionally blank]
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IN WITNESS WHEREOF, the parties have executed this Assignment
effective as of the Effective Date.
GRANTOR:
ORION ACQUISITION, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
Vice President
- - ------------------------------
Name: James M. Piccone
Title: Secretary
GRANTEE:
WATTENBERG GAS INVESTMENTS, LLC,
By its Manager, Fontenelle, Inc.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Gary L. Greenstein
Vice President
- - ------------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
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STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of Orion Acquisition,
Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc. in
its capacity as Manager of Wattenberg Gas Investments, LLC, a Delaware limited
liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
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SCHEDULE 1
SIDETRACK WELLBORE TERMS
1. DEFINITIONS:
"Sidetrack Wellbore" as used in this agreement shall mean and
include all down hole operations performed in an existing well (a "Well") in an
attempt to establish production through a sidetrack wellbore from a formation
in which the Well may or may not currently be completed.
2. EXPENSES OF SIDETRACK WELLBORES:
The costs and expenses of all Sidetrack Wellbore operations
shall be borne in accordance with the provisions of Section 12.6 of the
Purchase Agreement.
3. OWNERSHIP OF WELL AND EQUIPMENT:
The wellhead equipment and down hole equipment through the
depth where the Sidetrack Wellbore commences shall be owned equally by the
owners of the Sidetrack Wellbore and the Wellbore. The tubing and equipment
run on or in the tubing string shall be owned by the owners of the Well and/or
Sidetrack Wellbore being served by the tubing. The casing in the Well below
the depth where the Sidetrack Wellbore commences shall be owned by the owners
of the Well. The lease facilities shall be owned by the owners of the Well or
Sidetrack Wellbore being served thereby, and if both the Well and Sidetrack
Wellbore are being served, they shall be owned equally by such owners.
4. OPERATING RIGHTS OF OWNERS:
The rights, duties and obligations of the owners of Wells
containing a Sidetrack Wellbore, as set out in the operating or other
agreements governing the operation of such wellbores, are not changed, altered
or amended by these terms except as specifically provided herein.
(a) Subject to the further provisions hereof, the owners of a
Well and the owners of the associated Sidetrack Wellbore each have the right to
enter the Well. If the owners of a Sidetrack Wellbore desire to drill, operate
and maintain a Sidetrack Wellbore in the Well and such work will necessitate
the shutting in of the existing production in the Well, the owners of the Well
shall be given reasonable notice of such Sidetrack Wellbore and the estimated
number of days required to complete such work. Such notice shall be given
promptly, either before or after Sidetrack Wellbore drilling or rework
operations commence.
(b) Should a blowout, explosion, fire or other sudden
emergency occur during the course of drilling or rework of any
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Sidetrack Wellbore, the owners drilling such Sidetrack Wellbore shall, at their
expense, take such steps as are necessary to deal with the emergency and to
safeguard life and property, and shall, as promptly as possible, report the
emergency and the action taken to the owners of the Well.
(c) Should a blowout, explosion, fire or other sudden
emergency occur at any time other than during the course of drilling or rework
of a Sidetrack Wellbore, the cost of dealing with any such emergency shall be
borne equally by the owners of the Well and the Sidetrack Wellbore.
5. LIABILITIES OF THE OWNERS:
If a Sidetrack Wellbore is drilled in a Well, the liabilities
of the owners of the Well and the Sidetrack Wellbore shall be as follows:
(a) No liability shall be incurred by the owners of the
Sidetrack Wellbore for causing production to cease from the Well during the
time drilling or rework operations are being conducted on the Sidetrack
Wellbore, as long as such operations are conducted with diligence and without
unreasonable delay; provided, however that if the number of days required to
complete Sidetrack Wellbore operations results in a cessation of production
from the Well for a period greater than 90 days, the owners of the Sidetrack
Wellbore shall pay to the owners of the Well an amount equal to the lesser of
(i) the product of $0.15 multiplied by the average daily production rate from
the Well (in MMBTU/day) prior to the cessation of production for each day that
the Well does not produce after such 90-day period, or (ii) an amount equal to
the fair market value of the last 5% of the reserves associated with the Well
as of the date the Well was acquired by the owners of the Well, based on a
reserve evaluation conducted in accordance with the procedures of the
Securities and Exchange Commission and using an annual discount rate of 10%.
Such payment shall be made within 60 days of the date such obligation accrues.
As an alternative to making a payment under (i) or (ii) immediately above, the
owners of the Sidetrack Wellbore may exercise their rights under the Option to
Purchase Oil and Gas Interests between Orion Acquisition, Inc. and Wattenberg
Gas Investments, LLC and such exercise may be made without an obligation to
make any penalty payment thereunder.
(b) If the Sidetrack Wellbore drilling or rework operations
are continued for a period which might cause the termination of a lease being
maintained by production from the Well and any such lease terminates because of
the Sidetrack Wellbore operations, the owners of the Sidetrack Wellbore shall
be liable to the owners of the Well for an amount equal to the fair market
value of the last 5% of the reserves associated with the Well as of the date
the Well was acquired by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities and Exchange
Commission and
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using an annual discount rate of 10%. Such payment shall be made within 60
days of the date such obligation accrues. As an alternative to making a
payment under the foregoing provisions of this Section 5(b), the owners of the
Sidetrack Wellbore may exercise their rights under the Option to Purchase Oil
and Gas Interests between Orion Acquisition, Inc. and Wattenberg Gas
Investments, LLC and Wattenberg Gas Investments, LLC and such exercise may be
made without an obligation to make any penalty payment thereunder.
(c) If the Sidetrack Wellbore drilling operations disturb or
remove the means of separation of the reserves in the Well from the reserves to
be exploited from the Sidetrack Wellbore, or otherwise cause a permanent
cessation or reduction of production from the Well, the Operator shall, before
and after the operation, conduct a test of the Well for the purpose of
determining whether or not the producing capacity of the formation completed in
the Well has been impaired, by employing the procedure set forth as follows:
(1) The producing capacity of the Well shall be
determined by comparing the actual production before and after
the Sidetrack Wellbore drilling operations during the thirty
(30) days in which there was actual production immediately
before and after such operations, with the Well producing
under similar pressure differential and other conditions. If
the producing conditions or equipment size are different, an
appropriate applicable method as jointly agreed to by owners
of the Sidetrack Wellbore and the owners of the Well will be
utilized to determine the effect on deliverabilities which the
Sidetrack Wellbore drilling operations caused.
(2) If the producing capacity of the Well has been
reduced in excess of fifty percent (50%), and there is no
cause for such reduction other than the Sidetrack Wellbore
operations, damages will be deemed to have occurred. If
damage has occurred, the rights and liabilities between the
owners of the Sidetrack Wellbore and the owners of the Well
shall be adjusted in accordance with the following provisions
of this Section 5(c)(2), which adjustments shall constitute
the sole and exclusive remedies of the owners of the Well for
damage to the producing Well(s).
The owners of the Sidetrack Wellbore may, at their sole cost,
risk and expense, attempt to restore the Well to 50% or more
of its former capacity. If the attempt is unsuccessful, or if
no attempt is made, the owners of the Sidetrack Wellbore shall
pay damages to the owners of the Well in an amount equal to
the fair market value of the last 5% of the reserves
associated with the Well as of the date the Well was acquired
by the owners of
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the Well, based on a reserve evaluation conducted in
accordance with the procedures of the Securities and Exchange
Commission and using an annual discount rate of 10%. Such
payment shall be made within 60 days of the date such
obligation accrues. As an alternative to making a payment
under the foregoing provisions of this Section 5(c)(2), the
owners of the Sidetrack Wellbore may exercise their rights
under the Option to Purchase Oil and Gas Interests between
Orion Acquisition, Inc. and Wattenberg Gas Investments, LLC
and Wattenberg Gas Investments, LLC and such exercise may be
made without an obligation to make any penalty payment
thereunder.
6. CLASSIFICATION OF PAYMENTS
Any payment under Section 5 above, received by the owners of
the Well(s), shall not be considered as Gross Proceeds or Other Income for
purposes of the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated June 14, 1996 between Orion Acquisition, Inc. and
Wattenberg Gas Investments, LLC.
-4-
<PAGE> 69
SCHEDULE 2
PAYMENT SCHEDULE OF THE PRODUCTION PAYMENT
Date Payment Interest
- - --------------------------------------------------------------------------------
<PAGE> 70
EXHIBIT D
OPTION TO PURCHASE OIL AND GAS INTERESTS
This Option to Purchase Oil and Gas Interests (this "Option")
is granted effective as of June 1, 1996 (the "Effective Date") by Wattenberg
Gas Investments, LLC, a Delaware limited liability company, 82 Devonshire
Street, R22C, Boston, Massachusetts 02109 ("Grantor") to Orion Acquisition,
Inc., a Delaware corporation, 1999 Broadway, Suite 3600, Denver, Colorado 80202
("Grantee").
For $10.00 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Grantor grants and
conveys to Grantee the exclusive and irrevocable option to purchase from time
to time all or any portion of the following (the "Subject Interests") upon the
terms and conditions set forth herein (the "Option"):
A. All of Grantor's right, title and interest
in and to the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the right to
produce the wells described in Exhibit B from the intervals in
such wells identified in Exhibit B as of the Option Effective
Date (the above described interests in such leases being
herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions,
limitations, burdens, contracts, agreements and other matters
applicable to the Leases and the Wells, and excluding such
portion of the Leases and the Wells which were not conveyed to
Grantor because of Defective Interests or which were
determined to be Excluded Assets (as such terms are defined in
the Purchase and Sale Agreement (Tax Partnership Properties)
between Grantor and Grantee dated June 14, 1996 (the "Purchase
Agreement"), and such exclusions being referred to herein as
the "Reserve Reductions");
B. The right, title and interest of Grantor in
and to overriding royalty interests in the Leases insofar and
only insofar as the Leases cover the wellbores associated with
the Wells from the producing intervals identified in Exhibit
B;
C. To the extent affected, the right, title and
interest of Grantor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization, pooling,
operating and communitization agreements, declarations and
orders affecting the Leases and Wells, and in and to the
properties covered and the units created thereby;
D-1
<PAGE> 71
D. To the extent affected, the right, title and
interest of Grantor in and to the personal property and
fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and
other personal property and oil field equipment appurtenant to
such Wells; provided, however, that Grantor shall remain
co-owner of any personal property appurtenant to any property
owned by Grantor that is not exclusively part of the Wells;
E. To the extent affected, the right, title and
interest of Grantor in and to and under, or derived from, the
presently existing and valid gas sales, purchase, gathering
and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way,
easements, permits and surface leases and other contracts,
agreements and instruments (but specifically excluding any
management agreements), only in relevant part to the extent
and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in item C above; provided, however,
that Grantor shall remain co-owner of any agreements,
including unitization and pooling agreements, if they pertain
to any property owned by Grantor that is not exclusively part
of the Leases or Wells.
1. EXERCISE OF THE OPTION. The Option may be exercised
as follows:
a. PRIOR TO JANUARY 1, 2003. From the date
of this Option until January 1, 2003, Grantee has the right to exercise the
Option, without penalty, one or more times to purchase up to a cumulative total
of 15% of the Subject Interests (by volume of the sum of the estimated reserves
for such Subject Interests under the Reserve Report, less Reserve Reductions,
if any (such difference, the "Total Reserves")). If Grantee exercises the
Option to purchase a portion of the Subject Interests and such portion by
itself, or when added to any other portion of the Subject Interests previously
purchased by Grantee pursuant to an earlier exercise of the Option, exceeds 15%
of the Subject Interests by volume of the Total Reserves then, in addition to
the Option Price, Grantee shall pay to Grantor a penalty payment as set forth
below, subject to certain exceptions. At the time Grantee exercises the Option
and for the first time a cumulative total of more than 15% of the Subject
Interests have been or are to be repurchased, then the penalty payment shall be
determined based on the cumulative total of the Subject Interests purchased.
If the Grantee exercises the Option again for an additional incremental group
of Subject Interests, then the penalty payment shall be determined based on the
incremental Subject Interests purchased.
D-2
<PAGE> 72
(1) Penalty Payment Before 2000.
If the Option Effective Date is on or before December 31,
1999, Grantee shall pay to Grantor an amount equal to the
product obtained by multiplying $130,000 by a fraction, the
numerator of which is the sum of the volume of estimated
reserves for the Subject Interests (as set forth in the
Reserve Report, less applicable Reserve Reductions) which
Grantee desires to purchase and the denominator of which is
the volume of Total Reserves (the "Reserve Fraction").
(2) Penalty Payment, 2000 through
2002. If the Option Effective Date is between January 1, 2000
and December 31, 2002, Grantee shall pay to Grantor an amount
equal to the product obtained by multiplying $90,000 by the
applicable Reserve Fraction.
The foregoing penalty payment amounts shall not be payable if Grantee exercises
the Option on or before December 31, 2002 in its entirety with respect to
paragraphs (i) through (vii) below, or in part with respect to paragraphs (vi)
and (vii) below, in each case which it may do from time to time, because:
(i) Credit Payment Amounts (as defined in the
Purchase Agreement) are no longer paid or
credited to Grantee;
(ii) a Tax Audit (as defined in the Purchase
Agreement) has commenced and Grantor has not
waived its right to an escrow pursuant to
Section 8.3 of the Purchase Agreement;
(iii) the Management Agreement dated effective as
of the Effective Date between an affiliate
of Grantor and Grantee, or any successor
agreement (the "Management Agreement") is
terminated (other than by, or on
account of a breach thereof by, Grantee),
is held invalid or void, or Grantor's
affiliate or its successors or assigns
fails to perform thereunder;
(iv) Grantor breaches the Purchase Agreement or
any agreement contemplated thereunder, which
breach if uncured would have a material
adverse effect on Grantee and which has not
been cured by Grantor within 60 days of
receipt of a written notice from Grantee of
such breach;
(v) payments remain unsatisfied for a period
exceeding 60 days under one or both of the
Contribution Agreements or one or both of
D-3
<PAGE> 73
the Guaranty Agreements contemplated by the
Ratification of Obligations under the
Purchase Agreement;
(vi) Grantor denies approval of certain
operations on the Subject Interests in
accordance with Section 2.1(p) or (q) of the
Management Agreement and Grantee elects to
exercise the Option on the properties
affected by the proposed operations rejected
by Grantor; and
(vii) an aggregate of $600,000 in Credit Payment
Amounts under the Purchase Agreement has
been credited or paid to Grantee.
Exercises of the Option by Grantee pursuant to paragraph (vi) or (vii) above
shall not be counted towards the cumulative total of 15% of the Subject
Interests in Paragraph 1.a.
Notwithstanding anything herein provided to the contrary, prior to December 31,
1997, Grantee agrees that it will not exercise the Option and purchase the
Subject Interests so that Grantee may enter into a transaction with a third
party under a substantially similar arrangement as the transaction contemplated
by the Purchase Agreement for the primary purpose of monetizing the tax credits
under Section 29 of the Internal Revenue Code, as amended from time to time
(the "Code"), attributable to production from the Subject Interests at a more
favorable rate. If Grantee breaches its agreement set forth in the immediately
preceding sentence, Grantee shall be obligated to pay Grantor all profits
received by Grantee from such third party as a result of the consummation of
such transaction with the third party.
b. ON OR AFTER JANUARY 1, 2003 UNTIL
JANUARY 1, 2005. From January 1, 2003 until January 1, 2005, Grantee has the
right to exercise the Option one time to purchase the remaining Subject
Interests as an entirety without penalty for the associated Option Price.
c. PARTIAL EXERCISE LIMITED. Grantee may
not exercise the Option to purchase in the aggregate more than 25% of the Total
Reserves unless Grantee exercises the Option as to all of the Subject
Interests; provided, however that this limitation shall not apply to exercises
of the Option contemplated by Paragraphs 1.a.(vi) and (vii) above.
d. MINIMUM PAYMENT. If the Option is
exercised by Grantee, from time to time, on or prior to December 31, 1998,
Grantee shall pay to Grantor a payment equal to (i) $230,000, if the Option is
exercised in full, or (ii) $230,000 multiplied by the Reserve Fraction if the
Option is exercised in part, which amount shall apply to, and be a direct
off-set of, the Option Price for all purchased Subject Interests.
D-4
<PAGE> 74
In no event shall the aggregate of payments under the immediately preceding
sentence ever exceed $230,000. The penalties set forth in Paragraph 1.a. are
in addition to the minimum payment set forth in the immediately preceding
sentence.
2. OPTION TERM. The Option shall terminate on January
1, 2005 (the "Option Term").
3. METHOD OF EXERCISE. To exercise the Option within
the Option Term, Grantee must deliver written notice of such exercise,
delivered personally, by prepaid telecopy or similar means (with signed
confirmed copy to follow by mail in the manner provided below), or by
registered or certified mail, postage prepaid, or by delivery service for which
a receipt is obtained, at the addresses set forth below, and shall be deemed
delivered on the date of receipt.
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Grantor may specify an alternative address by giving written notice to Grantee
of such change.
4. OPTION EFFECTIVE DATE. The effective date of a
purchase of all or any portion of the Subject Interests pursuant to the Option
(the "Option Effective Date") shall be the first day of the month following the
date Grantor receives the notice of exercise of the Option specifying the
Subject Interests which Grantee desires to purchase pursuant to such exercise
of the Option.
D-5
<PAGE> 75
5. OPTION PRICE. The purchase price (the "Option
Price") for the Subject Interests, or any portion thereof, shall be the
appraised current fair market value of the Subject Interests in question as of
the Option Effective Date. Unless Grantor and Grantee agree otherwise, the
appraised fair market value of the Subject Interests in question shall be the
present value as of the Option Effective Date of the future net revenue
estimated to be received therefrom, determined in accordance with generally
accepted engineering principles in effect at the time, by Williamson Petroleum
Consultants, Inc. or some other nationally recognized petroleum engineering
firm agreed upon by Grantor and Grantee. The price of natural gas used in the
forecast shall be based on an unescalated average gas price for the most recent
12-month period, as quoted in the first monthly publication of Inside FERC's
Gas Market Report for the Colorado Interstate Gas Co. ("CIG") Index (or a
mutually agreeable substitute index if such index is no longer published), less
an unescalated average gathering and transportation cost from wellhead to the
CIG mainline for the most recent 12-month period, multiplied by a BTU/SCF
factor appropriate to the affected properties; the price of hydrocarbon liquids
used in the forecast shall be based on the unescalated actual price received on
the Subject Interests during the most recent 12- month period; and the costs
used in the forecast shall be the unescalated average of the monthly costs
attributable to the Subject Interests in question during the most recent
12-month period preceding the Option Effective Date. The discount rate to be
applied shall be the 6-month London Interbank Offered Rate in effect on the
date on which the fair market value determination is made plus 6%.
6. TERMS OF PURCHASE. Upon the closing of the purchase
of all or any portion of the Subject Interests pursuant to an exercise of the
Option, Grantee shall be entitled to receive the proceeds, accounts receivable,
income, revenues, monies and other items attributable to the Subject Interests
in question from and after the Option Effective Date in question and same shall
be paid over to Grantee, and Grantee shall be liable to pay the expenses
attributable to the Subject Interests in question from and after the Option
Effective Date in question. Subject to the terms of the Assignment, Grantor
shall be entitled to receive the production from the Subject Interests in
question prior to the Option Effective Date in question and shall be liable to
pay the expenses attributable to the Subject Interests in question prior to the
Option Effective Date in question. Upon the closing of the purchase of all or
any portion of the Subject Interests pursuant to an exercise of the Option,
Grantee shall assume all obligations and liabilities attributable to the
ownership or operation of the Subject Interests in question on and after the
Option Effective Date in question, including the contractual and regulatory
obligations in connection with the Subject Interests in question, and Grantee
shall defend, indemnify and hold harmless Grantor (and its successors, assigns,
members, officers, managers (including the employees, representatives, agents,
successors and assigns of such members),
D-6
<PAGE> 76
employees, representatives, agents and consultants) from and against all
claims, demands, actions, obligations, liabilities and expenses (including
reasonable attorney, consultant and expert witness fees) arising from such
obligations and liabilities assumed by Grantee hereunder.
7. PAYMENT AND CLOSING. The closing of a purchase
pursuant to an exercise of the Option shall occur at the offices of Grantee at
9:00 a.m., on a mutually agreed upon business day no later than 30 days from
the date Grantor receives the notice of an exercise of the Option. At the
closing, Grantee shall deliver by wire transfer of immediately available U.S.
funds, to the account designated by Grantor, the Option Price for the Subject
Interests in question, and Grantor shall deliver to Grantee an assignment fully
executed and in recordable form of the Subject Interests in question dated
effective as of the Option Effective Date in question and in form and substance
reasonably satisfactory to Grantee with warranty of title as to all matters
arising by, through or under Grantor, but not otherwise.
8. GOVERNING LAW. The validity, effect and construction
of this Option shall be governed by the law of the State of Colorado, without
reference to its conflict of laws provisions.
9. SPECIFIC PERFORMANCE. In addition to any other
remedy which Grantee may enjoy under this Option, at law or in equity, Grantee
shall have the right to seek and enforce the remedy of specific performance by
Grantor of its obligations under this Option.
10. FURTHER ASSURANCES. Grantor and Grantee agree to
execute and deliver to the other all such other and additional instruments,
notices, division orders, transfer orders and other documents and to do all
such other and further acts and things as may be necessary to more fully and
effectively grant, convey and assign to Grantee the rights, titles, interests
and estates conveyed to Grantee hereby or intended to be so conveyed.
11. COUNTERPARTS. This Option may be executed in
multiple originals, all of which are identical except that, for the convenience
of recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A which include descriptions of properties located
in the recording jurisdiction in which the particular counterpart is being
recorded. All of such counterparts together shall constitute one and the same
instrument.
D-7
<PAGE> 77
IN WITNESS WHEREOF, the parties have executed this Option
effective as of the Effective Date.
GRANTOR:
Wattenberg Gas Investments, LLC
By: its Manager, Fontenelle, Inc.
Attest: By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
- - -----------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
GRANTEE:
Orion Acquisition, Inc.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
- - -----------------------------
Name: James M. Piccone
Title: Secretary
D-8
<PAGE> 78
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, in her capacity as Vice President of
Orion Acquisition, Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware Corporation, in its capacity as Manager of Wattenberg Gas Investments,
LLC, a Delaware limited liability company on behalf of the company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
D-9
<PAGE> 79
EXHIBIT E
RESERVE REPORT
SEE ATTACHED
E-1
<PAGE> 80
EXHIBIT F
PREFERENTIAL RIGHTS AND CONSENTS
WELL NAME AGREEMENT RESPONSE
--------- --------- --------
F-1
<PAGE> 81
EXHIBIT G
PREPAYMENTS
NONE
G-1
<PAGE> 82
EXHIBIT H
GAS IMBALANCES
NONE
H-1
<PAGE> 83
EXHIBIT I
OPERATIONS IN PROGRESS
NONE
I-1
<PAGE> 84
EXHIBIT J
HYDROCARBON SALES CONTRACTS
1. Gas Purchase and Sale Agreement, No. 122585, dated 1-1-89,
with Amoco Production Company.
2. Gas Purchase and Sale Agreement, No. 146740 (NIE Prospect),
dated 2-19-92, with Amoco Production Company.
3. Gas Purchase and Processing Agreement, No. GPA.001.S (SPI
Prospect), dated 11-8-91, with PanEnergy Field Services
(formerly ANGI).
4. Gas Purchase and Processing Agreement, No. GPA.005.EV (SUN
Prospect), dated 5-12-86, with PanEnergy Field Services
(formerly ANGI).
5. Gas Purchase and Processing Agreement, No. GPA.014.KP, dated
1-18-84, with PanEnergy Field Services (formerly ANGI).
6. Gas Purchase and Processing Agreement, No. GPA.015.K, dated
1-18-84, with PanEnergy Field Services (formerly ANGI).
7. Gas Purchase and Processing Agreement, No. GPA.020.S (SPI
Prospect), dated 7-28-93, with PanEnergy Field Services
(formerly ANGI).
8. Gas Purchase and Processing Agreement, No. GPA.021.L, dated
10-18-84, with PanEnergy Field Services (formerly ANGI).
9. Gas Purchase and Processing Agreement, No. GPA.024.S (MARTIN
Prospect), dated 12-1-92, with PanEnergy Field Services
(formerly ANGI).
10. Gas Purchase and Processing Agreement, No. GPA.025.L (SUN
Prospect), dated 7-18-83, with PanEnergy Field Services
(formerly ANGI).
11. Gas Purchase and Processing Agreement, No. GPA.027.BT (SUN
Prospect), dated 7-24-85, with PanEnergy Field Services
(formerly ANGI).
12. Gas Purchase and Processing Agreement, No. GPA.035.BT, dated
10-23-85, with PanEnergy Field Services (formerly ANGI).
J-1
<PAGE> 85
13. Gas Purchase and Processing Agreement, No. GPA.046.K (SUN
Prospect), dated 1-30-85, with PanEnergy Field Services
(formerly ANGI).
14. Gas Purchase and Processing Agreement, No. GPA.047.E (SUN
Prospect), dated 8-20-85, with PanEnergy Field Services
(formerly ANGI).
15. Gas Purchase and Processing Agreement, No. GPA.053.E (SUN
Prospect), dated 10-31-85, with PanEnergy Field Services
(formerly ANGI).
16. Gas Purchase and Processing Agreement, No. GPA.055.E (SUN
Prospect), dated 10-30-85, with PanEnergy Field Services
(formerly ANGI).
17. Gas Purchase and Processing Agreement, No. GPA.057.K, dated
1-23-85, with PanEnergy Field Services (formerly ANGI).
18. Gas Purchase and Processing Agreement, No. GPA.079.K, dated
10-23-85, with PanEnergy Field Services (formerly ANGI).
19. Gas Purchase and Processing Agreement, No. GPA.094.K (SUN
Prospect), dated 8-20-85, with PanEnergy Field Services
(formerly ANGI).
20. Gas Purchase and Processing Agreement, No. GPA.106.K (SUN
Prospect), dated 10-31-85, with PanEnergy Field Services
(formerly ANGI).
21. Gas Purchase and Processing Agreement, No. GPA.111.K dated
1-7-86, with PanEnergy Field Services (formerly ANGI).
22. Gas Purchase and Processing Agreement, No. GPA.186.K (SUN
Prospect), dated 3-13-89, with PanEnergy Field Services
(formerly ANGI).
23. Gas Purchase and Processing Agreement, No. GPA.187.K (SUN
Prospect), dated 3-13-89, with PanEnergy Field Services
(formerly ANGI).
24. Gas Purchase and Processing Agreement, No. GPA.232.K (NIE
Prospect), dated 10-12-90, with PanEnergy Field Services
(formerly ANGI).
25. Gas Purchase and Processing Agreement, No. GPA.233.K (BYR
Prospect), dated 10-12-90, with PanEnergy Field Services
(formerly ANGI).
J-2
<PAGE> 86
26. Gas Purchase and Processing Agreement, No. GPA.289.K (ALA
Prospect), dated 11-30-93, with PanEnergy Field Services
(formerly ANGI).
27. Gas Purchase and Sale Agreement (ALA Prospect), dated
10-29-93, with PanEnergy Field Services (formerly ANGI).
28. Gas Purchase and Sale Agreement (NIE Prospect), dated
11-10-78, with KN Gas Marketing (formerly PEPL).
29. Gas Purchase and Sale Agreement (NIE Prospect), dated 8-1-87,
with Vessels Oil and Gas Company.
30. Gas Processing Agreement (MAR Prospect), dated 3-13-75, with
Amoco Production Company.
31. Gas Processing Agreement (unsigned) with Vessels Oil and Gas
Company.
32. Spot Sales Agreement to 2-28-96 (unsigned) with VESGAS.
33. Crude Oil Purchase Agreement, No. P-930116, dated 1-5-93, with
PanEnergy Trading & Transportation (ATTCO).
34. Crude Oil Purchase Agreement (STR Prospect), dated 10-20-94,
with Scurloch Permian Corporation.
35. Master Swap Agreement dated 3-26-96 between Wattenberg
Resources Land, L.L.C.
J-3
<PAGE> 87
EXHIBIT K
LEGAL PROCEEDINGS
1. During 1994, HS Resources, Inc. (the "Company") was named as a
defendant, in addition to three other companies, in an action brought by
certain landowners in Colorado. The action challenges certain mineral
reservations of one of the Company's assignor in its original surface
conveyance involving two small tracts of the Company's minerals.
2. In February of 1995, the Company was named as one of many
defendants in a suit brought by several royalty owners in Northeast Colorado
seeking royalty payments on certain deductions from gas sales.
3. Potential claims of royalty owners in wells in the Spindle
Field for underpayment of royalty during the period of ownership of the
Company's assignor, based on the differential in price paid for gas produced
from the Spindle Field and gas produced from other fields or properties in the
area.
4. Participation in Joint Defense Agreement, and potential
participation in clean-up or payment of costs, damages or penalties related to
claims made by the United States Environmental Protection Agency against Weld
County Waste Disposal et al.
5. Potential claims of Northern Natural Gas or Gerrity Oil and
Gas Corporation against one of the Company's assignors for ceasing operation of
the natural gas pipeline located in Superior, Colorado based on a determination
that the line was no longer safe or economic.
6. Audit by Rockport-Essex relative to payment of royalties in
Spindle Field.
While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of any of these matters will have a material impact on its
financial condition or the results of operations.
K-1
<PAGE> 88
EXHIBIT L
TAX PARTNERSHIPS
1. Amended Tax Partnership Agreement between Basin Exploration,
Inc. and Amoco Production Company, made a part of the First
Amendment to Farmout Agreement dated October 15, 1992.
L-1
<PAGE> 89
EXHIBIT M
NO NGPA CERTIFICATE FILED
M-1
<PAGE> 90
EXHIBIT N
NON-FOREIGN OWNERSHIP AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a
buyer of a United States real property interest must withhold tax if the seller
is a foreign person. To inform Wattenberg Gas Investments, LLC (the "Buyer")
that withholding of tax is not required upon the disposition of a United States
real property interest owned by Orion Acquisition, Inc. (the "Seller"), the
undersigned hereby certifies the following on behalf of Seller:
1. The Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, or
foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The United States employer/taxpayer identification
number of the Seller is 93-1200453; and
3. Seller's address is:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Seller understands that this affidavit may be disclosed to the Internal Revenue
Service by the Buyer and any false statement contained herein may be punished
by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
affidavit and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of Seller.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
N-1
<PAGE> 91
Subscribed and sworn before me this 14th day of June, 1996.
-----------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - ----------------------
N-2
<PAGE> 92
NON-FOREIGN OWNERSHIP AFFIDAVIT
SEE ATTACHED FORM - DR 1083
REGARDING
COLORADO REAL PROPERTY WITHHOLDING TAX
N-3
<PAGE> 93
EXHIBIT O
RATIFICATION OF OBLIGATIONS
THIS RATIFICATION OF OBLIGATIONS (this "Ratification") dated
June 14, 1996, but effective June 1, 1996 is entered into by FMR Corp., a
Massachusetts corporation ("FMR"), State Street Boston Corporation, a
Massachusetts corporation ("State Street"), Fontenelle, Inc., a Delaware
corporation and affiliate of FMR ("Fontenelle"), Bald Prairie, Inc., a Delaware
corporation and affiliate of FMR ("Bald Prairie"), and SSB Investments, Inc., a
Massachusetts corporation and affiliate of State Street ("SSBI"). FMR, State
Street, Fontenelle, Bald Prairie and SSBI are collectively referred to herein
as the "Parties," and singularly as a "Party."
Recitals
A. Fontenelle, Bald Prairie and SSBI are members (the
"Members") of Wattenberg Gas Investments, LLC, a Delaware limited liability
company ("WGI"), in accordance with the terms of the Operating Agreement of WGI
dated as of November 8, 1995, and amended and restated April 25, 1996, May 21,
1996 and June 14, 1996 (the "LLC Agreement").
B. Pursuant to Article 3 of the LLC Agreement, the
Members are obligated to make certain capital contributions with respect to
WGI.
C. WGI entered into (i) that certain Purchase and Sale
Agreement dated December 1, 1995 with HS Resources, Inc. ("HS") (the "Original
Purchase Agreement"), as amended by that First Amendment to Purchase and Sale
Agreement, Assignment, Option, Management Agreement, Gas Purchase Agreement and
Limited Power of Attorney dated April 25, 1996 (the "First Amendment"), and
(ii) that certain Purchase and Sale Agreement dated May 21, 1996 with
Wattenberg Resources Land, L.L.C. (the "WRL Agreement"), whereby WGI acquired
certain oil and gas interests located in Colorado. WGI has negotiated a
Purchase and Sale Agreement (Tax Partnership Properties) dated June 14, 1996
(including all exhibits, schedules, related documents and conveyances, the
"Agreement") with Orion Acquisition, Inc., a Delaware corporation ("Orion") to
acquire certain additional oil and gas interests located in Colorado, as
further described on the attached Exhibit A and Exhibit B (the "Assets").
D. Pursuant to the Original Purchase Agreement,
Fontenelle and Bald Prairie executed a Contribution Agreement with WGI dated
December 14, 1995 (the "FMR Contribution Agreement"), wherein they agreed to
contribute funds to WGI in accordance with the LLC Agreement. FMR entered into
a Guaranty Agreement with WGI dated December 14, 1995 (the "FMR Guaranty")
O-1
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to guarantee the payment and performance of the obligations of Fontenelle and
Bald Prairie under the FMR Contribution Agreement.
E. Pursuant to the Original Purchase Agreement, SSBI
executed a Contribution Agreement with WGI dated December 14, 1995 (the "SS
Contribution Agreement"), wherein it agreed to contribute funds to WGI in
accordance with the LLC Agreement. By an Assignment of Contribution
Obligations dated December 14, 1995, SSBI acknowledged an assignment of the SS
Contribution Agreement from WGI to HS. State Street entered into a Guaranty
Agreement with WGI dated December 14, 1995 (the "SS Guaranty") to guarantee the
payment and performance of SSBI's obligations under the SS Contribution
Agreement. By an Assignment of Guaranty Rights dated December 14, 1995, State
Street acknowledged an assignment of the SS Guaranty from WGI to HS.
F. The Parties entered into a Ratification of
Obligations dated April 25, 1996 regarding matters covered by the First
Amendment and providing for certain amendments to the FMR Contribution
Agreement. The Parties also entered into a Ratification of Obligations dated
May 21, 1996 regarding matters covered by the WRL Agreement.
G. To induce WGI to enter into the Agreement, the
Parties desire to ratify and amend their respective obligations under the FMR
Contribution Agreement, as amended, the FMR Guaranty, the SS Contribution
Agreement and the SS Guaranty which were given with respect to the Original
Purchase Agreement, the First Amendment and the WRL Agreement and to provide
that the Assets will be covered by the terms of such documents. The Parties
desire to provide for an Assignment of Contribution Obligations and an
Assignment of Guaranty Rights, and their respective acknowledgments, if any,
thereunder, to assign such obligations and rights with respect to the Assets to
Orion and to allow for the assignment of such obligations and rights to HS.
NOW THEREFORE, in consideration of the mutual benefits the
Parties will each receive as a result of WGI entering into the Agreement, the
Parties each respectively agree as follows:
1. Ratification. The Parties hereby ratify and amend
their respective individual and joint, if any, obligations under (i) the FMR
Contribution Agreement, as amended, (ii) the FMR Guaranty, (iii) the SS
Contribution Agreement, and (iv) the SS Guaranty, as such documents apply to
the Agreement, in the same manner and to the same extent as contemplated in
such documents apply to (1) the Original Purchase Agreement, as amended by the
First Amendment, and (2) the WRL Agreement.
2. Assignment of Rights. To the extent and in the
capacity so provided, the Parties agree to execute and acknowledge, as
appropriate, the Assignment of Contribution Obligations and the Assignment of
Guaranty Rights attached hereto (the "Assignments").
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3. No Conditions. Each Party represents as to itself
that (i) there are no conditions precedent to the effectiveness of this
Ratification and the Assignments that have not been satisfied or waived, (ii)
this Ratification and the Assignments have been duly authorized by all
necessary corporate action, (iii) this Ratification, and the Assignments if
applicable, is/are binding upon and enforceable against the Party, and (iv)
that the undersigned officer of the Party has determined that this
Ratification, and the Assignments if applicable, may reasonably be expected to
benefit, directly or indirectly, the Party.
4. Counterparts. This Ratification may be executed in
one or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each Party.
5. Governing Law. This Ratification shall be governed
by and construed in accordance with the law of the Commonwealth of
Massachusetts, without reference to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the Parties have caused this Ratification
to be duly executed and delivered by their respective duly authorized
representatives as of the date first written above.
FMR CORP. STATE STREET BOSTON CORPORATION
By: By:
----------------------------------- -----------------------------------
Name: Gary L. Greenstein Name: William M. Reghitto
Title: Vice President Title: Vice President
FONTENELLE, INC. SSB INVESTMENTS, INC.
By: By:
----------------------------------- -----------------------------------
Name: Gary L. Greenstein Name: Susan A. Feig
Title: Vice President Title: Vice President
BALD PRAIRIE, INC.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
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<PAGE> 96
ASSIGNMENT OF CONTRIBUTION OBLIGATIONS
This Assignment of Contribution Obligations (this
"Assignment") dated June 14, 1996, and effective as of June 1, 1996, is by and
between Wattenberg Gas Investments, LLC, a Delaware limited liability company
("WGI") and Orion Acquisition, Inc., a Delaware corporation ("Orion").
1. As used herein, the term "Contribution Agreement"
shall mean the Contribution Agreement by and between SSB Investments, Inc., a
Massachusetts corporation ("SSBI") and WGI dated December 14, 1995, setting
forth the obligation of SSBI to contribute funds to WGI subject to the limits
as provided therein.
2. WGI has incurred or will incur certain obligations to
Orion under the Purchase and Sale Agreement (Tax Partnership Properties) dated
June 14, 1996 between Orion and WGI (the "Purchase Agreement").
3. WGI hereby assigns to Orion all of WGI's right, title
and interest under the Contribution Agreement with respect to the Assets
contemplated under the Purchase Agreement. SSBI hereby acknowledges the
foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of Orion and WGI and their respective successors and assigns.
Orion may assign all of its right, title and interest under this Assignment to
HS Resources, Inc., a Delaware corporation, provided that such an assignment
shall not be effective until WGI and SSBI are given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
ORION ACQUISITION, INC.
By:
-----------------------------------
Acknowledged: Annette Montoya, Vice President
SSB INVESTMENTS, INC.
By:
-----------------------------
Susan A. Feig, Vice President
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ASSIGNMENT OF GUARANTY RIGHTS
This Assignment of Guaranty Rights (this "Assignment") dated
June 14, 1996, and effective as of June 1, 1996, is by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company ("WGI") and Orion
Acquisition, Inc., a Delaware corporation ("Orion").
1. As used herein, the term "Guaranty Agreement" shall
mean the Guaranty Agreement by and between State Street Boston Corporation, a
Massachusetts corporation ("SSBC") and WGI dated December 14, 1995, setting
forth the guarantee by SSBC of the performance of the obligations of SSB
Investments, Inc., a Massachusetts corporation, under the Contribution
Agreement dated as of December 14, 1995 between SSB Investments, Inc. and WGI.
2. WGI hereby assigns to Orion all of WGI's right, title
and interest to the Guaranty Agreement with respect to the Assets covered by
the Purchase and Sale Agreement (Tax Partnership Properties) dated June 14,
1996 between WGI and Orion.
3. SSBC hereby acknowledges the foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of Orion and WGI and their respective successors and assigns.
Orion may assign all of its right, title and interest under this Assignment to
HS Resources, Inc., a Delaware corporation, provided that such an assignment
shall not be effective until WGI and SSBC are given written notice thereof.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
ORION ACQUISITION, INC.
By:
-----------------------------------
Annette Montoya
Acknowledged: Vice President
STATE STREET BOSTON CORPORATION
By:
-----------------------------------
William M. Reghitto, Vice President
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<PAGE> 98
EXHIBIT P
SELLER'S OFFICER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Annette Montoya, in her capacity as Vice President of Orion Acquisition, Inc.,
who, after being duly sworn, did state as follows:
1. This certificate is being given pursuant to Section 11.9 of
that certain Purchase and Sale Agreement (Tax Partnership
Properties) dated June 14, 1996 ("Agreement") between Orion
Acquisition, Inc. ("Seller") and Wattenberg Gas Investments,
LLC ("Buyer"). Unless defined otherwise, the capitalized
terms used herein shall have the meaning set forth in the
Agreement.
2. All of the representations and warranties of Seller contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Seller in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Seller has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it prior to the Closing Date.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
Subscribed and sworn before me June 14, 1996.
---------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - ----------------------
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EXHIBIT Q
Form of Opinion on Behalf of Seller
June 14, 1996
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, MA 02109
Attn: Roger D. Tullberg
Ladies and Gentlemen:
I am General Counsel to HS Resources, Inc. ("HS") and its
wholly-owned subsidiary Orion Acquisition, Inc. ("Orion") (collectively, the
"Companies" and singularly, a "Company"). In my capacity as General Counsel
for the Companies, I am familiar with the provisions of the Purchase and Sale
Agreement (Tax Partnership Properties) dated June 14, 1996 between Orion
Acquisition, Inc. and Wattenberg Gas Investments, LLC, to which HS and Orion
are signatories (the "Agreement").
I have examined the Agreement, the Assignment, the Option and
the Management Agreement (as such terms are defined in the Agreement) and the
other documents and instruments affecting the Companies with respect to the
transactions contemplated by the Agreement (collectively the "Documents"), and
have made such other factual and legal investigations as I have deemed
necessary.
In examining and reviewing the Documents, I have assumed (i)
the genuineness of all signatures and (ii) the due authorization, execution,
and delivery by parties to the Documents other than the Companies.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. Each Company is a corporation duly organized and validly
existing under the laws of the State of Delaware, and is duly qualified to
carry on its business, and is in good standing, in the States of Delaware and
Colorado and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse impact on the Assets or the
transactions contemplated by the Agreement.
2. Each Company has all requisite corporate power and
authority to carry on its business as presently conducted, to execute the
Agreement and each of the documents contemplated to be executed by the Company
at Closing, and to perform its obligations under the Agreement and under such
documents. The
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obligations of each Company contemplated by the Agreement and each of the
documents contemplated to be executed by the Company at Closing will not
violate, nor be in conflict with, (i) any provision of the Company's
certificate of incorporation, bylaws or governing documents, (ii) any material
agreement or instrument to which the Company is a party or is bound, or (iii)
any judgment, decree, order, statute, rule or regulation applicable to the
Company; provided that, the Companies have or have covenanted to use reasonable
efforts to secure (a) consents of or filings with the United States Department
of Interior or the applicable state agencies or authorities in connection with
the assignment of any federal or state leases or any interest therein
("Governmental Consents"), (b) waivers of preferential rights to purchase all
or any portion of the Assets and consents to or notices of assignment necessary
to convey all or any portion of the Assets which are not Governmental Consents,
and (c) waivers of maintenance of uniform interest provisions in applicable
operating agreements.
3. The execution, delivery and performance of the Agreement
and each of the documents contemplated to be executed by the Companies at
Closing and the transactions contemplated thereby have been duly and validly
authorized by all requisite corporate action on the part of each Company.
4. The Agreement has been duly executed and delivered on
behalf of each Company, and all documents and instruments required thereunder
to be executed and delivered by the Companies have been duly executed and
delivered. Based on and assuming the application of Colorado law, the
Agreement and the other Documents to which the Companies are signatories do and
shall, constitute legal, valid and binding obligations of the Companies
enforceable in accordance with their terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application with respect to creditors, (ii) general principles of
equity, and (iii) the power of a court to deny enforcement of remedies
generally based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter states my opinion on the points
covered if the substantive law of Colorado were applied, even though certain of
the Documents may be governed by the law of other jurisdictions. No opinion is
given as to the effect of the application of such other laws.
B. This opinion letter is rendered solely for the use
and benefit of FMR Corp., State Street Boston Corporation, their respective
affiliates, and Wattenberg Gas Investments, LLC and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without my prior
written consent.
<PAGE> 101
C. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Companies' attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
HS RESOURCES, INC.
James M. Piccone
General Counsel
<PAGE> 102
EXHIBIT R
BUYER'S MANAGER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Gary L. Greenstein, a Vice President of Fontenelle, Inc., in its capacity as
Manager of Wattenberg Gas Investments, LLC, who, after being duly sworn, did
state as follows:
1. This certificate is being given pursuant to Section 11.11 of
that certain Purchase and Sale Agreement (Tax Partnership
Properties) dated June 14, 1996 ("Agreement") between Orion
Acquisition, Inc. ("Seller") and Wattenberg Gas Investments,
LLC ("Buyer"). Unless defined otherwise, the capitalized
terms used herein shall have the meaning set forth in the
Agreement.
2. All of the representations and warranties of Buyer contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Buyer in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Buyer has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it on or as of the Closing Date.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
Subscribed and sworn before me June 17, 1996.
---------------------------------------
Notary Public in and for
the Commonwealth of Massachusetts
Name:
My Commission Expires: Address:
- - ----------------------
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EXHIBIT S
Form of Opinions on Behalf of Buyer
June 14, 1996
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Re: Wattenberg Gas Investments, LLC
Ladies and Gentlemen:
I am Associate General Counsel to FMR Corp. ("FMR"). In my
capacity as Associate General Counsel, I am familiar with the transactions
contemplated by the Purchase and Sale Agreement (Tax Partnership Properties)
dated June 14, 1996 (the "Agreement") between Orion Acquisition, Inc. and
Wattenberg Gas Investments, LLC ("WGI"). Any capitalized terms used herein
which are not defined herein shall have the meanings given to them in the
Agreement.
I have examined the Agreement, the Ratification of Obligations
(the "Ratification") and the other documents and instruments associated with
the closing (the "Closing") of the transactions contemplated by the Agreement,
and have made such other factual and legal investigations as I deemed
necessary.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. FMR is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, is duly qualified
to carry on its business, and is in good standing in the Commonwealth of
Massachusetts and in each jurisdiction in which the failure to so qualify would
have a material adverse impact on FMR's ability to fulfill its obligations
under the Ratification.
2. FMR has all requisite corporate power and authority
to carry on its business as presently conducted, to enter into the Ratification
and to perform its obligations under the Ratification. The consummation of the
transactions contemplated by the Ratification and any other collateral
documents to be executed by FMR at Closing will not violate, nor be in conflict
with, (i) any provision of its articles of
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incorporation, bylaws or governing documents, (ii) any material agreement or
instrument to which FMR is a party or is bound, or (iii) any judgment, decree,
order, statute, rule or regulation applicable to FMR.
3. The execution, delivery and performance of the
Ratification and any collateral documents to be executed by FMR at Closing and
the transactions contemplated thereby have been duly and validly authorized by
all requisite corporate action on the part of FMR.
4. All documents and instruments required to be executed
and delivered by FMR under the Agreement have been duly executed and delivered
on behalf of FMR. Such documents and instruments do and shall, constitute
legal, valid and binding obligations of FMR, enforceable in accordance with
their terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy.
The Opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Orion Acquisition, Inc. and their lender
banks, including The Chase Manhattan Bank, N.A., and their respective counsel
in connection with the transactions contemplated by the Agreement and may not
be relied upon by any other person or for any other purpose without my prior
written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my
attention or to the attention of FMR subsequent to the date hereof and that may
affect the opinions expressed herein, including, without limitation, future
changes in applicable law.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
D. I have made such examination of law as in my judgment
is necessary or appropriate for purposes of this opinion. I am a member of the
bar of the Commonwealth of Massachusetts. I do not express any opinion herein
with respect to the law of any jurisdiction other than the law of the
Commonwealth of Massachusetts and the law of the United States of America.
Very truly yours,
FMR CORP.
Jay Freedman
Associate General Counsel
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<PAGE> 105
June 14, 1996
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Ladies and Gentlemen:
I am Counsel to SSB Investments, Inc. (the "Company") and to
State Street Boston Corporation (the "Guarantor"). The Company is a member of
Wattenberg Gas Investments, LLC, a Delaware limited liability company ("WGI").
In my capacity as Counsel for the Company and Guarantor, I have examined the
Operating Agreement for WGI dated effective as of November 8, 1995, as amended
and restated April 25, 1996, May 21, 1996 and June 14, 1996 (the "LLC
Agreement"), the Ratification of Obligations dated June 14, 1996, the
Assignment of Contribution Obligations dated June 14, 1996, and the Assignment
of Guaranty Rights (collectively, the "Documents"), and have made such other
factual and legal investigations as I have deemed necessary.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase and Sale Agreement (Tax Partnership Properties) dated June 14,
1996 between Orion Acquisition, Inc. ("Orion") and WGI (the "Purchase
Agreement") or on the Assets as defined therein.
2. The Company has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
LLC Agreement, the Ratification of Obligations and the Assignment of
Contribution Obligations and to perform its obligations contemplated under such
documents. The consummation of the transactions contemplated by the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
Obligations will not violate, nor be in conflict with, (i) any provision of the
Company's Certificate of Incorporation, bylaws or governing documents, (ii) any
material agreement or instrument to which the Company is a party or is bound,
or (iii) any
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judgment, decree, order, statute, rule or regulation applicable to the Company.
3. The execution, delivery and performance of the LLC
Agreement, the Ratification of Obligations and the Assignment of Contribution
Obligations have been duly and validly authorized by all requisite corporate
action on the part of the Company.
4. The LLC Agreement, the Ratification of Obligations and the
Assignment of Contribution Obligations have been duly executed and delivered on
behalf of the Company.
5. The Guarantor is a corporation duly organized and validly
existing under the law of the Commonwealth of Massachusetts, and is duly
qualified and in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse impact on the transaction contemplated by
the Purchase Agreement or on the Assets as defined therein.
6. The Guarantor has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into the
Ratification of Obligations and the Assignment of Guaranty Rights and to
perform its obligations under such documents. The consummation of the
transactions contemplated by the Ratification of Obligations and the Assignment
of Guaranty Rights will not violate, nor be in conflict with, (i) any provision
of the Guarantor's Certificate of Incorporation, bylaws or governing documents,
(ii) any material agreement or instrument to which the Guarantor is a party or
is bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to the Guarantor.
7. The execution, delivery and performance of the
Ratification of Obligations and the Assignment of Guaranty Rights and the
transactions contemplated thereby have been duly and validly authorized by all
requisite corporate action on the part of the Guarantor.
8. The Ratification of Obligations and the Assignment of
Guaranty Rights have been duly executed and delivered on behalf of the
Guarantor and does and shall, constitute the legal, valid and binding
obligation of the Guarantor enforceable in accordance with their terms, subject
to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application with respect to creditors, (ii) general
principles of equity and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter is rendered solely for the use
and benefit of HS Resources, Inc., Orion and their lender banks,
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including The Chase Manhattan Bank, N.A., and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without my prior
written consent.
B. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Company's attention subsequent to the date hereof and that may affect the
opinions expressed herein, including, without limitation, future changes in
applicable laws.
C. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
SSB INVESTMENTS, INC.
STATE STREET BOSTON CORPORATION
Charles C. Cutrell, III
Counsel
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<PAGE> 108
June 14, 1996
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Ladies and Gentlemen:
We are counsel to Wattenberg Gas Investments, LLC, a Delaware
limited liability company (the "Company"). In our capacity as counsel for the
Company, we are familiar with the transactions contemplated by the Purchase and
Sale Agreement (Tax Partnership Properties) dated as of June 14, 1996 (the
"Agreement") between Orion Acquisition, Inc. (the "Seller") and the Company as
the Buyer. Any capitalized terms used herein which are not defined herein
shall have the meanings given to them in the Agreement.
We have examined the Agreement, the Assignment, the Option,
the Management Agreement and the Ratification of Obligations, as such terms are
defined in the Agreement (collectively the "Documents"). We have reviewed and
are relying on the opinion to the Seller dated June 14, 1996 of Morris,
Nichols, Arsht & Tunnell, special Delaware counsel of the Company, and we have
made such other factual and legal investigations as we have deemed necessary.
In addition, in rendering this opinion we have examined and relied upon a
certificate of the Manager of the Company with respect to certain factual
matters.
In examining and reviewing the Documents, we have assumed (i)
the genuineness of all signatures; (ii) the conformity to originals of all
documents submitted to us as copies; (iii) the authenticity of all original
documents of which we have received copies; (iv) the due authorization,
execution, and delivery by the Seller of the Agreement and the other Documents
to which it is a signatory; and (v) that the Documents to which the Seller is a
signatory are binding on and enforceable against the Seller.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, we are of the opinion that
the Documents to which the Company is a signatory are binding on and
enforceable against the Company by the Seller or by other signatories thereto,
subject to applicable
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<PAGE> 109
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and to the assumption that enforcement of remedies will be undertaken in good
faith and in a commercially reasonable manner and subject, as to
enforceability, to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or law.
The opinion expressed in this letter is subject to the
following qualifications and limitations:
A. The opinion expressed in this letter is limited
solely to the law of the State of Colorado and applicable federal law of the
United States of America.
B. This opinion letter is rendered solely for the use
and benefit of Seller, HS Resources, Inc. and their lender banks, including
The Chase Manhattan Bank, N.A., and their respective legal counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without our prior
written consent.
C. This opinion letter is rendered as of the date
hereof. We do not undertake to advise you of matters that may come to our
attention subsequent to the date hereof and that may affect the opinions
expressed herein.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
S-7
<PAGE> 110
EXHIBIT T
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement"), dated effective
as of June 1, 1996 (the "Effective Date"), is by and between Wattenberg Gas
Investments, LLC, a Delaware limited liability company, (the "Company" or
"WGI") and HS Resources, Inc., a Delaware corporation ("HS" or "Manager")
(collectively, the "Parties"). Orion Acquisition, Inc., a Delaware corporation
("Orion"), is a wholly-owned subsidiary of HS.
RECITALS
A. The Company owns certain working interests and
overriding royalty interests in oil and gas leases and wells, as identified on
the attached Exhibits A and B, respectively (collectively, the "Assets");
B. Manager has the resources and expertise necessary to
operate and manage the Assets and to provide management services to the Company
as set forth in this Agreement (collectively, the "Services" as defined in
Article 2 below); and
C. The Company desires to retain Manager to provide such
Services and Manager desires to provide such Services, all pursuant to the
terms of this Agreement.
AGREEMENT
In consideration for the Parties entering other agreements
concurrently herewith and the mutual promises hereunder, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
All capitalized terms used herein without definition shall
have the have the meaning given in the Wellbore Assignment of Oil and Gas
Leases with Reservation of Production Payment dated June 14, 1996, between
Orion and the Company (the "Assignment"), or in the case of the terms "Credit
Payment Amount," "IRC," "Post-Effective Date Liabilities" and "Losses," in the
Purchase and Sale Agreement (Tax Partnership Properties) dated June 14, 1996,
by and between Orion and the Company (the "Purchase Agreement").
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ARTICLE 2
SERVICES
2.1 Subject to Section 2.2 hereof, the constraints of
applicable operating and other agreements to which all or any portion of the
Assets are now or hereafter subject and the other terms of this Agreement,
Manager agrees to and shall have the exclusive right and authority to manage
the Assets for and on behalf of the Company, such management to include,
without limitation, performance of the following management functions (the
"Services"):
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed, conditioned, marketed,
delivered, transported or sold) gas, oil and related hydrocarbons produced by
the Company from the Assets, and pay or cause to be paid all royalties,
production payments (including, without limitation, the Production Payment),
net profits interests and all other such payment obligations arising in
connection with the Assets or the production of hydrocarbons therefrom;
provided, however, that Manager shall obtain the approval of the Company to
enter into any sales or marketing agreements which have terms of one year or
greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly constituted
federal or state regulatory body), and local laws, ordinances, rules,
regulations and orders applicable to the Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or cause to be
implemented and completed, any remedial, removal or other response action
required on the Assets under applicable environmental laws, with such actions
to be implemented and completed in accordance with customary industry practices
and in compliance with applicable environmental laws.
(e) Inform the Company of any pending or
threatened action or investigation of which Manager receives written notice and
which Manager believes in good faith could have a material adverse effect on
the Assets, including all actions initiated or investigations threatened by a
third party or governmental authority under applicable environmental laws.
(f) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of the Assets in
material compliance with applicable environmental laws and to initiate and
complete any remedial, removal or other response actions required under
applicable environmental laws in response to any release of a hazardous
substance on the Assets.
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(g) Employ or contract for the services of any
Person required by Manager, in its reasonable discretion, to assist Manager in
the performance of any of its duties and responsibilities under this Agreement,
including, without limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as Manager deems
advisable, in its reasonable discretion, from any Person.
(h) Except for payment of the Production Payment,
pay and perform all obligations of the Company which relate to the Assets,
including, without limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of all money to
which it becomes entitled pursuant to the Assignment, and payment to third
parties, on behalf of the Company, of working interest expenses attributable to
the Assets.
(i) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with respect to all such
insurance, cause the Company to be named as an additional insured party on all
such insurance policies.
(j) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits, applications,
requests or regulatory documents or instruments relating to the Assets.
(k) Establish and maintain all bank accounts,
books and records, capital accounts, the Net Profits Account and other accounts
as are required or convenient to operate the Assets.
(l) Perform all accounting and reporting as
required by the Assignment, the Purchase Agreement, and any other agreement
relating to the Assets and to which the Company is subject; provided, however,
for purposes of this Agreement, the Operating Agreement for Wattenberg Gas
Investments, LLC dated effective as of November 8, 1995, as amended and
restated April 25, 1996, May 21, 1996 and June 14, 1996, shall not be deemed to
be an agreement relating to the Assets to which the Company is subject; and
provided further that Manager shall not adopt an entitlement accounting method
for gas imbalances that causes the parties subject to the imbalance to be
treated as a partnership for federal income tax purposes.
All accounting and reporting shall be performed in
accordance with the provisions of this Agreement, consistently applied. Such
accounting and reporting may initially be performed based on estimated figures,
and subsequently based on actual figures. Beginning with the partial calendar
quarter commencing on June 1, 1996, and every applicable calendar quarter
thereafter, Manager shall prepare and furnish to the Company within 60 days
after the end of each calendar quarter a Quarterly Report. "Quarterly Report"
shall mean a report detailing gas
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production and sales from the Assets attributable to the Wells for the most
recent calendar quarter. Such Quarterly Report shall include (1) an accounting
of the Net Profits Account, including a summary of all credits and debits, and
Production Payments determined in accordance with the Assignment, (2) an
accounting of the Company's share of all tax credit qualified gas sales and
production, total gas sales and production attributable to the Assets and
produced from the Wells, and (3) all other information necessary and sufficient
for the Company to calculate and verify Credit Payment Amounts.
On or before March 15th of each year, with respect to
the preceding calendar year, Manager shall furnish to the Company a report
(referred to herein as the "Annual Report"), based upon mutually agreeable
procedures, of (1) the Net Profits Account, including all credits and debits,
and all Production Payments determined in accordance with the Assignment, (2)
the Company's share of all tax credit qualified gas sales and production, total
gas sales and production attributable to the Assets and produced from the
Wells, (3) credits under IRC Section 29 which are attributable to the Assets,
(4) Credit Payment Amounts determined in accordance with the Purchase
Agreement, and (5) all other information necessary and sufficient for the
Company to calculate and prepare its tax return for such year. If the
production figures reported by Manager are amended by it or other producers
subsequent to Manager furnishing an Annual Report to the Company, an amended
Annual Report for the affected time period shall be furnished to the Company
within 60 days after the end of a calendar quarter during which Manager
received the amended production figures. Notwithstanding the immediately
foregoing, Manager shall have no obligation to amend a prior Annual Report if
the applicable period of limitations for the Internal Revenue Service to make
assessments with respect to the year in question has expired.
(m) Calculate, supply adequate substantiation,
and invoice the Company for the Credit Payment Amounts determined in accordance
with the Purchase Agreement and the Production Payment determined in accordance
with the Assignment.
If the production information is amended after a
Credit Payment Amount or Production Payment for any given quarter has been
calculated, the Credit Payment Amount and/or the Production Payment for that
quarter shall be recalculated using the amended information (the "Amended
Payment Amount").
Manager shall invoice the Company for all Credit
Payment Amounts and Production Payments within 60 days after the end of each
calendar quarter, or partial calendar quarter, and the receipt of all
supporting data. Manager shall invoice the Company for all Amended Payment
Amounts within 60 days after the end of the quarter during which Manager
received the amended production information from Orion or other producers.
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(n) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the Purchase Agreement).
(o) Receive and collect all revenues and income
attributable to the Assets, including, without limitation, all Gross Proceeds
and Other Income; the parties understand that all Credit Payment Amounts are
deemed not to be revenues and income attributable to the Assets for the
purposes of this subsection (o), however, submitting invoices and sufficient
supporting documentation to the Company for Credit Payment Amounts is a
required obligation of Manager under this Agreement.
(p) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and agreements affecting
the Assets which Manager believes are necessary or desirable in connection with
the ownership, development, operation, production and maintenance of the Assets
or to perform any of the Services hereunder; provided, however, that Manager
shall obtain the approval of the Company to enter into any such contract or
agreement which has a cost exceeding $25,000 per well (or per separately owned
formation within a well), net to the interest of the Company. Unless Manager
obtains the prior approval of the Company, Manager shall not intentionally
undertake or approve any of the Services described in this Section 2.1(p) if
any such Services will exceed by more than 10% the cost levels or estimates
upon which the Company's approval was based; provided that if Manager should
decide to conduct such Services in excess of permitted cost levels, in
circumstances other than to remedy an emergency situation, Manager shall be
personally responsible for all expenditures in excess of the permitted levels.
(q) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits, mediations,
arbitrations and other forms of dispute resolutions and other proceedings which
relate in any way to the Assets or the Services performed pursuant to this
Agreement; provided, however, that Manager shall obtain the approval of the
Company to settle any claim, demand, cause of action or other proceeding if the
cost exceeds $25,000 per well, net to the interest of the Company.
(r) Serve as the Company's representative as to
all hearings, proceedings, filings, permits, bonds, licenses or such other
similar matters as they relate to the drilling of sidetrack wellbores from the
Wells and which relate to any governmental, quasi-governmental or regulatory
body or agency (other than the Internal Revenue Service), and to execute all
applications, permits, orders, consents, waivers and agreements, as such relate
to the Wells with respect to such body or agency. Should a conflict arise
between the interests of Manager and the Company regarding the foregoing
matters, Manager shall advise the
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Company of (i) any such conflict, and (ii) Buyer's right to represent itself
with respect to such matters.
(s) All other acts and things as are necessary to
carry out Manager's responsibilities under this Agreement.
If Manager is not at any time the operator of a particular portion of the
Assets, the obligations of Manager under this Agreement with respect to such
portion of the Assets shall be construed to require only that Manager use its
reasonable best efforts to cause the operator of such portion of the Assets to
take such actions or render such performance within the constraints of the
applicable contracts.
2.2 The Parties anticipate that the aggregate of Gross
Proceeds and Other Income from the Assets will be sufficient to perform all of
the Services hereunder. Unless Manager obtains the prior approval of the
Company and except for emergency situations, Manager will not undertake or
approve Services or operations on the Assets that in any instance are
anticipated to involve costs and expenses exceeding the aggregate of Gross
Proceeds and Other Income for such period when such costs and expenses are
payable and which excess costs and expenses cannot reasonably in good faith be
expected to be recouped from the aggregate of Gross Proceeds and Other Income
from a subsequent period or periods. If Manager reasonably in good faith
anticipates that costs and expenses which will need to be incurred during a
particular period in order to perform the Services hereunder for such period
will exceed the aggregate of Gross Proceeds and Other Income for that same
period, and that the excess of costs and expenses over the aggregate of Gross
Proceeds and Other Income cannot reasonably in good faith be expected to be
recouped from the aggregate of Gross Proceeds and Other Income from a
subsequent period or periods, then Manager shall forward to the Company a
timely request for the amount of funds required for Manager to timely perform
such Services, together with documentation supporting Manager's request. The
Company shall respond to Manager's request on or before 10 business days after
receipt of such request. If the Company in its reasonable and sole discretion
elects to grant Manager's request, Manager will undertake such Services or
operations on the Assets and the Company shall pay to Manager the funds
required for Manager to timely perform such Services, with the Company to
recoup all such funds out of the revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company pursuant to
Section 2.2 on a schedule to be determined by the Parties.
2.3 The Company hereby covenants and agrees with Manager
as follows:
(a) All revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company
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pursuant to Section 2.2 shall be used by Manager to perform the Services
hereunder.
(b) Any Person is entitled to rely on this
Agreement as granting to Manager the power and authority to manage the Assets
and to perform the Services on behalf of the Company. In order to allow
Manager to carry out its duties and to exercise its powers hereunder, the
Company has executed a Memorandum of Management Agreement and Power of Attorney
(the "Power of Attorney") in the form set forth on Schedule 1. The Company
shall execute such counterparts of the Power of Attorney as are necessary to
carry out the purpose of this Agreement and to evidence that Manager has the
power and authority to manage the Assets and to perform the Services on behalf
of the Company. The Company and Manager acknowledge that, for purposes of
administrative convenience, certain limitations on the authority of Manager
which are set forth in this Agreement are not set forth in the Power of
Attorney, and that this circumstance shall not result in any expansion in the
authority of Manager. The Company shall, for all purposes of this Agreement,
be deemed to have elected to participate in any actions properly taken by
Manager in accordance with the Power of Attorney.
ARTICLE 3
PERFORMANCE OF SERVICES
Manager agrees to use reasonable best efforts to perform all
of the Services in a reasonable prudent and timely manner consistent with good
oil field and business practices.
ARTICLE 4
FEES AND EXPENSES
4.1 Management Fee. Commencing on the Effective Date and
continuing throughout the term of this Agreement, the Company shall pay Manager
a fee of $400 per month (the "Management Fee"). The Management Fee is intended
to reimburse Manager for all of its corporate level internal administrative
expenses incurred in managing the Assets. The Management Fee does not cover
and the Manager shall pay all COPAS overhead charges payable to any Person
(including Manager) with respect to the Assets under any applicable operating
or other agreements, in accordance with Section 2.1(h) as part of the Company's
obligations relating to the Assets. With respect to any Well which is not
covered by an operating agreement, Manager shall charge the Company and pay to
itself out of the revenue and income collected by it pursuant to Section 2.1(o)
above or paid to it pursuant to Section 2.2, a monthly overhead charge of $350
per Well; provided, however that such well rate shall be adjusted in the manner
provided in Paragraph 1(A)(3) of Section III of the 1985 COPAS Accounting
Procedure.
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4.2 Expenses Attributable to the Assets. As the owner of the
Assets, the Company is obligated to pay the expenses associated with the Assets
and it is recognized and agreed that during each Payment Period for which a
Credit Payment Amount is due, the Company must fund the expenses from sources
other than Gross Proceeds and Other Income from the Assets during such Payment
Period. In connection with providing the Services, if and to the extent that
Manager pays or advances expenses associated with the Assets on behalf of the
Company, the Company agrees to reimburse Manager for such expenses from Gross
Proceeds and Other Income during subsequent Payment Periods, plus interest on
any such amount at the Agreed Rate (defined below) from the end of the Payment
Period in which such excess expenses were to be satisfied, until the date when
such expenses are satisfied. The term "Agreed Rate" shall mean the annual rate
of interest equal to the lesser of (i) the prime rate in effect at The Chase
Manhattan Bank, N.A. (or its successor, or if such bank no longer exists, the
U.S. prime rate generally recognized in the financial media from time to time)
and (ii) the maximum rate of interest allowed by applicable law.
(a) Each invoice delivered by Manager to the Company
pursuant to this Section 4.2 shall include the calculation of the expenses
which are the subject thereof, together with supporting documentation.
ARTICLE 5
INDEMNIFICATION
5.1 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all Losses
which arise directly or indirectly from or in connection with Manager's breach
of its duties or obligations under this Agreement; provided that the Company is
not in material default under the terms and conditions of this Agreement and
does not remain in material default under the terms and conditions of this
Agreement after Manager has given the Company written notice of such material
default and given the Company a reasonable amount of time to cure such material
default; and provided further, Manager's indemnity obligations under the terms
of this Agreement shall not extend to any Losses which arise or result directly
or indirectly from or in connection with the Company's gross negligence,
willful misconduct, and/or material non-compliance with its obligations under
this Agreement if the Company continues to be in material non-compliance with
its obligations under this Agreement after Manager has given the Company
written notice of material non-compliance and given the Company a reasonable
amount of time to cure said material non-compliance or correct the results of
the Company's gross negligence or willful misconduct.
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5.2 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all losses
which arise directly or indirectly from or in connection with Post-Effective
Date Liabilities involving environmental matters, to the extent that Orion or
Manager, or their successors and assigns, is jointly liable with the Company
and such environmental matters are attributable to the period of time during
which this Agreement is in force and effect. Orion shall be responsible for
and liable for all costs, expenses, liabilities and obligations accruing or
relating to the owning, operating, or maintaining of the Assets or the
producing, transporting and marketing of hydrocarbons from the Assets relating
to periods before the Effective Date in accordance with Section 13.2 of the
Purchase Agreement.
ARTICLE 6
ASSIGNMENT
This Agreement may be assigned by the Company with the prior
written consent of Manager, which consent shall not be unreasonably withheld.
Without the prior written consent of the Company, the accounting functions to
be performed by Manager hereunder and Manager's indemnity obligations hereunder
may not be assigned and shall remain the obligations of Manager. With respect
to all of the other rights, authority, duties and obligations, this Agreement
may be assigned by Manager in whole or in part at the same time and to the same
extent the Production Payment may be assigned by Orion pursuant to the
Assignment. Upon any such assignment of this Agreement and except for the
indemnity obligations and accounting obligations of Manager, Manager shall have
no further liability to the Company with respect to any obligations or duties
accruing following the effective date of such assignment as to the portion of
the Agreement so assigned.
ARTICLE 7
TERM / TERMINATION
7.1 This Agreement shall be effective for the period from the
Effective Date until June 1, 1997. Thereafter, this Agreement shall continue
on a year-to-year basis, but may be terminated by either party upon 90 days
written notice to the other party. Notwithstanding the foregoing, if the
Internal Revenue Service ("IRS") publishes a Revenue Procedure or other
guidance in the IRS Cumulative Bulletin allowing for a longer term with respect
to management agreements contemplated under a transaction essentially similar
to the Purchase Agreement, the Company and Manager agree to extend the term of
this Agreement in accordance with such guidance, but in no event shall the term
of this Agreement extend beyond January 1, 2005. This Agreement
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shall not be applicable to any portion of the Assets as to which Orion has
effected a partial exercise of the Option.
7.2 If Manager is in breach of its obligations set forth in
Article 3, and the Company is materially damaged as a result of such breach,
the Company shall so inform Manager in writing of such breach (an "Event of
Default"). Thereafter, Manager shall have 30 days in which to cure the Event
of Default or such longer period of time as is reasonably necessary under the
circumstances so long as Manager undertakes to commence the cure of such Event
of Default within such 30-day period and such cure is diligently prosecuted
thereafter. If Manager does not cure the Event of Default within that time
frame, the Company, at its sole option and discretion, may terminate this
Agreement, and retain any legal and equitable rights and remedies it may have
against Manager on account of such breach.
ARTICLE 8
MISCELLANEOUS
8.1 This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
of the Parties and delivered to the other.
8.2 This Agreement shall be governed by and construed in
accordance with the law of the State of Colorado without reference to the
conflict of laws provisions thereof.
8.3 All notices hereunder shall be sufficiently given for
all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
by United States mail, telecopy, telefax or other electronic transmission
service to the appropriate address as set forth below.
If to Manager:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
with a copy to:
Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
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If to Company:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Fax: (617) 476-6248
Telephone: (617) 563-4791
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
or at such other address and to the attention of such other person as such
Party may designate by written notice to the other Party.
8.4 Notwithstanding anything herein provided to the
contrary, the Company shall be deemed to have given its approval to Manager for
any matter requiring the Company's approval if the Company fails to deny its
approval to Manager within 7 days of receipt from Manager of a request for
approval under this Agreement, or within such shorter time period if the
situation requires Manager to act before the 7-day period has expired and
Manager notifies Company of such shorter time frame.
8.5 Subject to Article 6 hereof, this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors and assigns. Further, this Agreement, and the rights and
obligations hereunder, shall be a covenant running with the lands attributable
to the Assets.
8.6 This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the Parties. Any party
hereto may, only by an instrument in writing, waive compliance by another Party
with any term or provision of this Agreement on the part of such other Party to
be performed or complied with. The waiver by any Party of a breach of any term
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or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
8.7 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 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.
8.8 In addition to any other remedy which Manager may
enjoy under this Agreement, at law or in equity, Manager shall have the right
to seek and enforce the remedy of specific performance by the Company of its
obligations under this Agreement.
8.9 The provisions of Section 2.2 and of Article 5 shall
survive the termination of this Agreement for any reason with respect to
liabilities or obligations under such provisions that accrue or arise during
the period of time that this Agreement, including any amendments, replacements
or renewals of this Agreement, is valid and in effect.
8.10 This Agreement is not intended to create, and shall
not be construed to create, a relationship of partnership or an association for
profit between Manager and the Company.
8.11 The Parties agree not to record this Management
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first above written.
Wattenberg Gas Investments, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
HS Resources, Inc.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
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SCHEDULE 1
MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
This MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
(this "Power of Attorney") is dated as of June 14, 1996 and effective as of
June 1, 1996 (the "Effective Date"), and is executed by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company having an office at
82 Devonshire Street, R22C, Boston, Massachusetts 02109 (the "Company") and HS
Resources, Inc., a Delaware corporation, having an office at 1999 Broadway,
Suite 3600, Denver, Colorado 80202 (the "Manager") (collectively, the
"Parties"). Orion Acquisition, Inc., a Delaware corporation ("Orion"), is a
wholly-owned subsidiary of Manager.
The Parties hereby give notice that they entered into a
Management Agreement dated June 14, 1996 (the "Agreement"), whereby the Company
contracted with Manager for Manager to perform certain operating and management
services relative to the lands and leases identified on Exhibit A and to the
wells identified on Exhibit B (collectively, the "Assets" as further defined in
that Purchase and Sale Agreement (Tax Partnership Properties) dated June 14,
1996 between the Parties (the "Purchase Agreement")). The Company does hereby
appoint and constitute Manager as its duly authorized Attorney-in-Fact with the
powers and obligations set forth herein. Manager may present this Power of
Attorney to any third party as evidence of its authority to perform the duties
and obligations of Manager under the Agreement.
Manager has agreed to manage the Assets for and on behalf of
the Company, by performing certain management services, as limited and
described in more detail in the Agreement (the "Services").
Effective as of the Effective Date, the Company does hereby
revoke all prior powers of attorney granted in connection with the following
matters and does hereby appoint and constitute Manager as its duly authorized
Attorney- in-Fact with power and authority for the Company and in its name,
place and stead to execute, acknowledge and deliver such instruments as Manager
deems necessary or convenient in connection with the following matters relating
to real or personal property constituting the Assets:
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed,
conditioned, marketed, delivered, transported or sold) gas,
oil and related hydrocarbons produced by the
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Company from the Assets, and pay or cause to be paid all
royalties, production payments, net profits interests and all
other such payment obligations arising in connection with the
Assets or the production of hydrocarbons therefrom; provided,
however, that Manager shall obtain the approval of the Company
to enter into any sales or marketing agreements which have
terms of one year or greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly
constituted federal or state regulatory body), and local laws,
ordinances, rules, regulations and orders applicable to the
Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or
cause to be implemented and completed, any remedial, removal
or other response action required on the Assets under
applicable environmental laws, with such actions to be
implemented and completed in accordance with customary
industry practices and in compliance with applicable
environmental laws.
(e) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of
the Assets in material compliance with applicable
environmental laws and to initiate and complete any remedial,
removal or other response actions required under applicable
environmental laws in response to any release of a hazardous
substance on the Assets.
(f) Employ or contract for the services of any
person required by Manager, in its reasonable discretion, to
assist Manager in the performance of any of its duties and
responsibilities under the Agreement, including, without
limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as
Manager deems advisable, in its reasonable discretion, from
any person.
(g) Pay and perform all obligations of the
Company which relate to the Assets, including, without
limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of
all money to which it becomes entitled, and payment to third
parties, on behalf of the Company, of working interest
expenses attributable to the Assets.
(h) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with
respect to all such insurance, cause the Company
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to be named as an additional insured party on all such
insurance policies.
(i) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits,
applications, requests or regulatory documents or instruments
relating to the Assets.
(j) Establish and maintain all bank accounts,
books and records, capital accounts, Net Profits Account and
other accounts as are required or convenient to operate the
Assets.
(k) Perform all accounting and reporting related
to the Assets.
(l) Calculate and invoice the Company for amounts
due under the Purchase Agreement.
(m) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the
Purchase Agreement and the Operating Agreement of the
Company).
(n) Receive and collect all revenues and income
attributable to the Assets.
(o) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and
agreements affecting the Assets which Manager believes are
necessary or desirable in connection with the ownership,
development, operation, production and maintenance of the
Assets or to perform any of the Services under the Agreement.
(p) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits,
mediations, arbitrations and other forms of dispute
resolutions and other proceedings which relate in any way to
the Assets or the Services performed pursuant to the
Agreement.
(q) Act on behalf of and bind the Company with
respect to all hearings, proceedings, filing, permits, bonds,
licenses or such other similar matters as they relate to the
Assets (including, but not limited to the drilling of
sidetrack wellbores from the Wells) or a portion thereof and
which relate to any governmental, quasi-governmental or
regulatory body or agency (other than the Internal Revenue
Service), and to execute all applications, permits, orders,
consents, waivers and agreements, as such relate to the Assets
or a portion thereof, with respect such body or agency.
-3-
<PAGE> 125
(r) Exercise on behalf of the Company the right
to not participate or to non-consent any proposal.
(s) Pool or unitize the Company's interests in
the Assets.
(t) All other acts and things as are necessary to
carry out Manager's responsibilities under the Agreement.
The powers herein conferred shall extend to all acts and
transactions described in (a) - (t) above affecting the Assets and extend to
all forms of interests in the Assets. This Power of Attorney is irrevocable by
the Company and is coupled with an interest in the lands covered by the Assets
for the period from the Effective Date until the Agreement is terminated. If
Orion elects to exercise its rights under the Option to Purchase Oil and Gas
Interests dated June 14, 1996 between the Company and Orion (the "Option"),
this Power of Attorney shall no longer be effective as to the Assets on which
Orion has exercised the Option.
If Manager is not at any time the operator of a particular
portion of the Assets, the obligations of Manager under the Agreement with
respect to such portion of the Assets shall be construed to require only that
Manager use reasonable best efforts to cause the operator of such portion of
the Assets to take such actions or render such performance within the
constraints of the applicable contracts.
Manager shall use reasonable best efforts to perform the
Services in a reasonable and prudent manner consistent with good oil field and
business practices.
Any person is entitled to rely on this Power of Attorney as
notice that Manager has been given the power and authority to manage the Assets
and to perform the Services on behalf of the Company.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
HS Resources, Inc.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
-4-
<PAGE> 126
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
-5-
<PAGE> 127
EXHIBIT U
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this ____ day
of ______________, by and between Orion Acquisition, Inc. ("Seller"),
Wattenberg Gas Investments, LLC ("Buyer"), and __________________ BANK ("Escrow
Agent"). Seller and Buyer are sometimes herein jointly referred to as the
"Parties."
RECITALS
A. Seller and Buyer are the Seller and Buyer,
respectively, under that certain Purchase and Sale Agreement (Tax Partnership
Properties) dated June 14, 1996 (the "Purchase Agreement"), and Grantor and
Grantee, respectively, under the Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment dated June 14, 1996 (the "Assignment"); and
B. Pursuant to Section 8.3 of the Purchase Agreement,
Seller and Buyer have agreed that Buyer shall deposit certain amounts in an
escrow account; and
C. Escrow Agent has agreed to act as such in accordance
with the terms, provisions and conditions of this Escrow Agreement and to hold
the funds described herein in accordance with the terms and provisions hereof.
AGREEMENT
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Of even date herewith, Buyer has delivered to Escrow
Agent and Escrow Agent hereby acknowledges the receipt of an Credit Payment
Amount (as defined in the Purchase Agreement) for deposit into the account set
up hereunder (the "Escrow Account"). Seller and Buyer have advised Escrow
Agent that Buyer will deliver additional Credit Payment Amounts for deposit
into the Escrow Account. Such sums, together with any interest or other
earnings of the money so deposited shall be referred to herein as the "Escrow
Funds."
2. During the term of this Escrow Agreement, Escrow
Agent shall hold and maintain the Escrow Funds and said funds shall be invested
or reinvested by Escrow Agent at the joint written direction of Seller and
Buyer. Seller and Buyer hereby
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<PAGE> 128
direct Escrow Agent to invest the Escrow Funds in the _______________________
Fund.
The Escrow Agent shall sell all or any designated part of such
investments so directed in writing jointly by Seller and Buyer. All
commissions, brokerage taxes, fees and expenses, if any, applicable to the
acquisition or sale of the investments under this paragraph shall be paid
initially from the interest or income generated from the Escrow Funds and
thereafter from any remaining amounts in the Escrow Funds. The Escrow Agent
shall not be liable for losses on any investments made by it pursuant to and in
compliance with such instructions.
3. The Escrow Agent shall hold and disburse the Escrow
Funds during the term of this Escrow Agreement in accordance with the joint
written instructions from Seller and Buyer. The Escrow Agent shall deliver the
Escrow Funds or any part thereof to the party designated to receive such funds
if Escrow Agent receives joint written instructions from both Seller and Buyer
to do so. The Escrow Agent shall hold the Escrow Funds until it has received a
joint written instruction notice from Seller and Buyer as to how delivery of
the Escrow Funds shall be made. Should any controversy arise between Seller
and Buyer and/or the Escrow Agent with respect to this Escrow Agreement or with
respect to the right to receive the Escrow Funds, the Escrow Agent shall have
the right to consult counsel and/or to institute a bill of interpleader in any
court of competent jurisdiction to determine the rights of the Parties. Should
such actions be necessary, or should the Escrow Agent become involved in
litigation in any manner whatsoever on account of this Escrow Agreement or the
Escrow Funds held hereunder, the Parties bind and obligate themselves, their
successors, assigns and legal representatives to pay the Escrow Agent, in
addition to any charge made hereunder for acting as Escrow Agent, reasonable
attorney's fees incurred by the Escrow Agent, and any other disbursements,
expenses, losses, costs and damages in connection with and resulting from such
actions.
4. Duties of the Escrow Agent
(a) The duties of the Escrow Agent are only such
as are herein specifically provided, being purely ministerial in nature, and
the Escrow Agent shall incur no liability whatsoever except for gross
negligence or willful misconduct. The Escrow Agent is not a party to any other
agreement regarding the subject matter contained herein and as such shall only
be bound by the terms and conditions of this Escrow Agreement.
(b) The Escrow Agent shall be under no
responsibility for the recitals in this Escrow Agreement, the covenants or
undertakings set forth in the Purchase Agreement, the Assignment, or in respect
of any of the items deposited with the Escrow Agent other than to comply with
the specific duties and responsibilities set forth herein and with any written
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<PAGE> 129
instructions or other communications herein provided for; and, without limiting
the generality of the foregoing, the Escrow Agent shall have no obligation or
responsibility to determine the correctness of any statement or calculation
made by any party hereto in any written instruction or other communication or
the genuineness or validity of any document. The Escrow Agent shall be fully
protected in acting in accordance with any written instructions or other
communications from Seller and Buyer given to it in accordance with the
provisions hereof and reasonably believed by it to have been signed by the
proper parties. The Escrow Agent shall have no liability for losses arising
from any cause beyond its control, including (but not limited to) the
following: (i) the act, failure or neglect of any agent or correspondent
selected by the Escrow Agent for the remittance of funds; (ii) any delay,
error, omission or default of any mail, delivery, cable or wireless agency or
operator; (iii) the acts or edicts of any government or governmental agency or
other group or entity exercising governmental powers. The Escrow Agent shall
be entitled to pay from the Escrow Funds the cost and expense of defending any
legal proceedings which may be instituted against it with respect to the
subject matter of this Escrow Agreement (including counsel and investigatory
fees); provided, however, the Escrow Agent shall consult with Seller and Buyer
prior to incurring any such legal expenses. The Escrow Agent shall not be
required to institute legal proceedings of any kind.
5. The Escrow Agent may resign at any time by giving
written notice to Seller and Buyer. Such resignation shall not be effective
until a new Escrow Agent has been appointed by the joint written agreement of
Seller and Buyer. The Escrow Agent may at any time be removed by notice in
writing delivered to the Escrow Agent by Seller and Buyer. The Escrow Agent's
sole responsibility thereafter shall be to keep safely all Escrow Funds then
held by it and to deliver the same to a person designated by the Parties or in
accordance with the directions of a final order or judgment from a court having
competent jurisdiction.
6. For its services pursuant to this Escrow Agreement,
the Escrow Agent shall be entitled to a fee of _______________________ DOLLARS
($______.00 U.S.). Any fees and expenses due the Escrow Agent shall be borne
one- half (1/2) by Seller and one-half (1/2) by Buyer and shall be paid within
10 days after the receipt of an invoice from the Escrow Agent for such fees and
expenses. The Parties jointly and severally agree to pay to the Escrow Agent
its fees for the services rendered by it pursuant to the provisions of this
Escrow Agreement and will reimburse the Escrow Agent for its reasonable
expenses, including reasonable attorney's fees incurred in connection with the
negotiations, drafting and performance by it of such services. Except as
otherwise noted, this fee covers account acceptance, set-up and termination
expenses, plus usual and customary related administrative services such as
safekeeping, investment, collection and distribution of assets, including
normal record
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<PAGE> 130
keeping and reporting requirements. Any additional services beyond the
receipt, investment and payment of funds specified in this Escrow Agreement, or
activities requiring excessive administrator time or out-of-pocket expenses
such as optional substitution of collateral or securities, shall be deemed
extraordinary fees for which related costs, transaction charges and additional
fees will be billed at the Escrow Agent's standard charges for such items.
7. The Parties agree to jointly and severally indemnify,
defend and hold the Escrow Agent harmless from and against any and all loss,
damage, tax, liability and expense that may be incurred by the Escrow Agent
arising out of or in connection with its acceptance or appointment as the
Escrow Agent hereunder, including the legal costs and expenses of defending
itself against any claim or liability in connection with its performance
hereunder. Any fees and expenses resulting from the foregoing indemnification
shall be borne one-half (1/2) by Seller and one-half (1/2) by Buyer.
8. The Escrow Agent is hereby given a lien on the Escrow
Funds for all indebtedness that may become owing to the Escrow Agent hereunder,
which lien may be enforced by the Escrow Agent by setoff or appropriate
foreclosure proceedings.
9. The Parties warrant to the Escrow Agent that there
are no federal, state or local tax liabilities or filing requirements
whatsoever concerning the Escrow Agent's actions contemplated hereunder and
warrant and represent to the Escrow Agent that the Escrow Agent has no duty to
withhold or file any report regarding any tax liability (other than with
respect to interest on the Escrow Funds) under any federal or state income tax,
local or state property tax, local or state sales or use taxes, or any other
tax by any taxing authority. The Parties agree to jointly and severally
indemnify the Escrow Agent fully for any tax liability, penalties or interest
incurred by the Escrow Agent arising hereunder and agree to pay in full any
such tax liability together with penalty and interest if any tax liability is
ultimately assessed against the Escrow Agent for any reason as a result of its
actions hereunder (except for the Escrow Agent's individual income tax
liability with respect to its fees).
10. All notices, requests, directions, instructions,
waivers, approvals or other communications to any party hereto shall be made or
delivered in person or by registered mail or certified mail, postage prepaid,
addressed to such party as provided below, or to such other address as such
party may hereafter specify in a written notice to the other parties named
herein, and all such notices or other communications shall be in writing so
addressed and shall be effective upon receipt by the addressee thereof:
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<PAGE> 131
Escrow Agent: _____________________ BANK
Corporate Trust Department
Attn: ______________________
Telephone: ( )
Fax: ( )
Seller: Orion Acquisition, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
Buyer: Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attn: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
11. No agreement shall be effective to amend or
supplement this Escrow Agreement unless such agreement is in writing and signed
by the parties hereto. This Escrow Agreement may be executed in any number of
execution counterparts.
12. This Escrow Agreement shall be governed by and
construed in accordance with the law of the State of Colorado, except that
statutory provisions regarding fiduciary duties and liabilities of Trustees
shall not apply to this Escrow Agreement. The Parties expressly waive such
duties and liabilities, it being their intent to create solely an agency
relationship and hold the Escrow Agent liable only in the event of its gross
negligence or willful misconduct in order to obtain lower fee schedule rates as
specifically negotiated with the Escrow Agent.
13. This Escrow Agreement shall terminate by its own
terms when no funds remain in the Escrow Account, unless sooner terminated in
writing by the Parties, in which case the balance of any funds remaining in the
Escrow Account upon such termination shall promptly be paid in accordance with
written instructions signed by Seller and Buyer.
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<PAGE> 132
IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date first above written.
ORION ACQUISITION, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
BANK,
----------------------------------
as Escrow Agent
By
-----------------------------------
Name:
Title: President
-----------------------
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<PAGE> 133
EXHIBIT V
LIMITED POWER OF ATTORNEY
Wattenberg Gas Investments, LLC, a Delaware limited liability
company, having an office at 82 Devonshire Street, R22C, Boston, Massachusetts
02109 (the "Company") does hereby make, constitute and appoint Thomas H.
McCarthy, Jr. having an office at 3047 So. Claude Court, Denver, Colorado
80210, to be its true and lawful attorney (attorney-in-fact), for it and in its
name and behalf, to execute and deliver the Assignment, Bill of Sale and
Conveyance attached hereto as Schedule 1, requiring execution and delivery in
the name of the Company pursuant to the terms of that certain Purchase and Sale
Agreement (Tax Partnership Properties) dated June 14, 1996 between the Company
and Orion Acquisition, Inc. ("Orion"), for the leases and wells identified by
exhibit therein (the "Assets").
The attorney-in-fact shall execute and is obligated to execute
from time to time the attached Assignment, Bill of Sale and Conveyance, in any
number of counterparts and covering all or any portion of the Assets, upon the
written request of Orion, regardless of any objection by any party including
the Company. Such written request shall include a copy of a written notice
from Orion to the Company, which Orion represents has been received by the
Company at least 60 days prior to the submittal to the attorney-in-fact (which
the attorney-in-fact shall not be required to verify), stating that (a) the
Company failed to perform an obligation under (i) the Purchase and Sale
Agreement, (ii) the Wellbore Assignment of Oil and Gas Leases with Reservation
of Production Payment dated June 14, 1996 between Orion and the Company, (iii)
the Option to Purchase Oil and Gas Interests dated June 14, 1996 between the
Company and Orion (the "Option"), or (iv) the Management Agreement dated June
14, 1996 between the Company and HS Resources, Inc., and (b) that Orion
tendered any required payment to WGI for the Assets to be conveyed by the
Assignment, Bill of Sale and Conveyance in accordance with the terms of the
Option. The written request shall also include a signed statement by an
officer of Orion, that the Company has not remedied such failure to perform in
the 60 days since the Company's receipt of the written notice of such failure
to perform.
This Limited Power of Attorney is irrevocable by the Company
and is coupled with an interest in the lands covered by the Assets. The
foregoing power of attorney shall be effective from the date hereof until Orion
receives a conveyance of all of the Assets or until the Option expires, which
ever is earlier.
Gary L. Greenstein, Vice President of Fontenelle, Inc., in its
capacity as Manager of the Company, hereby certifies that the execution of this
Limited Power of Attorney is authorized by
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<PAGE> 134
the Operating Agreement of the Company dated effective as of November 8, 1995,
as amended and restated April 25, 1996, May 21, 1996 and June 14, 1996 and
other governing authority of the Company and that the Company will ratify and
confirm all lawful actions taken by Thomas H. McCarthy, Jr., or his successor,
on behalf of the Company which are authorized by this Limited Power of
Attorney. The Company and Orion each waive any and all claims against the
attorney-in-fact and the right to enjoin the attorney-in-fact for any actions
authorized herein. The Company and Orion each shall indemnify and release the
attorney-in-fact from any damages incurred by or claims made against the
attorney-in-fact for any exercise of authority granted herein.
Thomas H. McCarthy, Jr. may not resign as attorney-in-fact
under this Limited Power of Attorney until he appoints a successor
attorney-in-fact and notifies the Company and Orion of such appointment, and
the successor agrees to such appointment in a writing delivered to Orion. In
the event that Thomas H. McCarthy, Jr. is deceased, is permanently
incapacitated or otherwise is unable to perform under this Limited Power of
Attorney, Dante L. Zarlengo, having an office at 621 - 17th Street, Suite 2200,
Denver, Colorado 80293 is appointed as the successor attorney-in-fact for the
Company.
Orion may assign all of its right, title, interest and
obligation under this Limited Power of Attorney to HS Resources, Inc. ("HS"), a
Delaware corporation, without any prior notice or consent of WGI. Upon
satisfaction of the requirements set forth above and receipt of evidence of
such an assignment by Orion, the attorney-in-fact shall execute and deliver the
requested Assignment, Bill of Sale and Conveyances to HS.
This Limited Power of Attorney is executed on June 14, 1996,
and effective for all purposes as of June 1, 1996.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-------------------------------
Name: Gary L. Greenstein
Title: Vice President
ORION ACQUISITION, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
THOMAS H. MCCARTHY, JR.
By:
-----------------------------
Name: Thomas H. McCarthy, Jr.
V-2
<PAGE> 135
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 17th
day of June, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Annette Montoya, in her capacity as Vice President of
Orion Acquisition, Inc., a Delaware corporation on behalf of such corporation.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
V-3
<PAGE> 136
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 14th
day of June, 1996, by Thomas H. McCarthy, Jr., an individual.
Witness my hand and official seal.
-----------------------------------
Notary Public
My commission expires:
-------------
(SEAL)
V-4
<PAGE> 137
SCHEDULE 1
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE ("Assignment") is
dated this ____ day of _________, but effective as of _______________ (the
"Effective Date"), from WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited
liability company with an office at 82 Devonshire Street, R22C, Boston,
Massachusetts 02109 (herein called "Assignor"), to ORION ACQUISITION, INC., a
Delaware corporation with an office at 1999 Broadway, Suite 3600 Denver,
Colorado 80202 (herein called "Assignee").
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor does hereby GRANT,
BARGAIN, SELL, CONVEY, ASSIGN, and DELIVER unto Assignee all of the following:
A. All of Assignor's right, title and interest in and to
the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B
from the intervals in such wells identified in
Exhibit B as of the Effective Date (the above
described interests in such leases being herein
called the "Leases" and the above described interest
in such wells being herein called the "Wells"),
subject to any restrictions, exceptions,
reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to
the Leases and the Wells, and excluding such portion
of the Leases and the Wells which were not conveyed
to Assignor because of Defective Interests or which
were determined to be Excluded Assets (as such terms
are defined in the Purchase and Sale Agreement (Tax
Partnership Properties) between Assignor and Assignee
dated June 14, 1996 (the "Purchase Agreement");
B. The right, title and interest of Assignor in and to
overriding royalty interests in the Leases insofar
and only insofar as the Leases cover the wellbores
associated with the Wells from the producing
intervals identified in Exhibit B;
C. To the extent affected, the right, title and interest
of Assignor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization,
pooling, operating and communitization agreements,
declarations and orders affecting the Leases and
Wells, and in and
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<PAGE> 138
to the properties covered and the units created
thereby;
D. To the extent affected, the right, title and interest
of Assignor in and to the personal property and
fixtures that are appurtenant to the Wells, including
all wells, casing, tubing, pumps, separators, tanks,
lines and other personal property and oil field
equipment appurtenant to such Wells; provided,
however, that Assignor shall remain co-owner of any
personal property appurtenant to any property owned
by Assignor that is not exclusively part of the
Wells;
E. To the extent affected, the right, title and interest
of Assignor in and to and under, or derived from, the
presently existing and valid gas sales, purchase,
gathering and processing contracts and operating
agreements, joint venture agreements, partnership
agreements, rights- of-way, easements, permits and
surface leases and other contracts, agreements and
instruments (but specifically excluding any
management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the
Leases, Wells and the units referred to in Paragraph
C above; provided, however, that Assignor shall
remain co-owner of any agreements, including
unitization and pooling agreements, if they pertain
to any property owned by Assignor that is not
exclusively part of the Leases or Wells.
All of the foregoing leases, interests, rights and properties
described in Paragraphs A through E, above, are herein called the "Properties"
and are located in the various counties identified in Exhibits A and B.
To have and to hold the Properties forever, subject to the
following:
1. THIS ASSIGNMENT IS MADE WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, EXCEPT AS TO PARTIES CLAIMING BY,
THROUGH OR UNDER ASSIGNOR.
2. Assignor shall execute such forms of assignment
conveying Assignor's interest in the Properties as may be required by any
governmental authority to conform to governmental regulation and such
assignments shall not serve to enlarge or diminish the rights herein conveyed.
3. This Assignment shall be binding upon and inure to
the benefit of Assignee and Assignor and their respective successors and
assigns.
V-6
<PAGE> 139
Executed and effective as of the day and year first above
written.
WATTENBERG GAS INVESTMENTS, LLC
By:
-----------------------------------
Name: Thomas H. McCarthy, Jr.
Title: Attorney-in-Fact
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this ____
day of ______________ by Thomas H. McCarthy, Jr. as Attorney-in-Fact of
WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited liability company, on
behalf of such company.
Witness my hand and official seal.
My Commission Expires:
-----------------------------------
Notary Public
Name:
- - --------------------------- Address:
[seal]
V-7
<PAGE> 1
================================================================================
PURCHASE AND SALE AGREEMENT
BETWEEN
HS RESOURCES, INC.
AND
WATTENBERG GAS INVESTMENTS, LLC
DATED: JUNE 28, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Leases and Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Incidental Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Apportionment of Production, Revenues, Taxes and other Expenses . . . . . . . . . . . . . . . . . . . . . 2
6. Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.5 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.6 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Seller's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.4 Execution and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.6 Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.8 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.9 Preferential Purchase Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.10 No Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.11 Gas Balancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.12 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.13 Operations in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.14 Hydrocarbon Sales Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.15 Proceeds of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.17 Bills in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.18 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.21 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.22 Tax Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.23 Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Opinion of Tax Counsel, Right to Request Ruling . . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.3 Escrow in the Event of Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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8.4 Settlements Resulting from a Tax Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Cooperation and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.1 Seller's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.2 Buyer's Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.1 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.2 Section 15.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.3 Notice of Preferential Rights and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.4 Release of Mortgages and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.5 Assignment; Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.6 Non-Foreign Ownership Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.7 Ratification of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.8 Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.9 Seller's Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.10 Opinion on Behalf of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.11 Buyer's Manager's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.12 Opinion on Behalf of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.13 Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.14 Performance Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.15 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.16 Consent to Amendments of LLC Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11.17 Additional Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.2 Sales Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.3 Purchase Price Rebates for Defective Interests . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.4 Purchase Price and Other Rebates for Exercised Preferential Purchase Rights, Failure to
Obtain Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.5 Reconveyance of Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.6 Allocation of Commingled Production and Costs . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.7 Performance of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.8 Overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.9 Representations of Seller and Buyer to Survive Closing . . . . . . . . . . . . . . . . . . . . . 25
13. Apportionment of Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.1 Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.2 Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.1 Buyer's Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.2 Seller's Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.3 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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15.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
15.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
15.6 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
15.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.9 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.10 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A Leases (Weld County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Officer's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Form of Opinion on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
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<PAGE> 6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement"), dated June 28,
1996, is between HS Resources, Inc., a Delaware corporation ("Seller" or "HS")
and Wattenberg Gas Investments, LLC, a Delaware limited liability company
("Buyer" or "WGI").
RECITALS
A. Seller is the owner of certain oil and gas leasehold
interests in Weld County, Colorado, as more specifically described below in
Section 2 (the "Assets").
B. Seller desires to sell and Buyer desires to purchase
the Assets pursuant to the terms and conditions of this Agreement.
AGREEMENT
IN CONSIDERATION of the Purchase Price set forth below in
Section 4, the reservation of the "Production Payment" (defined below) and the
grant of the "Option" (defined below), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
1. Purchase and Sale. Seller agrees to convey the
Assets to Buyer and Buyer agrees to purchase the Assets from Seller, all
pursuant to the terms and conditions of this Agreement. Seller will convey the
Assets subject to (i) a production payment (the "Production Payment"), a
reversionary interest (the "Reversion Interest") and other reservations and
obligations as specifically set forth in the Wellbore Assignment of Oil and Gas
Leases With Reservation of Production Payment in a form substantially similar
to Exhibit C (the "Assignment"), and (ii) the Option To Purchase Oil and Gas
Interests to be granted to Seller in a form substantially similar to Exhibit D
(the "Option").
2. The Assets. The "Assets" shall be all of the
following:
2.1 Leases and Wells. Seller's right, title
and interest in and to the oil and gas leases and mineral interests described
in Exhibit A, including any and all overriding royalty interests owned by
Seller in such leases, but insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B from the intervals referenced
in Section 7.23 and identified in Exhibit B in such wells as of the Effective
Date (the above described interest in such leases being herein called the
"Leases" and the above described interest in such wells being herein called the
"Wells"), and subject to any
<PAGE> 7
restrictions, exceptions, reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to such Leases and Wells.
2.2 Incidental Rights. All of Seller's right,
title and interest in and to the following insofar and only insofar as same are
attributable to the Leases and the Wells:
(a) Unitization and Pooling
Agreements. All presently existing and valid oil, gas or mineral
unitization, pooling, operating and communitization agreements,
declarations and orders affecting the Leases and Wells, and in and to
the properties covered and the units created thereby;
(b) Personal Property. The personal
property and fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and other
personal property and oil field equipment appurtenant to such Wells;
(c) Agreements. All presently
existing and valid oil and gas sales, purchase, production swap,
gathering and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way, easements,
permits, surface leases and other contracts, agreements and
instruments, but specifically excluding any management agreements.
Seller shall remain co-owner of any "Agreements," "Personal Property" and
"Unitization and Pooling Agreements" to the extent they pertain to any property
or formation owned by Seller that is not exclusively part of the Wells.
3. Effective Date. The purchase and sale of the Assets
shall be effective, for all purposes, including allocation of revenue, expenses
and taxes, as of July 1, 1996 at 7:00 a.m. local time at the site of the Assets
(the "Effective Date").
4. Purchase Price. The purchase price for the Assets
shall be $528,000 (the "Purchase Price"). Buyer shall pay the Purchase Price
to Seller in immediately available funds at Closing.
5. Apportionment of Production, Revenues, Taxes and
other Expenses. Buyer shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells on or after the Effective Date, subject to
the Production Payment, Reversion Interest and the Option. Buyer shall pay for
costs and expenses incurred with respect to the Assets on or after the
Effective Date. Seller shall be entitled to revenue from the sale of
hydrocarbons produced from the Wells before the Effective Date, and shall pay
for costs and expenses incurred with respect to the Assets prior to the
Effective Date. Taxes relating to the Assets, including
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<PAGE> 8
ad valorem, property, production, severance and other taxes (other than income
taxes) shall be allocated in the same manner as other expenses. Taxes that are
measured by or that relate to production shall be treated as expenses in
connection with such production regardless of the period for which such taxes
are assessed.
6. Buyer's Representations and Warranties. Buyer makes
the following representations and warranties as of the date of execution of
this Agreement:
6.1 Existence. Buyer is a limited liability
company, duly organized, validly existing and formed under the laws of the
State of Delaware, and Buyer is duly qualified to carry on its business, and is
duly qualified and in good standing, in each of the states in which the nature
of its business and activities requires it to be so qualified.
6.2 Power and Authority. Buyer has all
requisite power and authority to carry on its business as presently conducted,
to enter into this Agreement and each of the documents contemplated to be
executed by Buyer at Closing, and to perform its obligations under this
Agreement and under such documents. The consummation of the transactions
contemplated by this Agreement and each of the documents contemplated to be
executed by Buyer at Closing will not violate, nor be in conflict with, (i) any
provision of Buyer's organizational or governing documents, (ii) any material
agreement or instrument to which Buyer is a party or is bound, or (iii) any
judgment, decree, order, statute, rule or regulation applicable to Buyer.
6.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Buyer at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite action on the
part of Buyer.
6.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Buyer, and at the Closing all
documents, instruments and schedules required hereunder to be executed and
delivered by Buyer shall have been duly executed and delivered. This Agreement
does, and such documents and instruments shall, constitute legal, valid and
binding obligations of Buyer enforceable in accordance with their terms,
subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws of general application with respect to creditors, (ii)
general principles of equity and (iii) the power of a court to deny enforcement
of remedies generally based upon public policy.
6.5 Securities Laws. Buyer is purchasing the
Assets for Buyer's own account, not for public distribution thereof, and Buyer
shall not sell or transfer all or any part of, or any interest in, the Assets
in violation of the Securities Act
-3-
<PAGE> 9
of 1933, as amended, and the rules and regulations thereunder, or the
securities laws of any state.
6.6 Brokers' Fees. Buyer has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Seller shall have any
responsibility whatsoever.
7. Seller's Representations and Warranties. Seller
makes the following representations and warranties as of the date of this
Agreement:
7.1 Existence. Seller is a corporation duly
organized and validly existing under the laws of the State of Delaware, and
Seller is duly qualified to carry on its business, and is in good standing in
the State of Colorado.
7.2 Power and Authority. Seller has all
requisite authority to carry on its business as presently conducted, to enter
into this Agreement and each of the documents contemplated to be executed by
Seller at Closing, and to perform its obligations under this Agreement and
under such documents. The consummation of the transactions contemplated by
this Agreement and each of the documents contemplated to be executed by Seller
at Closing will not violate, nor be in conflict with, (i) any provision of
Seller's Certificate of Incorporation, bylaws or other governing documents,
(ii) any material agreement or instrument to which Seller is a party or is
bound, or (iii) any judgment, decree, order, statute, rule or regulation
applicable to Seller; provided that, the representations and warranties
contained in clauses (ii) and (iii) of this Section 7.2 are subject to (a)
consents of or filings with the United States Department of Interior or the
applicable state agencies or authorities in connection with the assignment of
any federal or state leases or any interest therein to the extent such consents
are typically received or filings typically made subsequent to such assignment
("Governmental Consents"), (b) preferential rights to purchase all or any
portion of the Assets and consent to or notices of assignment necessary to
convey all or any portion of the Assets which are not Governmental Consents,
(c) any violation of any maintenance of uniform interest provision in any
applicable operating agreement, and (d) the consent of the banks and other
required actions as set forth in Sections 10.1(d) and 10.2(d).
7.3 Authorization. The execution, delivery and
performance of this Agreement and each of the documents contemplated to be
executed by Seller at Closing and the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate action
on the part of Seller.
7.4 Execution and Delivery. This Agreement has
been duly executed and delivered on behalf of Seller, and at the
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<PAGE> 10
Closing all documents, instruments and schedules required hereunder to be
executed and delivered by Seller will be duly executed and delivered. This
Agreement does, and such documents and instruments shall, constitute legal,
valid and binding obligations of Seller enforceable in accordance with their
terms, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application with respect to
creditors, (ii) general principles of equity and (iii) the power of a court to
deny enforcement of remedies generally based upon public policy.
7.5 Brokers' Fees. Seller has incurred no
liability, contingent or otherwise, for brokers' or finders' fees relating to
the transactions contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever.
7.6 Reserve Report. The term "Reserve Report"
shall mean the reserve report prepared by Seller and dated as of June 1, 1996,
which is based on reserves as of December 31, 1995, as adjusted by estimated
production from January 1, 1996 through June 1, 1996, and attached hereto as
Exhibit E. To Seller's best knowledge, the average price for sales of
hydrocarbons (based on contract prices for existing effective contracts and
estimates of regional spot prices adjusted for regional transportation costs),
historical costs of operations, production volumes, and payout data used by
Seller in the preparation of the Reserve Report were, on the dates so used,
accurate in all material respects.
7.7 Liens. Except for the burdens and
obligations created by or arising under the Leases and except for Permitted
Encumbrances, the Assets are free and clear of all Encumbrances. As used
herein, the term "Encumbrances" shall mean all royalties, overriding royalties,
production payments, debts, liens, mortgages, security interests, and
encumbrances. As used herein, the term "Permitted Encumbrances" shall mean the
following:
(i) the burdens, encumbrances and
obligations attributable to mortgages and liens held on or against the
Assets, or any portion thereof, as of the date of this Agreement by
The Chase Manhattan Bank, N.A., for itself and as agent on behalf of
those banks that are or become a party to that certain Amended and
Restated Credit Agreement dated as of June 14, 1996 (as it has or may
be amended or supplemented from time to time, the "Credit Agreement"),
which mortgages and liens will be released with respect to the Assets
conveyed pursuant to the Assignment on or before the Closing;
(ii) the burdens, encumbrances and
obligations created by or arising under the Wells and other agreements
affecting the Assets, and all royalties, overriding royalties, net
profits interests, carried interests, reversionary interests, back-in
rights and other
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<PAGE> 11
burdens taken into account in computing the net revenue interests
("NRI") and working interests ("WI") set forth on Exhibit B for the
Wells;
(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 the Assets if
the same are customarily obtained subsequent to such sale or
conveyance;
(iv) rights of reassignment upon
surrender of the Leases held by predecessors in interest to Seller;
(v) easements, rights-of-way,
servitudes, permits, licenses, surface leases and other rights in
respect of surface use to the extent these do not materially interfere
with operations or production on or from the Assets;
(vi) rights and regulatory powers
reserved to or vested in any municipality or governmental, statutory
or public authority;
(vii) all Material Contracts to the
extent same do not reduce Seller's interest in the production from the
Wells to less than the NRI set forth on Exhibit B;
(viii) any (a) undetermined or
inchoate liens or charges constituting or securing the payment of
expenses which were incurred incidental to maintenance, development,
production or operation of the Assets or for the purpose of
developing, producing or processing oil, gas or other hydrocarbons
therefrom or therein and (b) materialman's, mechanics', repairman's,
employees', contractors', operators' or other similar liens, security
interests or charges for liquidated amounts arising in the ordinary
course of business incidental to construction, maintenance,
development, production or operation of the Assets or the production
or processing of oil, gas or other hydrocarbons therefrom, that are
not delinquent and that will be paid in the ordinary course of
business or, if delinquent, that are being contested in good faith;
(ix) any liens for taxes not yet
delinquent or, if delinquent, that are being contested in good faith
in the ordinary course of business;
(x) any liens or security interests
created by law or reserved in Leases for royalty, bonus or rental or
for compliance with the terms of the Leases;
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<PAGE> 12
(xi) any prohibitions or restrictions
similar to the Maintenance of Uniform Interest Provisions contained in
Article VIII.D. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement and any contribution obligations under provisions similar to
Article VII.B of such Model Form Operating Agreement;
(xii) all preferential rights to
purchase all or any portion of the Assets and consents to or notices
of assignment necessary to convey all or any portion of the Assets
which are not described in item (iii) of this definition of Permitted
Encumbrances;
(xiii) all agreements and obligations
relating to imbalances with respect to the production, transportation
or processing of gas or calls or purchase options on oil or gas
production;
(xiv) all agreements and obligations
relating to gathering, transportation or processing of gas or oil
production;
(xv) all treating, processing, sales
or marketing agreements which have a fee which is based on a
percentage of proceeds or an obligation to transfer certain volumes of
gas or oil production in-kind;
(xvi) all obligations by virtue of a
prepayment, advance payment or similar arrangement under any contract
for the sale of gas production, including by virtue of "take or pay"
or similar provisions, to deliver gas produced from or attributable to
the Wells after the Effective Date without then or thereafter being
entitled to receive full payment therefor;
(xvii) all liens, charges,
encumbrances, contracts, agreements, instruments, obligations,
defects, irregularities and other matters affecting any Asset which
individually or in the aggregate will not interfere materially with
the operation, value or use of such Asset;
(xviii) the burdens, encumbrances and
obligations created by or arising under this Agreement, the
Assignment, Option or Management Agreement.
7.8 Title. Seller has Defensible Title to the
Assets. The term "Defensible Title" means such title of Seller in the Leases
that, subject to and except for the Permitted Encumbrances, entitles Seller to
receive an interest in production from the Wells not less than the respective
NRIs in the Wells as set forth on Exhibit B, and entitles Seller to own the
respective WIs in the Wells as set forth on Exhibit B under applicable state
law and for federal income tax purposes. Any Well or Lease for which Seller
has less than Defensible Title as
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of the date of this Agreement shall be called a "Defective Interest." Buyer's
exclusive remedy for Seller's breach of this representation and warranty is set
forth in Section 12.3. Buyer and Seller shall cooperate fully and consult in
good faith with each other in the litigation of any matter identified in this
Section 7.8
7.9 Preferential Purchase Rights and Consents.
To Seller's best knowledge, except as set forth in Exhibit F, there do not
exist any preferential rights to purchase all or any portion of the Assets. To
Seller's best knowledge, except for consents from its lender banks,
Governmental Consents and other matters as set forth in Exhibit F, there are no
consents or waivers necessary to convey any material portion of the Assets
pursuant to this Agreement. Buyer's exclusive remedy for Seller's breach of
this representation and warranty (other than for consents from the lender
banks) is set forth in Section 12.4.
7.10 No Prepayments. To Seller's best knowledge,
except as set forth in Exhibit G, Seller is not obligated, by virtue of a
prepayment arrangement, a "take or pay" arrangement, a production payment,
hedging or any other arrangement, to deliver any material portion of
hydrocarbons produced from the Wells at some future time without then or
thereafter receiving full payment therefor.
7.11 Gas Balancing. To Seller's best knowledge,
except as set forth in Exhibit H, no material portion of hydrocarbons produced
from the Wells are subject to a gas imbalance or other arrangement requiring
delivery of hydrocarbons after the Effective Date without receiving full
payment therefor.
7.12 Leases. To Seller's best knowledge, all
royalties, rentals and other payments due by Seller under the Leases have been
properly and timely paid except where the failure to pay same will not have a
material adverse effect on the value of the particular Asset. To Seller's best
knowledge, all Leases are presently in full force and effect. To Seller's best
knowledge, Seller has not received a written notice of material default under
any Lease that could result in cancellation of the Lease. Any Lease which is
not presently in full force and effect, or for which Seller has not paid all
royalties, rentals or other payments due by Seller, or for which Seller is in
material default as of the date of this Agreement shall be treated as a
Defective Interest. Buyer's exclusive remedy for Seller's breach of this
representation and warranty is set forth in Section 12.3.
7.13 Operations in Progress. Except for
operations disclosed on Exhibit I and normal daily operating expenses, as of
the date of this Agreement there are no operations in progress with respect to
the Assets which are reasonably expected to exceed $35,000 in cost net to
Seller's
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interest and which shall be payable in whole or in part on or after the
Effective Date.
7.14 Hydrocarbon Sales Contracts. Except as
specifically indicated in Exhibit J and for calls on production, options to
purchase or similar rights with respect to production from the Wells, no
material portion of the hydrocarbons produced from the Wells is subject to a
sales contract or other agreement relating to the production, gathering,
transporting, processing, treating or marketing of hydrocarbons except those
which can be terminated by Seller upon not more than three months notice.
7.15 Proceeds of Production. To Seller's best
knowledge, Seller is currently receiving from all purchasers of production from
the Wells at least the NRI set forth in Exhibit B without suspense or any
indemnity other than the normal division order warranty of title, except where
the failure to receive same would not have a material adverse effect on the
value of the Assets.
7.16 Material Contracts. To Seller's best
knowledge, and subject to the execution of new contracts in the ordinary course
of business if a contract has expired or has been terminated, all contracts
material to the Assets are in full force and effect (the "Material Contracts").
Seller has not received written notices of material default under the Material
Contracts that remain uncured, or that Seller has not made provisions for so
that such event of default will not have a material adverse effect on the
Assets.
7.17 Bills in the Ordinary Course. In the
ordinary course of business and to Seller's best knowledge, Seller is current
on its payments for all costs and expenses pertaining to the Assets, except
where such payments are being contested with good faith or except where the
failure to make such payments would not have a material adverse effect on the
Assets.
7.18 Legal Proceedings. Except as set forth on
Exhibit K, no suit, action or other proceeding is pending against Seller or, to
Seller's best knowledge, threatened in writing against Seller before any court,
governmental agency, arbitrator or other panel that relates to the Assets or
the transaction contemplated by this Agreement that might (i) impair Seller's
ability to consummate the transaction contemplated by this Agreement or (ii)
cause the impairment or loss of Seller's title to any material portion of the
Assets or the value thereof or (iii) hinder or impede the operation or
enjoyment of the Leases in any material respect insofar as they relate to the
Assets.
7.19 Compliance with Laws. To Seller's best
knowledge, all laws, rules, regulations, ordinances and orders (of all
governmental and regulatory bodies having authority over
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the Assets) material to the operation of the Assets have been complied with in
all material respects.
7.20 Environmental Matters. To Seller's best
knowledge, no conditions exist on the Assets that would subject Seller or Buyer
to any damages, remedial action, injunctive relief or other liability under any
Environmental Laws, including without limitation, all costs associated directly
or indirectly with cleanup, removal, closure or other response actions;
provided that Seller or Buyer may be subject to such matters which are (i)
routine in the operation of the Assets and (ii) in the aggregate not material
to the value of the Assets as a whole. Seller and its predecessors have
obtained and are in material compliance with all material permits, licenses and
approvals affecting the Assets and required under Environmental Laws.
As used herein, the term "Environmental Laws" shall
mean any and all existing laws (common or statutory), rules, regulations,
codes, or ordinances issued or promulgated by any federal, state or local
governmental entity relating to the management and disposal of waste materials,
the protection of public or employee health and safety, the cleanup,
remediation or prevention of pollution, or the protection of the environment.
7.21 Payment of Taxes. To Seller's best
knowledge, all ad valorem, property, production, severance, excise and similar
taxes and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on the Assets
which are currently due and payable have been properly and timely paid, except
to the extent such taxes are being contested in good faith in the ordinary
course of business.
7.22 Tax Partnerships. Except as set forth in
Exhibit L, no portion of the Assets (i) has been contributed to and is
currently owned by a tax partnership; (ii) is subject to any form of agreement
(whether formal or informal, written or oral) deemed by any state or federal
tax statute, rule or regulation to be or to have created a tax partnership; or
(iii) otherwise constitutes "partnership property" (as that term is used
throughout Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code
of 1986, as amended (the "IRC")) of a tax partnership. Seller retains all
liability and responsibility, if any, to make all payments to appropriate
parties under the tax partnerships identified on Exhibit L. In addition to all
other remedies available to Buyer, Seller agrees to indemnify Buyer for all
costs, losses, damages, penalties or expenses incurred by Buyer as a result of
any of the Assets having been contributed to or currently owned by a tax
partnership, and Buyer may elect, with a proportionate rebate in the Purchase
Price in accordance with the procedures of Section 12.3 and the provisions of
Section 12.4, to reassign such Assets to Seller. For purposes of this Section
7.22, a "tax partnership" is any entity, organization or group deemed to be a
partnership within the meaning of IRC Section 761
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or any similar state or federal statute, rule or regulation, and that is not
excluded from the application of the partnership provisions of IRC Subchapter K
of Chapter 1 of Subtitle A and of all similar provisions of state tax statutes
or regulations by reason of elections made, pursuant to IRC Section 761(a) and
all such similar state or federal statutes, rules and regulations, to be
excluded from the application of all such partnership provisions. With respect
to any tax partnership identified on Exhibit L, Seller and Buyer have the power
to elect a basis adjustment under IRC Section 754 in connection with the
transaction contemplated by this Agreement, and the consummation of the
transaction contemplated by this Agreement will not (i) result in a termination
of such tax partnership, nor (ii) result in the reduction of any "Tax Credits"
(as that term is defined in the definition of "Credit Payment Amount" in the
Assignment) attributable to the Assets.
7.23 Other Tax Matters.
(a) NGPA Determination.
(i) Applications. Except for the
Wells listed on Exhibit M, Seller or its predecessor in interest has
filed or caused to be filed with the applicable state and federal
agencies "Applications" for well determination(s) for each Well under
the Natural Gas Policy Act of 1978, as amended (the "NGPA") and the
rules and regulations of the Federal Energy Regulatory Commission (the
"FERC") under such act (the "NGPA Regulations") requesting a
determination that all or a quantifiable portion of the gas produced
from a particular Well is "natural gas produced from designated tight
formations" as defined in 18 C.F.R. Section 274.205(e). Each such
application has been approved by the indicated state and federal
agency and by the FERC and has been finally approved under and in
accordance with Section 503 of the NGPA. Such applications comply
with the requirements of the NGPA and the NGPA Regulations and do not
(1) contain any untrue statement of material fact or (2) omit any
statement of material fact necessary to make the statements therein
not misleading. No further applications are required under the NGPA
and the NGPA Regulations to allow the legal sale of all gas produced
from the Wells at a price equal to the price for such gas currently
being received.
(ii) Wells For Which Applications
Were Not Filed. With respect to the Wells listed on Exhibit M,
Seller, its predecessor in interest, or the operator of such Wells has
not to Seller's knowledge filed or caused to be filed with the
applicable state and federal agencies "Applications" for well
determinations under the NGPA and the rules and regulations of the
FERC. With respect to the Wells listed on Exhibit M, all such Wells
were (x) drilled (or recompleted in accordance with private letter
rulings issued by the Internal Revenue Service ("IRS") to third
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parties, or will be recompleted in an uphole formation in accordance
with Situation 1 of Revenue Ruling 93-54) into a "qualifying
formation" (tight formation or other qualifying formation) within the
time frames set forth in subsection (b) below or (y) drilled within
the time frames set forth in subsection (b) below but no certificate
was obtained from either the state agency or the FERC or both stating
that the Well is qualified and but for the absence of such certificate
the Well is qualified under IRC Section 29, and as to both (x) and
(y) the hydrocarbons produced and sold from such Wells qualify for the
Tax Credit.
(iii) Wells Where Commingling With
Non-Qualified Production Is Conducted. For Wells, if any, where
production from a qualifying formation and production from a non-
qualifying formation are commingled, the production has been allocated
to each producing formation on a reasonable basis, consistent with
industry standards and in accordance with procedures, if any, that
have been approved by appropriate state and federal agencies.
(b) Wells. Each Well (1) has been
timely drilled under (1) IRC Section 29(f)(1)(A) (drilled after December 31,
1979 but before January 1, 1993), or administrative interpretations thereof,
and (2) has been timely drilled under IRC Section 29(c)(2)(B)(ii) or
administrative interpretations thereof, or was committed to interstate commerce
(as defined in Section 2(18) of the Natural Gas Policy Act of 1978, as in
effect on November 5, 1990) as of April 20, 1977.
(c) No Qualified Production prior to
January 1, 1980. Prior to January 1, 1980, there was no production of oil or
gas from, nor were any wells drilled or completed on, the "property" (within
the meaning of IRC Section 29) on which any Well is located nor was any
portion of any such "property" included within a unit from which oil or gas was
produced or in which any wells were drilled or completed prior to such date.
(d) No Enhanced Oil Recovery Credit. No
oil or gas produced from the Wells qualifies or has qualified for (i) the
enhanced oil recovery credit or any other credit under IRC Section 43 and none
has been claimed or taken on such oil or gas, or (ii) the credit allowed under
IRC Section 38 by reason of the energy percentage with respect to property
used in the project.
(e) No Government Financing. No portion
of any drilling, equipping, seismic or other development costs of the Assets
paid by Seller were financed by any state, local or federal agency, directly or
indirectly, including by way of grant, loan, expenditure or loan guaranty.
(f) Seller Status. Seller is not a
non-resident alien, foreign corporation, foreign partnership, foreign
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trust or foreign estate (as those terms are defined in the IRC and the rules
and regulations promulgated thereunder), and Seller shall deliver to Buyer an
affidavit of non-foreign ownership in the form of Exhibit N.
8. Certain Tax Matters.
8.1 Opinion of Tax Counsel, Right to Request
Ruling. At Closing, Buyer at its sole cost, shall provide Seller a copy of the
opinion which Buyer has requested from Arthur Andersen LLP ("AA") regarding the
tax consequences of the transaction contemplated by this Agreement (the "Tax
Opinion"). Notwithstanding the Tax Opinion, Buyer shall have the right, but
not the obligation, to request a "private letter ruling" from the IRS to the
effect that (i) Buyer's interest in the Assets constitutes an economic interest
in minerals in place, and (ii) the Production Payment will be treated as a
mortgage loan under IRC Section 636 (a "Ruling"). Should Buyer elect to
request a Ruling, Buyer shall have no right to terminate or rescind this
Agreement if the Ruling is not acceptable to Buyer. Seller shall, in good
faith, amend this Agreement and the documents contemplated hereunder in order
that Buyer may obtain a favorable Ruling, if, in Seller's sole and reasonable
discretion, such amendments will not have a material adverse effect on Seller.
8.2 Tax Status. Seller and Buyer intend that,
for tax purposes only, the Production Payment will be treated as a mortgage
loan and not as an "economic interest" in the Assets. Buyer shall have no
recourse against Seller in the event that the Production Payment is not so
treated until the commencement of a Tax Audit, in which event the provisions of
Section 8.3 shall control.
8.3 Escrow in the Event of Tax Audit. Promptly
following the earlier to occur of (1) the date which is 90 days following
receipt by a member of Buyer of a notice from the IRS of the commencement of an
administrative proceeding at the partnership level pursuant to IRC Section
6223(a)(1) (a "Tax Audit"), or (2) the date of issuance by the IRS of either
(i) a notice of proposed adjustment with respect to any audit proceedings or
(ii) a so- called "60 day letter" (such earlier date, the "Escrow Commencement
Date"), Seller and Buyer shall enter into an Escrow Agreement with an escrow
agent, substantially in the form of Exhibit U; provided, however, that Buyer
may waive its rights to enter into such an Escrow Agreement, in which event the
provisions of Sections 8.3(a) through 8.3(e) shall not apply. If Buyer does
not waive its rights to an Escrow Agreement, the Escrow Agreement and the funds
in the "Escrow Account" established pursuant thereto shall be administered in
accordance with the following provisions:
(a) Beginning with the Payment Period
(as that term is defined in the Assignment) in which the Escrow
Commencement Date occurs and continuing for each Payment
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Period until the "Conclusion of a Tax Audit" (as that term is defined
below, with such period of time being the "Escrow Period"), Buyer
shall deposit into the Escrow Account the Expense Amount (as that term
is defined in Section 2.2(b) of the Management Agreement) for each
Payment Period (the "Escrow Amount" and the sum of all Escrow Amounts
being the "Escrowed Funds"). The Escrowed Funds shall not include any
funds which were due from Buyer to Seller prior to the Escrow
Commencement Date, but which were not paid to Seller. During the
Escrow Period, Buyer and Seller agree that (i) the Escrow Amount for a
particular Payment Period will be deducted from the Production
Payment, and (ii) the Expense Amount plus Gross Proceeds and Other
Income (as contemplated in the Assignment) will be sufficient to
perform all of the Services under the Management Agreement. If the
Production Payment for a given Payment Period is not equal to or
greater than the Escrow Amount, Buyer shall deposit the full amount of
the Production Payment into the Escrow Account for such Payment Period
and Seller shall deposit the excess of the Escrow Amount over the
amounts deposited by Buyer for such Payment Period into the Escrow
Account, provided that such deposit by Seller shall not exceed the
portion of the Expense Amount under the Management Agreement paid by
Buyer. For tax purposes only, Buyer shall be treated as the owner of
the Escrowed Funds.
(b) A Tax Audit will be deemed to have
concluded upon the earliest to occur of the following events: (i) the
receipt by Buyer of written notice from the IRS that it will not
assert any adjustments with respect to the transactions contemplated
by this Agreement; (ii) Buyer entering into a settlement agreement
with the IRS which resolves the open federal income tax issues in
connection with such transactions; (iii) a judgment of a court of law
or a decision in an administrative proceeding becoming non- appealable
with respect to the federal income tax issues in connection with such
transactions; or (iv) the expiration of the applicable period of
limitations for making assessments with respect to the years under
examination in the Tax Audit if the IRS has made no assessments within
such period with respect to such transactions (such earliest event
being deemed the "Conclusion of a Tax Audit").
(c) At the Conclusion of a Tax Audit,
Buyer and Seller agree to recalculate, pursuant to the provisions of
the second paragraph of this Section 8.3(c), any amounts due Buyer and
Seller pursuant to the terms of this Agreement for the Escrow Period,
taking into account the reduction, if any, in the Credit Payment
Amounts (as that term is defined in the Assignment) due for each
Payment Period during the Escrow Period resulting from the Tax Audit
(including any settlement described in Section 8.4). Buyer shall
receive from the Escrowed Funds an amount equal to 70% of the total
dollar amount of any reduction in Tax Credits available to
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Buyer with respect to hydrocarbon production from the Wells as a
result of the application of the preceding sentence, or Sections
8.3(d) and (e) as applicable, including interest thereon, for the
periods on or after the Escrow Commencement Date. Seller shall
receive all remaining Escrowed Funds, including interest thereon.
Except for such adjustment, there is no other obligation of Seller to
make any other payment to Buyer with respect to the Tax Audit, subject
to Section 12.8 below.
If, at the Conclusion of a Tax Audit, payments have been made into the
Escrow Account with respect to any Open Period, distributions from the
Escrow Account with respect to the Open Period (whether or not another
Tax Audit has commenced and remains outstanding with respect to such
period) shall, subject to Section 8.3(e), be shared under this Section
8.3(c) in accordance with the principles of any "no-change letter,"
binding settlement or final court decision or administrative
determination with respect to the Tax Audit or, if the statute of
limitations with respect to the Tax Audit expired without an IRS
adjustment having been imposed, in accordance with the terms of this
Agreement (in either case, the "Audit Terms"). An "Open Period" shall
mean any period not covered by a Tax Audit if there has been a
Conclusion of such Tax Audit.
Credit Payment Amounts which are credited or paid to Seller other than
from Escrowed Funds with respect to Open Periods shall, subject to the
second paragraph of Section 8.3(e), be computed in accordance with the
Audit Terms.
(d) If a new Tax Audit (the "New Tax Audit")
is commenced with respect to an Open Period before the expiration of
the applicable statute of limitations and after the Conclusion of a
Tax Audit, then a new Escrow Account shall not be established in
accordance with Section 8.3(a) with respect to such New Tax Audit, and
Credit Payment Amounts for the Open Period shall, subject to Section
8.3(e), continue to be computed in accordance with the applicable
Audit Terms.
(e) Upon the Conclusion of a New Tax Audit
with respect to an Open Period, the Credit Payment Amounts with
respect to the Open Period shall be recomputed in accordance with any
no-change letter, binding settlement or final court or administrative
decision resulting from the New Tax Audit.
If the statute of limitations for any Open Period expires without an
IRS adjustment having been imposed for such Open Period, the Credit
Payment Amounts with respect to such Open Period shall be recomputed
in accordance with the terms of this Agreement without regard to the
result of any Tax Audit, provided that such treatment is consistent
with
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Buyer's federal income tax returns (as amended) for such Open Period.
Buyer shall make reasonable efforts to claim all the Tax Credits
arising from the sale of production from the Assets during each Open
Period.
Promptly following a recomputation of Credit Payment Amounts pursuant
to the first two paragraphs of this Section 8.3(e), Buyer shall pay to
Seller (or Seller shall pay to Buyer) any amount to which Seller (or
Buyer) is entitled under such recomputation.
8.4 Settlements Resulting from a Tax Audit. If
Buyer elects to enter into a negotiated settlement with the IRS of any Tax
Audit adjustments, Buyer shall, in good faith, consult with Seller regarding
the suggested terms of such settlement; provided, however, that Buyer shall be
under no obligation to comply with any suggestion of Seller. Buyer shall
provide to Seller copies of all correspondence or pleadings between Buyer and
the IRS regarding any Tax Audit. Seller shall be entitled to monitor all
hearings and meetings with the IRS associated with such settlement
negotiations. Notwithstanding the foregoing, Section 12.8 shall govern
Seller's rights to monitor or control whether Tax Credits are available for
natural gas liquids.
9. Covenants.
9.1 Cooperation and Access. Seller shall fully
cooperate with Buyer's post-Closing due diligence efforts, both at Seller's
offices and at the site of the Assets.
9.2 Insurance. At or prior to the Closing,
Seller shall cause Buyer to be named as an additional insured on all insurance
policies Seller has that pertain in any way to the ownership and operation of
the Assets. At Closing, Seller will provide Buyer with Certificates of
Insurance naming Buyer as an additional insured, or other evidence,
satisfactory to Buyer, of compliance with this Section 9.2.
10. Closing Conditions.
10.1 Seller's Closing Conditions. The obligation
of Seller to consummate the transactions contemplated hereby is subject, at the
option of Seller, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Buyer contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Buyer to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
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(b) Closing Documents. Buyer shall have
executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Seller or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Seller resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, without violating the
terms of the Credit Agreement.
10.2 Buyer's Closing Conditions. The obligation
of Buyer to consummate the transactions contemplated hereby is subject, at the
option of Buyer, to the satisfaction on or prior to the Closing Date of all of
the following conditions:
(a) Representations, Warranties and
Covenants. The (1) representations and warranties of Seller contained
in this Agreement shall be true and correct in all respects on and as
of the Closing Date, and (2) covenants and agreements of Seller to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all respects.
(b) Closing Documents. Seller shall
have executed and delivered the documents which are contemplated to be
executed and delivered by it pursuant to Section 11 hereof prior to or
on the Closing Date.
(c) No Action. On the Closing Date, no
suit, action or other proceeding (excluding any such matter initiated
by Buyer or any of its affiliates) shall be pending or threatened
before any court or governmental agency or body of competent
jurisdiction seeking to enjoin or restrain the consummation of this
Agreement or recover damages from Buyer resulting therefrom.
(d) Bank Consents. On or before the
Closing Date, the banks and other lending institutions to which Seller
is obligated under the Credit Agreement shall have granted the
necessary consents and authorizations and shall have taken all other
required actions to allow Seller to enter into this Agreement and to
consummate the transactions
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contemplated hereby, without violating the terms of the Credit
Agreement.
(e) Engineering Confirmation.
Williamson Petroleum Consultants, Inc., using the same cost and
pricing assumptions as used in the Reserve Report, shall confirm that
Seller's estimates of the amount of reserves and estimated annual
production rates with respect to the Assets are, in the aggregate,
reasonable.
(f) Tax Opinion. On or before the
Closing Date, Buyer shall have received the Tax Opinion described in
Section 8.1.
11. Closing. The consummation of the transactions
contemplated hereby (the "Closing") shall occur, either in person or by
facsimile, at the offices of Davis, Graham & Stubbs LLP on the date of this
Agreement (the "Closing Date") or at such other time and place as the parties
may agree to in writing. At 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 (except where the documents involved
indicate otherwise):
11.1 Payment of Purchase Price. Buyer shall
deliver the Purchase Price by wire transfer to Seller's account in accordance
with written instructions supplied by Seller at least three days prior to the
Closing Date.
11.2 Section 15.2 Payment. Seller and Buyer shall
pay to the other, in cash or its equivalent, the amount due pursuant to Section
15.2, if any, as reimbursement for the expenses incurred in connection with
this transaction.
11.3 Notice of Preferential Rights and Consents.
Seller shall deliver to Buyer a copy of the notices sent to and any responses
received from third parties regarding preferential rights to purchase and
consents affecting the Assets with respect to the transactions contemplated by
this Agreement.
11.4 Release of Mortgages and Liens. Seller shall
deliver to Buyer releases of mortgages and other liens held by the banks and
other lending institutions to which Seller is obligated under the Credit
Agreement.
11.5 Assignment; Option. Seller and Buyer shall
execute and deliver the Assignment and the Option. In addition, Seller shall
prepare and Seller and Buyer shall execute such other conveyances on official
forms and related documentation necessary to transfer the Assets to Buyer in
accordance with requirements of governmental regulations; provided, however,
that any such separate or additional conveyances required pursuant to this
Section 11.5 or pursuant to Section 15.1 (i) shall evidence the conveyance and
assignment of the Assets made or intended to
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be made in the Assignment, (ii) shall not modify or be deemed to modify any of
the terms, reservations, covenants and conditions set forth in the Assignment,
and (iii) shall be deemed to contain all of the terms, reservations and
provisions of the Assignment, as though the same were set forth at length in
such separate or additional conveyance.
11.6 Non-Foreign Ownership Affidavits. Seller
shall deliver to Buyer the affidavits of non-foreign ownership substantially in
the form of Exhibit N, one stating that Seller is a non-foreign entity for
federal income tax purposes, and the other stating that there is no obligation
for Colorado withholding tax under C.R.S. Section 39-22-604.5.
11.7 Ratification of Obligations. Buyer shall
cause its members (Fontenelle, Inc., Bald Prairie, Inc. and SSB Investments,
Inc.), FMR Corp. and State Street Boston Corporation to execute and deliver to
Seller a ratification of their respective obligations under the Contribution
Agreements and Guaranty Agreements contemplated in that Purchase and Sale
Agreement dated December 1, 1995 between Buyer and Seller. The ratification
shall be substantially in the form of the Ratification of Obligations attached
hereto as Exhibit O.
11.8 Evidence of Insurance. Seller shall provide
Buyer with certificates from Seller's insurers or other evidence that Buyer has
been named an additional insured on Seller's policies affecting the Assets.
11.9 Seller's Officer's Certificate. Seller shall
execute and deliver to Buyer the Officer's Certificate, substantially in the
form attached as Exhibit P.
11.10 Opinion on Behalf of Seller. Seller shall
deliver to Buyer the opinion substantially in the form set forth in Exhibit Q.
11.11 Buyer's Manager's Certificate. Buyer shall
execute and deliver to Seller the Manager's Certificate substantially in the
form attached as Exhibit R.
11.12 Opinion on Behalf of Buyer. Buyer shall
deliver to Seller the opinion of Davis, Graham & Stubbs LLP, substantially in
the form set forth in Exhibit S.
11.13 Management Agreement. Buyer and Seller shall
execute and deliver to the other the Management Agreement (the "Management
Agreement") and Memorandum of Management Agreement and Power of Attorney
substantially in the forms set forth in Exhibit T.
11.14 Performance Power of Attorney. Buyer shall
execute and deliver to Seller counterparts of a Limited Power of Attorney,
substantially in the form of Exhibit V.
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11.15 Tax Opinion. Buyer shall deliver to Seller a
copy of the Tax Opinion of AA.
11.16 Consent to Amendments of LLC Agreement.
Seller shall deliver its consent and shall cause Orion Acquisition, Inc. and
Wattenberg Resources Land, L.L.C. to deliver to Buyer their respective consent
to the amendments to Sections 2.8, 3.2(a) and 9.2 of Buyer's Limited Liability
Company Operating Agreement, amended and restated as of April 25, 1996, May 21,
1996, June 14, 1996 and June 28, 1996.
11.17 Additional Instruments. Seller and Buyer
shall execute, acknowledge and deliver to each other such additional
instruments as are reasonable and customary to accomplish the purposes of this
Agreement.
12. Post-Closing Matters.
12.1 Files and Records. Following Closing, Seller
shall retain physical possession of all lease files, land files, division order
files, production marketing files and production records in Seller's possession
relating to the Assets (the "Records"). However, except to the extent that
Buyer's inspection thereof would violate legal constraints or legal
obligations, Buyer shall have the right to inspect the Records in Seller's
offices at any reasonable time. At Buyer's request in writing (which written
request may be delivered by facsimile), to the extent that Seller's delivery
thereof would not violate legal constraints or legal obligations, Seller shall
make copies of the Records or materials in the Records at Seller's expense and
shall deliver said copies to Buyer at Seller's expense, provided that Seller
may charge Buyer the actual costs for such copies and delivery if such costs
exceed $250 per request. If Buyer requires copies of the Records for its own
account, Seller will permit Buyer, at Buyer's own expense, to make copies of
pertinent material contained in the Records to the extent such action would not
violate legal constraints or legal obligations.
12.2 Sales Taxes and Recording Fees. Seller shall
be responsible for making the payment to the proper authorities of all taxes
and fees occasioned by the sale of the Assets, including without limitation,
any transfer fees and sales taxes (which are to be apportioned one-half to
Seller and one-half to Buyer), and any documentary, filing and recording fees
required in connection with the filing and recording of any assignments or
conveyances delivered hereunder in the appropriate county, federal and/or state
records.
12.3 Purchase Price Rebates for Defective
Interests. In addition to the remedy provisions of Section 12.8, Buyer shall
be entitled to the following rebate if Seller does not have Defensible Title to
the Assets. At any time and from time to time if Buyer discovers that Seller
breached the
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representation and warranty set forth in Section 7.8 or 7.12, Buyer may give
Seller a Notice of Defective Interests, which notice shall describe the
Defective Interest and the basis for the Defective Interest. Buyer shall be
entitled to a rebate in the Purchase Price for a Defective Interest which shall
equal the difference between the Purchase Price and the product of the Purchase
Price multiplied by a fraction, the numerator of which is the volume of
reserves (net to Buyer) allocated to the Wells not affected by the Defective
Interest and the denominator of which is the total volume of reserves (net to
Buyer) allocated to all of the Wells in the Reserve Report; provided, however,
that if the Defective Interest does not remain in effect during the entire
productive life of the subject Well, such fact shall be taken into account in
determining the amount of the rebate in the Purchase Price.
The rebate of the Purchase Price calculated above shall be
paid from Seller to Buyer if and only if the aggregate amount to be rebated
with respect to all Defective Interests exceeds a threshold of $35,000, and if
such amount is exceeded, the rebate shall be made for all Defective Interests.
In addition to rebating a portion of the Purchase Price on account of Defective
Interests, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, by multiplying such amount or number,
as the case may be, by a fraction, the numerator of which is the aggregate
volume of reserves associated with the Assets without such Defective Interest
and the denominator of which is the total volume of reserves allocated to all
of the Assets.
12.4 Purchase Price and Other Rebates for
Exercised Preferential Purchase Rights, Failure to Obtain Consents. If the
holder of any preferential purchase right exercises such right and Seller
cannot validly convey the affected Asset to Buyer, or if a required consent
(except for Governmental Consents) to assign is not obtained or deemed obtained
within 45 days following Closing and the affected Asset cannot be validly
conveyed to Buyer, a portion of the Purchase Price shall be rebated for the
value of such affected Asset and such affected Asset shall be excluded from the
Assets conveyed to Buyer pursuant to the terms hereof (collectively the
"Excluded Assets"). The amount of the rebate in the Purchase Price for an
Excluded Asset shall be determined in accordance with the provisions of Section
12.3. In addition to rebating a portion of the Purchase Price on account of
Excluded Assets, Buyer and Seller agree that all other express dollar amounts,
numbers or volumes set forth in this Agreement, the Assignment and Option,
shall each be decreased, as appropriate, for the Excluded Assets in accordance
with the provisions of Section 12.3.
12.5 Reconveyance of Excluded Assets. Seller
shall provide to Buyer, within 45 days following Closing, copies of all
responses from third parties regarding the notices sent to
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such third parties pursuant to Section 11.3. Upon written request from Seller,
Buyer shall reconvey to Seller all Excluded Assets, free and clear of any
burdens, liens and encumbrances created by, through or under Buyer.
12.6 Allocation of Commingled Production and
Costs. Seller may have interests in the lands covered by the Leases that are
not part of the Assets ("Seller's Interests"), which are producing hydrocarbons
into a Well and such hydrocarbons are commingled with the hydrocarbons produced
from the Assets. Seller shall use reasonable efforts to ensure that
hydrocarbon production from the Wells is allocated between Seller's Interests
and the Assets on a reasonable basis, consistent with industry standards and in
accordance with procedures, if any, that have been approved by appropriate
state and federal agencies. Costs and expenses shall be allocated between the
Seller's Interests and the Assets in accordance with the allocation of
production between the Seller's Interests and the Assets; provided that costs
and expenses directly attributable to Seller's Interests shall be allocated to
such Seller's Interests, and costs and expenses directly attributable to the
Assets shall be allocated to and debited against the Net Profits Account under
the Assignment.
12.7 Performance of Buyer. Seller shall be
entitled to the remedy of specific performance of Buyer's obligations under
this Agreement in order to be assured of the benefits contemplated under this
Agreement, the Assignment, Option or Management Agreement. Should Buyer fail
to perform any obligation under this Agreement, the Assignment, Option or
Management Agreement, which if unremedied would have a material adverse effect
on Seller, then Seller may give written notice to Buyer of such failure to
perform. If Seller gives such notice and Buyer does not remedy such failure
within 60 days of receipt of such notice, in addition to the remedy of specific
performance, Seller shall have the right to cause the attorney-in-fact of Buyer
identified in the Limited Power of Attorney to execute an Assignment, Bill of
Sale and Conveyance in a form substantially similar to that set forth in
Exhibit V covering any or all of the Assets which are adversely affected by
such failure. Seller and Buyer expressly waive any and all claims against the
attorney-in-fact named in the Limited Power of Attorney and any right to enjoin
such attorney-in-fact.
12.8 Overpayments. For purposes of this Section 12.8, the
term "Payment Period" shall have the meaning given it in the Assignment.
(i) If at any time Buyer is determined to have
paid Seller more than the amount then due with respect to any Credit
Payment Amount as a result of a breach by Seller of its
representations and warranties in Section 7, then as Buyer's exclusive
remedy, Seller shall be obligated to return any such overpayment,
limited to amounts actually
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paid to Seller by Buyer, after Buyer notifies Seller of the amount of
such overpayment and provides Seller substantiation thereof.
Alternatively, Buyer may elect to offset the amount of any such
overpayment against future Credit Payment Amounts.
(ii) The Credit Payment Amount shall include
payments for credits attributable to natural gas liquids produced from
the Subject Hydrocarbons until Buyer provides Seller with (a) a copy
of a published or private ruling, court decision or other authority
which supports the position that IRC Section 29 credits are not
available for such natural gas liquids (the "IRS Position"), and (b)
an opinion reasonably satisfactory to Seller from a "big-six"
accounting firm (or other accounting or law firm acceptable to both
Seller and Buyer) that, in its view, there is not "substantial
authority" under IRC Section 6662 for taking a position that is
contrary to the IRS Position.
(iii) After Buyer provides Seller with an authority
and an opinion in accordance with Section 12.8(ii), the Credit Payment
Amount shall no longer include payments for Tax Credits which are
inconsistent with the IRS Position until Seller provides Buyer with
(a) a copy of a published or private ruling, court decision or other
authority which is contrary to the IRS Position, and (b) an opinion
reasonably satisfactory to Buyer from a "big-six" accounting firm (or
other accounting or law firm acceptable to both Seller and Buyer)
that, in its view, there is "substantial authority" under IRC Section
6662 for taking a position that is contrary to the IRS Position.
(iv) After Seller provides Buyer with a copy of an
authority and an opinion in accordance with Section 12.8(iii), (a) the
Credit Payment Amount shall thereafter include payments for Tax
Credits based upon the position of such opinion (unless and until
Buyer again provides Seller with a copy of an authority and an opinion
in accordance with Section 12.8(ii) with respect to such position),
and (b) the Credit Payment Amount for the first Payment Period
following the receipt of such opinion shall include an amount equal to
the increase in prior Credit Payment Amounts that would result from
recomputing the prior Credit Payment Amounts in accordance with the
position of such opinion.
(v) If the IRS asserts in a Tax Audit that IRC
Section 29 credits are not available for portions of production (the
"Disputed Production") from the Subject Hydrocarbons on the ground
that IRC Section 29 credits are not available for natural gas
liquids, then (a) the computation of the Credit Payment Amount shall
continue to include Tax Credits from the sale of natural gas liquids
subject to Sections 12.8(ii) and (iii) above; (b) Expense Amounts
attributable to the production from the Subject Hydrocarbons shall be
escrowed
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and distributed as required by, and in accordance with, the provisions
of Section 8.3 (if Buyer has not waived its rights to have such
amounts escrowed pursuant to Section 8.3); and (c) Seller shall have
the right to participate, in accordance with the provisions of Section
12.8(vii), in challenging the IRS Position that natural gas liquids do
not qualify for IRC Section 29 credits.
(vi) Should Buyer receive either a 90-day letter
or final partnership administrative adjustment (either, an
"Adjustment") holding that Tax Credits are not available for Disputed
Production, then Seller shall pay Buyer within 60 days of the receipt
by Seller of a copy of the Adjustment, an amount equal to 70% of the
amount of all IRC Section 29 credits with respect to Disputed
Production prior to the applicable Escrow Commencement Date which were
disallowed in the Adjustment, such payment not to exceed the Expense
Amount previously paid by Buyer with respect to such Disputed
Production. Upon the Conclusion of the applicable Tax Audit, Buyer
shall repay to Seller any portion of the amount paid pursuant to the
preceding sentence that would not have been payable if the Adjustment
had conformed to the determinations reached in the Conclusion of the
Tax Audit.
(vii) Buyer agrees to keep Seller fully and
promptly informed of all administrative and court proceedings with
respect to the qualification of natural gas liquids for IRC Section
29 credits. Upon the commencement of any such proceeding, Seller
shall have the right to participate, at its own expense, in
challenging the IRS Position that natural gas liquids do not qualify
for IRC Section 29 credits. Buyer shall fully cooperate in any such
challenge, including without limitation the execution of protests,
petitions and complaints if requested by Seller in the course of such
challenge, and the determination of the nature, method, timing, forum,
strategy, issuances of and response to settlement proposals, counsel
and issues in connection with such challenge shall be at the
discretion of Seller. Seller shall indemnify and hold harmless Buyer
with respect to any liability incurred in connection with providing
such cooperation, and shall reimburse Buyer for all costs incurred (as
incurred and in no event less frequently than quarterly) in doing so,
including reimbursement for a reasonable amount of internal overhead,
and reasonable attorneys' and accountants' fees. If, in connection
with requests for cooperation with respect to such a challenge, Buyer
determines that it is likely to incur an expense to a third party
other than its own attorneys and accountants, then, before incurring
the expense, Buyer shall promptly give notice to Seller. If Seller
declines to reimburse Buyer for the actual amount to be expended in
complying with such request, then Buyer shall be excused from
complying with such request.
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For purposes of this Section 12.8, the term "Expense Amount" shall have the
meaning given it in Section 2.2(b) of the Management Agreement.
12.9 Representations of Seller and Buyer to
Survive Closing. The representations of Seller under Section 7 above, and the
representations of Buyer under Section 6 above, shall survive Closing.
13. Apportionment of Liabilities and Obligations.
13.1 Buyer. Upon Closing, Buyer shall assume and
pay for all costs, expenses, liabilities and obligations accruing or relating
to the owning, operating or maintaining of the Assets or the producing,
transporting and marketing of hydrocarbons from the Assets, relating to periods
on and after the Effective Date, including without limitation, environmental
obligations and liabilities, off-site liabilities associated with the Assets,
the obligation to plug and abandon all Wells and reclaim all Well sites and all
obligations arising under agreements covering or relating to the Assets
(collectively, the "Post-Effective Date Liabilities").
13.2 Seller. Upon Closing, Seller shall retain,
assume and pay for all costs, expenses, liabilities and obligations accruing or
relating to the owning, operating or maintaining of the Assets or the
producing, transporting and marketing of hydrocarbons from the Assets, relating
to periods before the Effective Date, including without limitation,
environmental obligations and liabilities, the obligation to plug and abandon
wells (to the extent relating to periods prior to the Effective Date), off site
liabilities associated with the Assets, and all obligations arising under
agreements covering or relating to the Assets (collectively, the "Pre-Effective
Date Liabilities").
14. Indemnification. For the purposes of this Agreement,
"Losses" shall mean any actual loss, cost and expense (including reasonable
fees and expenses of attorneys, technical experts and expert witnesses),
liability, and damage (including those arising out of demands, suits, sanctions
of every kind and character); provided, however, that in no event shall
"Losses" be deemed to include consequential damages of a party to this
Agreement.
14.1 Buyer's Indemnification of Seller. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Buyer shall indemnify and hold harmless Seller, its officers,
directors, shareholders, employees, representatives, agents, successors and
assigns, forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Post-Effective Date Liabilities, and (ii)
Buyer's breach of its representations, warranties and covenants in this
Agreement.
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14.2 Seller's Indemnification of Buyer. Subject
to the terms of and the indemnification obligations contained in the Management
Agreement, Seller shall indemnify and hold harmless Buyer; its officers;
directors; members; employees; representatives; agents; successors and assigns;
and the employees, representatives, agents, successors and assigns of such
members forever, from and against all Losses and interest thereon which arise
from or in connection with (i) the Pre-Effective Date Liabilities, and (ii)
Seller's breach of its representations, warranties and covenants in this
Agreement regardless of Seller's knowledge if such representations or
warranties are knowledge qualified, provided that the matters contemplated in
this clause (ii) shall not apply to the representations set forth in Section
7.6. Buyer and Seller shall cooperate fully and consult in good faith with
each other in the litigation of any matter identified in this Section 14.2.
Notwithstanding any of the foregoing provisions of this Section 14.2,
Buyer shall be entitled to payment for matters indemnified under this Section
14.2 only after a court of competent jurisdiction makes a final determination
regarding the matter litigated; provided that such payment shall cover only
Losses incurred by Buyer which have not been remedied by Seller under the
escrow provisions of Section 8.3 above and/or the overpayment provisions of
Section 12.8 above.
14.3 Third Party Claims. If a claim by a third
party is made against Seller or Buyer (an "Indemnified Party"), and if such
party intends to seek indemnity with respect thereto under this Section 14,
such Indemnified Party shall promptly notify Buyer or Seller, as the case may
be (the "Indemnitor"), of such claim. The Indemnitor shall have 30 days after
receipt of such notice to undertake, conduct and control, through counsel of
its own choosing and at its own expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with it in connection therewith; provided
that the Indemnitor shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by such Indemnified Party,
however, the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as the Indemnitor, at its cost and expense, (1) has
undertaken the defense of, and assumed full responsibility for all Losses with
respect to, such claim, and (2) is reasonably contesting such claim in good
faith, by appropriate proceedings, the Indemnified Party shall not pay or
settle any such claim. Notwithstanding compliance by the Indemnitor with the
preceding sentence, the Indemnified Party shall have the right to pay or settle
any such claim, provided that in such event it shall waive any right to
indemnity therefor by the Indemnitor for such claim. If, within 30 days after
the receipt of the Indemnified Party's notice of a claim of indemnity
hereunder, the Indemnitor does not notify the Indemnified Party that it elects,
at Indemnitor's cost and expense, to undertake the defense thereof and assume
full responsibility for all Losses with respect thereto, or gives such notice
and thereafter fails
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to contest such claim in good faith, the Indemnified Party shall have the right
to contest, settle or compromise the claim but shall not thereby waive any
right to indemnity therefor pursuant to this Agreement.
15. Miscellaneous.
15.1 Further Assurances. After Closing, Seller
and Buyer shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered such instruments and take such other action as may
be reasonably necessary or advisable to carry out the purposes and intents of
this Agreement and any document, certificate or other instrument delivered
pursuant hereto.
15.2 Expenses. Seller and Buyer each agree to pay
one-half of the reasonable costs and expenses of Williamson Petroleum
Consultants, Inc., Arthur Andersen LLP and Davis, Graham & Stubbs LLP incurred
in connection with this transaction, subject to receipt of evidence and
substantiation thereof. Such costs and expenses shall not include any costs or
expenses associated with the Tax Opinion. Seller and Buyer shall pay their
respective amount of taxes and fees, apportioned to each under Section 12.2.
15.3 Notices. All notices under this Agreement
shall be in writing and addressed as set forth below. Any communication or
delivery hereunder shall be deemed to have been duly made and the receiving
party charged with notice (i) if personally delivered or telecopied, when
received, (ii) if mailed, three business days after mailing, certified mail,
return receipt requested, or (iii) if sent by overnight courier, one day after
sending. All notices shall be addressed as follows:
If to Seller:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Buyer:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
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with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Any party may, by written notice so delivered to the other party, change the
address or individual to which delivery shall thereafter be made.
15.4 Survival. The representations, warranties,
covenants, agreements and indemnities included or provided in this Agreement
shall survive the Closing. The doctrine of merger shall not cause any
representation, warranty, covenant, agreement or indemnity under this Agreement
to terminate as a result of Buyer and Seller entering into the Assignment,
Option or any other instrument contemplated hereunder.
15.5 Confidentiality. Buyer and Seller shall keep
this Agreement confidential except to the extent each may be required to
disclose the contents hereof by recording the Assignment, Option, and
Memorandum of Management Agreement and Power of Attorney in the real property
records in the counties where the Assets are located or filing the official
forms of conveyances covering the Assets with appropriate governmental
authorities, the IRS or to the extent required in the operation of the Assets,
pursuant to the Management Agreement, by law, regulation or order, in
connection with obtaining third party consents and waivers of preferential
purchase rights and other matters, or in connection with any public
announcement issued in accordance with Section 15.6 hereof.
15.6 Announcements. Seller and Buyer shall
consult with each other regarding all press releases and other public
announcements issued at, prior to or following Closing concerning this
Agreement or the transactions contemplated hereby and except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange. Neither Buyer nor Seller shall issue any such press
release or other public announcement without the prior written consent of the
other party, which consent will not be unreasonably withheld. In all such
press releases and other
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public announcements, Seller shall refer to Buyer as being affiliated with
large east coast financial institutions.
15.7 Assignment. Neither Buyer nor Seller may
assign its rights or delegate its duties or obligations under the terms of this
Agreement without the prior written consent of the other party, provided that
either Buyer or Seller may assign its rights, but not its obligations under
this Agreement, to any party (including any affiliated or nonaffiliated party)
as long as such assignment does not relieve the assigning party of its
obligations to the other party hereto, and provided further that Buyer may not
cause or permit an assignment, transfer, sale, alienation or other disposition
of all or any portion of the Assets which would result in the transferred
Assets becoming "plan assets" under the Employee Retirement Income Security Act
of 1974, as amended.
15.8 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
successors and, subject to Section 15.7 hereof, their assigns.
15.9 Complete Agreement. When executed by the
authorized representative of Seller and Buyer, this Agreement, the Exhibits
hereto and the documents to be delivered pursuant hereto shall constitute the
complete agreement between the parties. This Agreement may be amended only by
a writing signed by both parties.
15.10 Knowledge. As used in this Agreement, the
term "knowledge," "best knowledge" or any variations thereof shall mean the
actual knowledge of any fact, circumstance or condition by the officers or
employees at a manager or higher level of the party involved as such knowledge
has been obtained in the performance of their duties in the ordinary course of
business after making reasonable and appropriate inquiries.
15.11 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF COLORADO
WITHOUT REFERENCE TO THE CONFLICT OF LAW PROVISIONS THEREOF.
15.12 Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each party and delivered to the other party.
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EXECUTED as of the date first above mentioned.
BUYER:
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Gary L. Greenstein
Vice President
SELLER:
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
Vice President
- - ----------------------------
Name: James M. Piccone
Title: Secretary
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<PAGE> 36
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
------------------------------
Notary Public
My commission expires:
--------------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me
this 2nd day of July, 1996 by Gary L. Greenstein, Vice President of
Fontenelle, Inc., a Delaware corporation, Manager of Wattenberg Gas
Investments, LLC, a Delaware limited liability company on behalf of the
company.
Witness my hand and official seal.
-------------------------------
Notary Public
My commission expires:
------------------
(SEAL)
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<PAGE> 37
EXHIBITS
Exhibit A Leases (Weld County, Colorado)
Exhibit B Wells (showing WI, NRI, qualifying formations)
Exhibit C Form of Wellbore Assignment of Oil and Gas Leases with
Reservation of Production Payment
Exhibit D Form of Option to Purchase Oil and Gas Interests
Exhibit E Reserve Report
Exhibit F Preferential Purchase Rights and Consents
Exhibit G Prepayments
Exhibit H Gas Imbalances
Exhibit I Operations in Progress
Exhibit J Hydrocarbon Sales Contracts
Exhibit K Legal Proceedings
Exhibit L Tax Partnerships
Exhibit M Well List - No NGPA Application Filed
Exhibit N Form of Non-Foreign Ownership Affidavits
Exhibit O Form of Ratification of Obligations
Exhibit P Form of Seller's Officer's Certificate
Exhibit Q Form of Opinion on Behalf of Seller
Exhibit R Form of Buyer's Manager's Certificate
Exhibit S Form of Opinion on Behalf of Buyer
Exhibit T Form of Management Agreement
Exhibit U Form of Escrow Agreement
Exhibit V Form of Limited Power of Attorney
<PAGE> 38
EXHIBIT C
WELLBORE ASSIGNMENT OF OIL AND GAS LEASES
WITH RESERVATION OF PRODUCTION PAYMENT
THIS WELLBORE ASSIGNMENT OF OIL AND GAS LEASES WITH
RESERVATION OF PRODUCTION PAYMENT (this "Assignment") is made effective as of
July 1, 1996 (the "Effective Date") by and between HS Resources, Inc., a
Delaware corporation, 1999 Broadway, Suite 3600, Denver, Colorado 80202 (herein
called "Grantor"), and Wattenberg Gas Investments, LLC, a Delaware limited
liability company, 82 Devonshire Street, R22C, Boston, Massachusetts 02109
(herein called "Grantee").
ARTICLE 1
CERTAIN DEFINITIONS AND REFERENCES
1.1 CERTAIN DEFINED TERMS. When used in this Assignment, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the sections and subsections referred to below:
"Affiliate" shall mean (a) any person directly or indirectly
owning, controlling or holding with power to vote 50% or more of the
outstanding voting securities of Grantee, (b) any person 50% or more
of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by Grantee, (c) any
person directly or indirectly controlling, controlled by or under
common control with Grantee, and (d) any officer, director or partner
or member of Grantee or any person described in clause (c) of this
definition.
"Assignment" is defined in the first paragraph above.
"Business Day" shall mean a day on which commercial banks are
open for business in both the Commonwealth of Massachusetts and the
State of Colorado.
"Credit Payment Amount" shall mean, for any Payment Period, an
amount equal to $0.70 of each dollar of tax credits (the "Tax
Credits") available to Buyer under Section 29 of the IRC, as a result
of the sale of Subject Hydrocarbons by or on behalf of Buyer, to the
extent that such Subject Hydrocarbons (i) constitute "qualified fuels"
within the meaning of IRC Section 29(c), (ii) meet the requirements
of IRC Sections
29(d)(1), 29(d)(4) and 29(f), during (x) such Payment Period and (y)
any earlier Payment Period to the extent the dollar amount of Tax
Credits attributable thereto was not taken into account in a Credit
Payment Amount for a previous Payment Period, and (iii) are produced
from the Wells. For
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purposes of the preceding sentence, Tax Credits available to Buyer
under IRC Section 29 shall be determined after taking into account
any phase-out of Tax Credits under IRC Section 29(b)(1) and any
applicable inflation adjustment under IRC Section 29(b)(2), but shall
be determined without regard to limitations on Buyer's or its
affiliate's use of Tax Credits imposed by IRC Section 29(b)(6) and
without regard to whether Buyer or its affiliates actually utilize
such Tax Credits. The Credit Payment Amount for any given Payment
Period shall initially be based on estimated Subject Hydrocarbon
production and sales data available at the time of the calculation of
such amount and later corrected when actual data is available. The
Credit Payment Amount shall be determined on the assumption that (i)
the Production Payment is treated as a production payment for federal
income tax purposes, and (ii) Buyer is treated as owning the economic
interest in minerals in place in the Assets. Credit Payment Amounts
shall be calculated and, unless otherwise provided, will be due and
payable with respect to gas produced and sold from July 1, 1996 until
the earlier of (x) the aggregate of all Credit Payment Amounts paid
pursuant to this Agreement equals $2,250,000 (subject to the
provisions of Paragraph 1.a.(vii) of the Option), (y) December 31,
2002, or (z) the first day on which Tax Credits are no longer
permitted for gas attributable to the Subject Hydrocarbons and
produced and sold from the Wells. The Credit Payment Amount shall
include, without limitation, payments for Tax Credits attributable to
natural gas liquids produced from the Subject Hydrocarbons, subject to
the provisions of Sections 7.23 and 12.8 of the Purchase Agreement.
If for any reason the Tax Credits are repealed by Congressional
statute or resulting regulation, no Credit Payment Amount shall be due
with respect to Subject Hydrocarbons subject to such repeal. If for
any reason the amount of Tax Credits contemplated under this Agreement
are reduced by Congressional statute or resulting regulation, the
Credit Payment Amounts due under this Agreement shall be reduced
commensurate with such reduction in Tax Credits.
"Effective Date" is defined in the first paragraph.
"Full Production Date" shall mean the date on which the total
volume of gas attributable to the Subject Hydrocarbons produced, saved
and sold from and after the Effective Date equals a volume equivalent
to 8,444,327 MCF (wellhead gas, net to Grantee); provided that such
volume shall be decreased by an amount, if any, equal to the aggregate
volume of reserves allocated to properties on which Grantor has
exercised the Option.
"Grantee" shall mean Grantee as defined in the first paragraph
of this Assignment, and its successors and assigns and, unless the
context in which used shall otherwise
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require, such term shall mean any successor-owner at the time in
question of any or all of the Subject Interests.
"Grantor" shall mean Grantor as defined in the first paragraph
and its successors and assigns; and, unless the context in which used
shall otherwise require, such term shall mean any successor-owner at
the time in question of any or all of the Production Payment.
"Gross Proceeds" shall have the meaning assigned to it in
Section 4.2(a).
"IRC" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Leases" is defined in Section 2.1(a).
"Management Agreement" means the Management Agreement between
an Grantor and Grantee dated effective as of July 1, 1996.
"Measurement Amount" is defined in Section 4.5.
"Net Profits" for any Payment Period shall mean the net
balance, positive or negative, resulting after application of the
credits and debits as provided in Sections 4.2 and 4.3 for such
period.
"Net Profits Account" shall have the meaning assigned to it in
Section 4.1.
"Non-Affiliate" shall mean any Person who is not an Affiliate.
"Option" shall mean that Option to Purchase Oil and Gas
Interests between Grantee and Grantor dated effective as of July 1,
1996.
"Other Income" is defined in Section 4.2(b).
"Payment Period" shall mean a calendar quarter, provided that
the first Payment Period shall mean the period from the Effective Date
until the end of the calendar quarter during which the Effective Date
occurs, and the last Payment Period shall mean the portion of the
calendar quarter during which the Termination Date occurs from the
beginning of such calendar quarter until and including the Termination
Date.
"Person" shall mean any natural person, association, trust,
partnership, limited liability company, corporation or other legal
entity.
"Production Payment" is defined in Section 3.1.
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"Production Payment Period" shall mean the period from the
Effective Date until and including the Termination Date.
"Production Sales Contracts" shall mean all contracts,
agreements and arrangements for the sale or disposition of Subject
Hydrocarbons that may be produced from or attributable to the Subject
Interests, whether presently existing or hereafter created.
"Purchase Agreement" means the Purchase and Sale Agreement
between Grantor and Grantee dated June 28, 1996.
"Reversion Interest" is defined in Section 3.3.
"Subject Hydrocarbons" shall mean that portion of the oil, gas
and other minerals in and under and that may be produced, from and
after the Effective Date, from or attributable to the Subject
Interests and after deducting the appropriate share of all royalties
and any overriding royalties (other than those overriding royalties
conveyed herein), production payments (except the Production Payment)
and other similar charges burdening the Subject Interests on the
Effective Date or additional burdens created under the Management
Agreement. There shall not be included in the Subject Hydrocarbons
any oil, gas or other minerals unavoidably lost in production or used
by Grantee in conformity with good oil field practices for production
operations (including without limitation, fuel, secondary or tertiary
recovery) conducted solely for the purpose of producing Subject
Hydrocarbons from the Subject Interests, but only so long as such
Subject Hydrocarbons are so used.
"Subject Interests" is defined in Section 2.1.
"Termination Date" shall mean the day on which the total
volume of gas attributable to Subject Hydrocarbons produced, saved and
sold from and after the Effective Date equals 6,459,730 MCF (wellhead
gas, net to Grantee); provided that such volume shall be decreased by
an amount, if any, equal to the aggregate volume of Subject
Hydrocarbons on which Grantor has exercised the Option, multiplied by
the ratio of 6,459,730 to 8,444,327.
"Wells" is defined in Section 2.1(a).
1.2 REFERENCES AND TITLES. All references in this Assignment to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Assignment
unless expressly provided otherwise. Titles appearing at the beginning of any
of such subdivisions are for convenience only and shall not constitute part of
such subdivisions and shall be disregarded in construing the language contained
in such subdivisions. The words "this Assignment", "this instrument",
"herein", "hereof",
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"hereby", "hereunder" and words of similar import refer to this Assignment (and
reservation of Production Payment) as a whole and not to any particular
subdivision unless expressly so limited. Words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires. All references in this Assignment to Exhibits or Schedules refer to
exhibits or schedules to this Assignment unless expressly provided otherwise,
and all such Exhibits or Schedules are hereby incorporated herein by reference
and made a part hereof for all purposes.
ARTICLE 2
ASSIGNMENT
2.1 For and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, TRANSFER,
ASSIGN, and CONVEY unto Grantee, its successors and assigns, all of the
following (the "Subject Interests"):
(a) The right, title and interest of Grantor in and to
the oil and gas leases described in Exhibit A (attached hereto and
made a part hereof for all purposes) insofar and only insofar as said
leases cover the right to produce from the wellbores of the wells
described in Exhibit B (attached hereto and made a part hereof for all
purposes) from the intervals in such wells identified in Exhibit B as
of the Effective Date (the above described interest in such leases
being herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions, limitations,
burdens, contracts, agreements and other matters applicable to the
Leases and the Wells, and excluding such portion of the Leases and the
Wells which are not conveyed to Grantee because of Defective Interests
or which were determined to be Excluded Assets (as such terms are
defined in the Purchase Agreement);
(b) The right, title and interest of Grantor in and to
overriding royalty interests in the Leases insofar and only insofar as
the Leases cover the wellbores associated with the Wells from the
producing intervals identified in Exhibit B;
(c) To the extent affected, the right, title and interest
of Grantor in and to, or derived from, the following insofar and only
insofar as same are attributable to the Leases and the Wells:
(i) The presently existing and valid oil,
gas or mineral unitization, pooling, operating and communitization
agreements, declarations and orders
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affecting the Leases and Wells, and in and to the properties covered
and the units created thereby;
(ii) The personal property and fixtures that
are appurtenant to the Wells, including all wells, casing, tubing,
pumps, separators, tanks, lines and other personal property and oil
field equipment appurtenant to such Wells; provided, however, that
Grantor shall remain co-owner of any personal property appurtenant to
any property owned by Grantor that is not exclusively part of the
Wells;
(iii) The presently existing and valid gas
sales, purchase, production swap, gathering and processing contracts
and operating agreements, joint venture agreements, partnership
agreements, rights-of- way, easements, permits and surface leases and
other contracts, agreements and instruments (but specifically
excluding any management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in (c)(i) above; provided, however, that
Grantor shall remain co-owner of any agreements, including unitization
and pooling agreements, if they pertain to any property owned by
Grantor that is not exclusively part of the Leases and Wells;
reserving to Grantor, however, the Production Payment, the Reversion Interest
and the other rights reserved herein, all as provided in Article 3 below; to
have and to hold the Subject Interests forever.
ARTICLE 3
RESERVATIONS
3.1 PRODUCTION PAYMENT. Grantor reserves unto itself, and its
successors and assigns, from this Assignment a production payment payable out
of and only from Subject Hydrocarbons equal to 100% of the Net Profits derived
from the Subject Hydrocarbons; such production payment to be effective during
the Production Payment Period and such payment, in any Payment Period, not to
exceed the Gross Proceeds during such Payment Period, (the "Production
Payment"); and subject to the terms and conditions contained herein.
3.2 SURFACE AND OTHER USE. Grantor reserves unto itself, and its
successors and assigns, from this Assignment the right to use as much of the
surface of the acreage covered by the Leases as well as the wellbores conveyed
hereunder as may be necessary in the conduct of operations in those zones,
formations and depths not assigned to Grantee herein and on other property
owned or leased by Grantor. Grantor further reserves the right to drill
through the depths, zones and formations herein assigned to Grantee in
conducting any operations in the depths, zones and formations not assigned
herein or on other property owned or
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leased by Grantor, and also the right to drill, produce, operate and maintain
infill wells as permitted by regulatory agencies having jurisdiction over such
matters. Grantor reserves the right to jointly use any easements and
rights-of- way for its operations on the land covered hereby or on other lands
in the area.
3.3 REVERSION INTEREST AFTER FULL PRODUCTION DATE. Grantor
reserves unto itself, and its successors and assigns, an undivided 75% interest
in and to the Subject Interests from and after the Full Production Date (the
"Reversion Interest"); provided, however, that this reservation will not take
effect if the estimated net cash flow from operations and production of the
Subject Hydrocarbons remaining after the Full Production Date, when taken as a
whole, is not reasonably expected by Grantor in good faith to exceed the
estimated cost to plug and abandon the Wells. If the Full Production Date is
reached and this reversion becomes effective, Grantor and Grantee agree to
enter into a mutually acceptable Joint Operating Agreement to govern operation
of the Subject Interests after the Full Production Date, in form and substance
similar to the Model Form Operating Agreement typically used by Grantor at the
Full Production Date, naming Grantor as Operator. For the purposes of this
Section 3.3, net cash flow from operations and production means the excess of
revenue from production of Subject Hydrocarbons over the aggregate of operating
expenses, overhead costs and capital costs required to produce such Subject
Hydrocarbons.
3.4 SIDETRACK WELLBORE DRILLING RIGHTS. Grantor reserves unto
itself, and its successors and assigns, the right to drill sidetrack wellbores
and to produce oil, gas and other hydrocarbons from completions in such
sidetrack wellbores from the Wells with respect to the Leases, insofar and only
insofar as (i) such drilling operations are in accordance with local, state and
federal governmental authorities having jurisdiction over such operations, and
(ii) such drilling operations are conducted primarily to exploit oil and gas
reserves which cannot be economically or efficiently produced from the
wellbores of the Wells conveyed hereunder (the "Drilling Rights").
This reservation includes a corresponding right, title, interest and
estate in and to the property and rights incident to the Drilling Rights and
the lands covered thereby or unitized therewith, including, without limitation:
(1) A corresponding right to the presently existing oil, gas or
mineral unitization, pooling and communitization agreements,
declarations and orders relating to the Leases and the units
associated therewith (including, without limitation, all units formed
under orders, regulations, rules or other official acts of any
federal, state or other governmental agency having jurisdiction),
which relate to any of the Leases.
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(2) A corresponding right to the presently existing oil and gas,
sales, purchase, exchange and processing contracts, casinghead gas
contracts, operating agreements, joint venture agreements, area of
mutual interest agreements, farmout and farmin agreements and all
other contracts, agreements and instruments which relate to any of the
Leases or Wells and to the production of oil, gas and other minerals
from or attributable to the Leases or Wells, but only insofar as such
contracts, agreements and instruments relate to the rights conveyed
herein.
(3) A corresponding right to all personal property, improvements,
lease and well equipment, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or useful or held for future use
in connection with the exploration, development or operation or
maintenance of the Leases or Wells, or any unit or units or operation
or maintenance of the Leases or Wells, or any unit or units in which
part or parts of the Leases or Wells may be included.
(4) A corresponding right, title, interest and estate, whether
real, personal or mixed, of every nature and description in and to the
lands described on Exhibit A, whether such right, title, claim or
interest be under and by virtue of an oil, gas and mineral lease, an
operating agreement, a unitization, pooling or communitization
agreement, declaration or order, a division order, a transfer order or
any type of contract, conveyance or instrument, or under and by virtue
of any type of claim or title, legal or equitable recorded or
unrecorded, and even though Grantor's interests therein be incorrectly
described in or a description of such interest be omitted from the
exhibit thereto.
(5) A corresponding and concurrent right of ingress and egress to
and from the lands covered by the Leases for the purpose of exploring
for, drilling for, producing and marketing the hydrocarbons owned by
each of them at their respective depths and locations under the terms
of the Leases. Further, each party shall own and hold proportionally
any and all rights granted in the Leases or otherwise relating thereto
pursuant to any agreements, surface leases, permits, rights-of-way,
pooling declarations, licenses, governmental regulations or other
grant or instrument as incident to and for the purpose of exploring
for, drilling for and producing the minerals owned by them in their
respective depths and locations including the right to drill pursuant
to this Assignment, lay and maintain pipelines and waterlines, dig
pits, erect structures and to perform any and all other operations
incident to the rights and interests therein.
Grantor shall not be entitled to exercise the Drilling Rights as to
any well if such exercise would likely result in a
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termination of production from the associated Well for a period exceeding 90
days. Grantor shall promptly give Grantee reasonable notice concerning such
exercise, provided that such notice may be given either before or after the
commencement of the drilling of a sidetrack wellbore in a Well. All exercises
of the Drilling Rights must be conducted in accordance with the provisions of
the Sidetrack Wellbore Terms attached hereto as Schedule 1.
ARTICLE 4
PRODUCTION PAYMENT ACCOUNTING AND PAYMENT
4.1 ESTABLISHMENT OF NET PROFITS ACCOUNT. Grantee shall establish
and maintain a Net Profits Account (herein called the "Net Profits Account") in
accordance with the various provisions of this Assignment and at all times
during the Production Payment Period shall keep true and correct books and
records with respect thereto. Such books and records shall be open for
inspection, copying and audit by Grantor and its accountants and
representatives.
4.2 CREDITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be credited with an amount equal to the
sum of Credit Payment Amounts, Gross Proceeds and Other Income.
(a) "Gross Proceeds" shall mean, on an accrual basis, all
consideration, direct or indirect, from sales of Subject Hydrocarbons,
subject to the following:
(1) If a controversy exists (whether by reason of
any statute, order, decree, rule, regulation, contract, or
otherwise) as to the correct or lawful sales price of any
Subject Hydrocarbons, then at Grantor's sole election, Grantor
may choose to treat amounts and affected by such controversy
(i) as Gross Proceeds of Grantee, or (ii) not as Gross
Proceeds of Grantee and require Grantee to promptly deposit
such amounts with an escrow agent pending settlement of such
controversy, provided that all amounts, excluding any interest
or other income, thereafter paid to Grantee by such escrow
agent out of or on account of such escrow shall be considered
to be amounts from the sale of Subject Hydrocarbons. Amounts
of Grantee not deposited with an escrow agent shall be
considered Gross Proceeds;
(2) Gross Proceeds relating to any non-consent
operations conducted with respect to all or any part of the
Subject Hydrocarbons after the Effective Date shall be subject
to Section 5.8;
(3) Gross Proceeds shall not include any amount
which Grantee shall receive as a bonus for any lease or
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payments made to Grantor in connection with adjustment of the
cost of any Well and leasehold equipment upon unitization or
revision of participating areas under federal divided-type
units covering any of the Subject Hydrocarbons;
(4) Cash settlements and cash make-ups with
respect to the Subject Hydrocarbons under gas balancing or
similar agreements shall be considered derived from the sale
of Subject Hydrocarbons;
(5) The proceeds from (i) all insurance and (ii)
all judgments, claims and settlements, which are used to
remedy, replace or repair losses or damages actually incurred,
to the extent such proceeds relate to the production of
Subject Hydrocarbons; and
(6) Gross Proceeds shall not include Other
Income.
(b) "Other Income" shall mean, on an accrual basis, the following:
(1) Proceeds after the Effective Date from (i)
the sale of any materials, supplies, equipment and other
personal property or fixtures, or any part thereof or interest
therein, used in connection with the Subject Hydrocarbons,
(ii) delay rentals, (iii) lease bonuses, and (iv) rentals from
reservoir use or storage; including without limitation all
amounts attributable thereto by way of conformance of
investment in personal property and equipment if the Subject
Hydrocarbons or any part or parts thereof are hereafter from
time to time unitized or are affected by the revision of a
participating area in a federal divided-type unit;
(2) Proceeds from all insurance, other than to
remedy or repair losses or damages actually incurred, to the
extent such proceeds relate to the production of Subject
Hydrocarbons, (i) the cost of which is charged to the Net
Profits Account, directly or indirectly, and/or (ii) that
accrue to Grantee as a consequence of the loss or damage to
any one or more of the following which occurs after the
Effective Date: the Subject Hydrocarbons, or any part thereof
or interest therein, the interest of Grantee in any materials,
supplies, equipment or other personal property or fixtures
used in connection with any of the Subject Hydrocarbons;
except to the extent such amounts are used to repair or
replace the items damaged or lost giving rise to the receipt
of such amounts;
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(3) Amounts from a purchaser of Subject
Hydrocarbons (i) as a prepayment of any portion of the sales
price for such Subject Hydrocarbons, (ii) as advance gas
payments or (iii) as payments pursuant to contractual
provisions providing for "take-or-pay" payments (including
amounts awarded by a court or agreed to by the parties in any
settlement of a claim (net of costs and attorneys' fees
incurred in connection therewith) as damages for the failure
or refusal of the purchaser to take Subject Hydrocarbons
pursuant to the contract which contains such provisions) shall
be considered to be from the sale of Subject Hydrocarbons;
provided that such amounts shall not be considered to be from
the sale of Subject Hydrocarbons at a later date when Subject
Hydrocarbons are delivered in respect of any such payments
under "make-up" or similar provisions;
(4) Proceeds from (i) all insurance and (ii) all
judgments, claims and settlements, for damages to one or more
of the following which occurs after the Effective Date: to
the extent such proceeds relate to the production of Subject
Hydrocarbons, or any part thereof or interest therein; any
materials, supplies, equipment or other personal property or
fixtures, or any part thereof or interest therein, used in
connection with any of the Subject Hydrocarbons; except to the
extent such amounts are used to repair, replace or remedy
losses or damages actually incurred, which gave rise to the
receipt of such amounts;
(5) Any interest, penalty or other amounts which
are attributable to the Subject Hydrocarbons and are not
derived from the sale of Subject Hydrocarbons;
(6) Any interest or other income earned on funds
deposited into an escrow account in accordance with the
provisions of Section 4.2(a)(1) above; and
(7) All other monies and things of value
attributable to ownership after the Effective Date of the
Subject Hydrocarbons and the materials, supplies, equipment
and other personal property and fixtures used in connection
with the Subject Hydrocarbons.
4.3 DEBITS TO NET PROFITS ACCOUNT. Except as otherwise provided
herein, the Net Profits Account shall be debited (without duplication), on an
accrual basis, with the following amounts:
(a) All direct costs which are attributable to production
of the Subject Hydrocarbons (i) for all direct labor (including fringe
benefits), other services and expenses necessary for developing,
operating, producing,
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reworking (including recompleting) and maintaining the Subject
Hydrocarbons after the Effective Date, (ii) for dehydration,
compression, separation, gathering, transportation and marketing of
the Subject Hydrocarbons after the Effective Date, and (iii) for all
materials, supplies, equipment and other personal property and
fixtures purchased for use in connection with the Subject Hydrocarbons
after the Effective Date (including without limitation (A) all amounts
necessary for conformance of investment if the Subject Hydrocarbons or
any part or parts thereof are hereafter from time to time unitized or
if any participating area in a federal divided-type unit is changed,
and (B) the cost of secondary recovery, pressure maintenance,
repressuring, recycling and other operations conducted for the purpose
of enhancing production);
(b) Costs (including without limitation outside legal,
accounting and engineering services) attributable to the Subject
Hydrocarbons and allocated in accordance with revenues therefrom of
(i) handling, investigating and/or settling litigation, administrative
proceedings and claims (including without limitation lien claims other
than liens for borrowed funds) and (ii) payment of judgments,
penalties and other liabilities (including interest thereon), paid by
Grantee (and not reimbursed under insurance maintained by Grantee or
others) and involving any of the Subject Hydrocarbons, or incident to
the development, operation or maintenance of the Subject Hydrocarbons
after the Effective Date, or requiring the payment or restitution of
any proceeds of Subject Hydrocarbons, or arising from tax or royalty
audits, except that there shall not be debited to the Net Profits
Account any expenses incurred by Grantee in litigation of any claim or
dispute arising hereunder between Grantee and Grantor or amounts paid
by Grantee to Grantor pursuant to a final order entered by a court of
competent jurisdiction resolving any such claim or dispute or amounts
paid by Grantee to Grantor in connection with the settlement of any
such claim or dispute;
(c) All taxes (except income, transfer, inheritance,
estate, franchise and like taxes) attributable to the ownership of the
Subject Hydrocarbons or the extraction of the Subject Hydrocarbons
after the Effective Date, including without limitation production,
severance, and/or excise and other similar taxes assessed against,
and/or measured by, the production of (or the proceeds or value of
production of) Subject Hydrocarbons (without regard to the period of
ownership for which such taxes are assessed), occupation taxes, sales
and use taxes, and ad valorem taxes assessed against or attributable
to the Subject Hydrocarbons or any equipment located on any of the
Subject Interests, as such equipment is required for the production of
Subject Hydrocarbons;
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(d) Insurance premiums attributable to the ownership or
operation of the Subject Hydrocarbons for insurance actually carried
for periods after the Effective Date, or any equipment located on any
of the Subject Interests, as such equipment is required for the
production of Subject Hydrocarbons, or incident to the development,
operation or maintenance of the Subject Hydrocarbons after the
Effective Date;
(e) All amounts attributable to the Subject Hydrocarbons
(to the extent attributable to periods after the Effective Date) and
consisting of (i) rent and other consideration attributable to the use
or damage to the surface and (ii) delay rentals, shut-in well
payments, minimum royalties and similar payments pursuant to the
provisions of agreements in force and effect before the Effective
Date;
(f) Amounts attributable to the Subject Hydrocarbons (to
the extent attributable to periods after the Effective Date) and
charged by the relevant operator as overhead charges specified in
applicable operating agreements (including applicable COPAS charges);
(g) If as a result of the occurrence of the bankruptcy or
insolvency or similar occurrence of the purchaser of Subject
Hydrocarbons any amounts previously included in Gross Proceeds or
Other Income are reclaimed from Grantee or its representative, then
the amounts reclaimed as promptly as practicable following Grantee's
payment thereof;
(h) The Management Fee (as defined in the Management
Agreement) paid pursuant to the Management Agreement;
(i) If Grantee shall be a party as to any non-consent
operations conducted with respect to all or any of the Subject
Hydrocarbons after the Effective Date, all costs to be debited to the
Net Profits Account with respect thereto shall be governed by Section
5.8;
(j) Except as otherwise provided elsewhere in this
Assignment, all other direct expenditures attributable to the Subject
Hydrocarbons paid by Grantee after the Effective Date for the
necessary or proper development, operation, maintenance and
administration, after the Effective Date, of the Subject Hydrocarbons,
if reasonably incurred; provided, however, that notwithstanding
anything herein provided to the contrary, the Net Profits Account
shall not be debited with any cost or expense which is deducted or
taken into account in determining Gross Proceeds or Other Income,
including, without limitation, the value of any component of Gross
Proceeds or Other Income.
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4.4 ACCOUNTING FOR NET PROFITS. All debits to the Net Profits
Account calculated pursuant to Section 4.3 which are attributable to costs and
expenses incurred during a Payment Period, up to and including the last day of
such Payment Period, shall be debited against the Net Profits Account as of the
last day of such period. All credits to the Net Profits Account calculated
pursuant to Section 4.2 which are attributable to the sale of Subject
Hydrocarbons during a Payment Period, shall be credited to the Net Profits
Account as of the last day of such Payment Period.
4.5 MEASUREMENT AMOUNT AND PAYMENT. As of the end of each Payment
Period, Grantee shall calculate an amount (the "Measurement Amount"), equal to
the sum of (a) any Measurement Amount carried forward from a prior Payment
Period and (b) the Net Profits for the then current Payment Period. Not more
than 75 days following a Payment Period, Grantee shall pay Grantor the lesser
of (i) the Measurement Amount for such Payment Period or (ii) Gross Proceeds
for the Payment Period in question. If the Measurement Amount for a Payment
Period is a negative amount, no payment shall be due and payable by Grantee to
Grantor hereunder for such Payment Period, and the negative amount shall be
carried forward for the next and succeeding Payment Periods until such deficit
is wiped out and liquidated. If the Measurement Amount for the Payment Period
is a positive amount and exceeds Gross Proceeds for the Payment Period, the
excess Measurement Amount shall be carried forward to the next Payment Period.
Grantee shall send to Grantor at the same time set for the payment a
statement showing the calculation of the Measurement Amount, the reason for any
nonpayment, the condition of the Net Profits Account as of the close of
business on the last day of the relevant Payment Period and clearly showing
(with sufficient description so that Grantor can identify such items and the
particular Subject Hydrocarbons involved) those items which gave rise to debits
and credits to the Net Profits Account during such Payment Period and clearly
showing for each Subject Interest the quantities of Subject Hydrocarbons
produced therefrom during the Payment Period covered by such statement, the
volumes of such production sold, the prices at which such volumes were sold,
and the taxes paid with respect to such sales.
Although the books for the Net Profits Account shall be kept on an
accrual basis, for purposes of this Section 4.5, Net Profits will be
tentatively computed and paid in accordance with Grantor's standard billing and
disbursement procedures, which shall be consistent with standard industry
practices, until the Termination Date. Within 90 days following the
Termination Date, the Net Profits Account shall be reconciled to the accrual
method and Grantor and Grantee shall make such payments or refunds to each
other as are necessary to effect such reconciliation.
4.6 ACCOUNTING FOR INTEREST EXPENSE. For federal income tax
purposes, interest with respect to payments under the
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Production Payment shall be taken into account under the noncontingent bond
method of Prop. Treas. Reg. Section 1.1275-4(b)(2) in accordance with the
projected payment schedule attached as Schedule 2.
4.7 ALLOCATION OF COSTS AND EXPENSES. Costs and expenses shall be
allocated in accordance with Section 12.6 of the Purchase Agreement, if
applicable.
ARTICLE 5
OPERATION OF SUBJECT INTERESTS
5.1 RIGHTS AND DUTIES OF GRANTEE. Grantee (subject to the terms
and provisions of any applicable operating agreements and subject to the other
provisions of this Assignment and the Management Agreement) as between Grantor
and Grantee, has exclusive charge, management and control of all operations to
be conducted on the Subject Interests and may take any and all actions which a
reasonably prudent operator would deem necessary or advisable in the
management, operation and control thereof. Grantee shall promptly (and, unless
the same are being contested in good faith and by appropriate proceedings,
before the same are delinquent) pay all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of royalty interests and other interests
affecting the Subject Interests) incurred from and after the Effective Date in
developing, operating and maintaining the Subject Interests. Grantee shall be
obligated to operate and maintain the Subject Interests as would a reasonable
and prudent operator under similar circumstances in accordance with good oil
field practices. For the Subject Interests which Grantee does not operate,
Grantee shall take all such action and exercise all such rights and remedies as
are reasonably available to it to cause the operator to so maintain and operate
such Subject Interests. Grantee shall be deemed to have fully discharged all
of its obligations under this Section 5.1, and shall have no liability to
Grantor under this Section 5.1 during any period when the Management Agreement
is in effect and Grantee is in compliance with the Management Agreement.
5.2 SALES OF SUBJECT HYDROCARBONS. Grantee shall have the
obligation to market or cause to be marketed the Subject Hydrocarbons in
accordance with its good faith business judgment and sound oil field practices.
Grantee shall fully discharge its obligations to Grantor under this Section 5.2
during any period when the Management Agreement is in effect and Grantee is not
in default thereunder. As to any third parties, all acts of Grantee in
marketing the Subject Hydrocarbons and all Production Sales Contracts executed
by Grantee shall be binding on Grantor and the Production Payment; it being
understood that the right and obligation to market the Subject Hydrocarbons is
at all times
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vested in Grantee and Grantor does not have any such right or obligation or any
possessory interest in all or part of the Subject Hydrocarbons, except as may
be granted by separate agreement or instrument. Accordingly, it shall not be
necessary for Grantor to join in any new Production Sales Contracts or any
amendments to existing Production Sales Contracts.
5.3 INSURANCE. Grantee shall obtain or cause to be obtained (and
maintain or cause to be maintained during the economic life of the Subject
Interests) the types of insurance as in its reasonable good faith business
judgment a reasonable and prudent operator would carry under similar
circumstances. Grantee shall fully discharge all of its obligations under this
Section 5.3, and shall have no liability to Grantor under this Section 5.3
during any period when the Management Agreement is in effect and Grantee is in
compliance with the Management Agreement.
5.4 CONTRACTS WITH AFFILIATES. To the extent not provided for in
any applicable operating agreement, Grantee may perform services and furnish
supplies and equipment with respect to the Subject Interests, provided that the
amount of compensation, price or rental that can be charged to the Net Profits
Account therefor must be no less favorable than those available from
Non-Affiliates in the area engaged in the business of rendering comparable
services or selling or leasing comparable equipment and supplies which could
reasonably be made available to the Subject Interests.
5.5 GOVERNMENT REGULATION. All obligations of Grantee hereunder
shall be subject to and limited by all applicable federal, state and local
laws, rules, regulations and orders (including those of any applicable agency,
board, official or commission having jurisdiction).
5.6 ABANDONMENTS. Prior to releasing, surrendering or abandoning
any portion of the Subject Interests, Grantee shall first offer in writing to
reassign such interest to Grantor, with Grantor assuming all liability and
obligations for such interest after such assignment. If Grantor does not
accept the offer to reassign within 60 days from such offer, Grantee shall have
the right without the joinder of Grantor to release, surrender and/or abandon
its interest in the Subject Interests, or any part thereof, or interest therein
even though the effect of such release, surrender or abandonment will be to
release, surrender or abandon the Production Payment the same as though Grantor
had joined therein insofar as the Production Payment covers the Subject
Interests, or any part thereof or interest therein, so released, surrendered or
abandoned by Grantee.
5.7 POOLING AND UNITIZATION.
(a) Certain of the Subject Interests may have been pooled
or unitized for the production of oil, gas and/or
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minerals prior to the Effective Date or, after the Effective Date, may
be so pooled or unitized pursuant to Section 5.7(b). Such Subject
Interests are and shall be subject to the terms and provisions of such
pooling and unitization agreements, and the Production Payment in each
such Subject Interest shall apply to (and the term "Subject
Hydrocarbons" shall include) the production from such units which is
attributable to such Subject Interest (and the Net Profits Account
shall be computed giving consideration to such production and costs,
expenses, charges and credits attributable to such Subject Interest)
under and by virtue of the applicable pooling and unitization
agreements.
(b) Grantee shall have the right and power to unitize,
pool or combine the lands covered by the Subject Interests, or any
portion or portions thereof, with any other land or lease or leases so
as to create one or more unitized areas (or, with respect to unitized
or pooled areas theretofore created, to dissolve the same or to amend
and/or reconfigure the same to include additional acreage or
substances or to exclude acreage or substances). If pursuant to any
law, rule, regulation or order of any governmental body or official,
any of the Subject Interests are pooled or unitized in any manner, the
Production Payment insofar as it affects such Subject Interest shall
also be deemed pooled and unitized, and in any such event the
Production Payment shall apply to (and the term "Subject Hydrocarbons"
shall include) the production which accrues to such Subject Interest
under and by virtue of such pooling and unitization arrangements and
the Net Profits Account shall be computed giving consideration to such
production and costs, expenses, charges and credits attributable to
such Subject Interest under and by virtue of such pooling and
unitization arrangement. Notwithstanding the foregoing provisions of
this Section 5.7(b), Grantee shall have no right or interest in any
well that is not specifically described on Exhibit B or in the
production from any such well.
5.8 NON-CONSENT OPERATIONS.
(a) If Grantee elects (subject to Section 5.1) to be a
non-participating party (whether pursuant to an operating agreement or
other agreement or arrangement, including without limitation,
non-consent rights and obligations imposed by statute or regulatory
agency) with respect to any operation on any Subject Interest or
elects to be an abandoning party with respect to a Well located on any
Subject Interest, the consequence of which election is that Grantee's
interest in such Subject Interest or part thereof is temporarily
(i.e., during a recoupment period) or permanently forfeited to the
parties participating in such operations, or electing not to abandon
such Well, then the costs and proceeds attributable to such forfeited
interest shall not, for the period of such forfeiture (which may be a
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continuous and permanent period), be debited or credited to the Net
Profits Account and such forfeited interest shall not, for the period
of such forfeiture, be subject to the Production Payment.
(b) If Grantee elects (subject to Section 5.1) to be a
participating party to such an operation, or elects to be a
non-abandoning party with respect to such a Well, and any other party
or parties have elected not to participate in such operation (or have
elected to abandon such Well) with the result that (pursuant to an
operating agreement or other agreement or arrangement, including
without limitation, non-consent rights and obligations imposed by
statute and/or regulatory agency) Grantee becomes entitled to receive,
either temporarily (i.e., through a period of recoupment) or
permanently, interests belonging to such other party or parties, then
the costs and proceeds attributable to such non-participating parties'
interests to which Grantee becomes so obligated and entitled shall be
debited and credited to the Net Profits Account as though such
interests were part of the Subject Interests.
5.9 RENEWALS AND EXTENSIONS OF LEASES. The Production Payment
and the Reversion Interest shall apply to all renewals, extensions and other
similar arrangements (and/or interests therein) of or with respect to any Lease
which is included in the Subject Interests, whether or not such renewals,
extensions or arrangements have heretofore been obtained by Grantor, or
Grantor's predecessors in title, or are hereafter obtained by Grantee as well
as to each new lease covering any minerals covered by one or more of the Leases
if same are taken or acquired while the relevant Lease is in force and effect
or within one year after the lapse thereof.
ARTICLE 6
GRANTOR LIABILITY AND EQUIPMENT
6.1 NO PERSONAL LIABILITY OF GRANTOR. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS ASSIGNMENT, GRANTOR SHALL NOT, BY VIRTUE OF THE
PRODUCTION PAYMENT OR REVERSION INTEREST RESERVED IN THIS ASSIGNMENT,
PERSONALLY BE RESPONSIBLE FOR PAYMENT OF ANY PART OF THE COSTS, EXPENSES OR
LIABILITIES INCURRED IN CONNECTION WITH EXPLORING, DEVELOPING, OPERATING,
OWNING AND/OR MAINTAINING THE SUBJECT INTERESTS; PROVIDED, HOWEVER, ALL SUCH
COSTS, EXPENSES AND LIABILITIES SHALL, TO THE EXTENT THE SAME RELATE TO PERIODS
AFTER THE EFFECTIVE DATE, NEVERTHELESS BE CHARGED AGAINST THE NET PROFITS
ACCOUNT AS AND TO THE EXTENT HEREIN PERMITTED.
6.2 OWNERSHIP OF EQUIPMENT. The Production Payment does not
include any right, title or interest in and to any of the personal property,
fixtures, structures or equipment now or
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hereafter placed on, or used in connection with, the Subject Interests.
ARTICLE 7
TRANSFERS
7.1 ASSIGNMENTS BY GRANTEE. Upon prior written notice to Grantor,
but under no circumstance requiring Grantor's consent, Grantee shall have the
right to transfer all or any portion of the Subject Interests; provided,
however, that (i) the Subject Interests shall at all times be subject to this
Assignment, the Production Payment, the Reversion Interest, the Purchase
Agreement and the Limited Power of Attorney contemplated thereunder, the Option
and the Management Agreement, (ii) if such transfer or transfers result in less
than all of the Subject Interests being transferred to and held by the same
Person, Grantee shall retain the obligation to administer and pay the
Production Payment in accordance with the provisions hereof in the same manner
as if the Production Payment was held by a single Person, and (iii) Grantee may
not make an assignment, transfer, sale, alienation or other disposition of any
Subject Interests, which would result in any of the Subject Interests becoming
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended. An assignment of the Subject Interests by Grantee shall not
release Grantee from any obligation to Grantor under this Assignment, the
Purchase Agreement, the Management Agreement or the Option.
7.2 ASSIGNMENTS BY GRANTOR. Upon prior written notice to Grantee,
Grantor shall have the right to transfer, pledge, or mortgage at any time and
from time to time all or any portion of the Production Payment, Reversion
Interest or Option. Any such assignment shall not release Grantor from any
obligation to Grantee under this Assignment, the Purchase Agreement or the
Option, except to the extent provided for in such agreements.
7.3 CHANGE IN OWNERSHIP OF PRODUCTION PAYMENT, REVERSION INTEREST
OR OPTION. No change of ownership or right to receive payment of the
Production Payment or the Reversion Interest, or of any part thereof, or change
in the ownership of the Option, however accomplished shall be binding upon
Grantee until notice thereof has been furnished by the person claiming the
benefit thereof, and then only with respect to payments thereafter made.
Notice of the sale or assignment shall consist of a copy of the recorded
instrument accomplishing the same or if there be no recorded instrument then a
copy of the applicable document accomplishing same; notice of change of
ownership or right to receive payment accomplished in any other manner (for
example by reason of incapacity, death or dissolution) shall consist of copies
of recorded documents and complete proceedings legally binding and conclusive
of the rights of all parties. Until such notice has been furnished to Grantee
as provided above, the payment or tender of all sums payable on the Production
Payment
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and delivery of all notices may be made in the manner provided herein precisely
as if no such change in interest or ownership or right to receive payment had
occurred. The kind of notice herein provided shall be exclusive, and no other
kind, whether actual or constructive, shall be binding on Grantee.
ARTICLE 8
MISCELLANEOUS
8.1 GOVERNING LAW. The validity, effect and construction of this
Assignment shall be governed by the law of the State of Colorado, exclusive of
the conflict of laws provisions thereof.
8.2 INTENTIONS OF THE PARTIES. Nothing herein contained shall be
construed to constitute either party hereto (under state law or for tax
purposes) the agent of, or in partnership with, the other party. If, however,
the parties hereto are deemed to constitute a partnership for federal income
tax purposes, the parties elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A of the IRC, and agree not to take any
position inconsistent with such election. In addition, the parties hereto
intend that the Production Payment reserved hereby by Grantor shall at all
times be treated as an incorporeal (i.e., a non-possessory) interest in real
property or land and as a production payment under Section 636 of the IRC,
payable out of Gross Proceeds (rather than as a working or any other interest).
8.3 NOTICES. All notices and other communications required or
permitted under this Assignment shall be in writing and, unless otherwise
specifically provided, shall be delivered personally, by prepaid telecopy or
similar means (with signed confirmed copy to follow by mail in the manner
provided below), or (except for quarterly statements provided for under Section
4.5 above which may be sent by regular mail) by registered or certified mail,
postage prepaid, or by delivery service for which a receipt is obtained, at the
following addresses for Grantor and Grantee, and shall be deemed delivered on
the date of receipt.
If to Grantor:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
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If to Grantee:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
Either party may specify an alternative address by giving notice to the other
party, in the manner provided in this Section 8.3.
8.4 FURTHER ASSURANCES. Grantor and Grantee agree to execute and
deliver to the other all such other and additional instruments, notices,
division orders, transfer orders and other documents and to do all such other
and further acts and things as may be necessary to more fully and effectively
grant, convey and assign to Grantee and to reserve to Grantor the rights,
titles, interests and estates conveyed to Grantee and reserved by Grantor
hereby or intended to be so conveyed and reserved.
8.5 COUNTERPARTS. This Assignment may be executed in multiple
originals, all of which are identical except that, for the convenience of
recording, counterparts hereof which are being recorded include only those
certain portions of Exhibit A and Exhibit B which include descriptions of
properties located in the recording jurisdiction in which the particular
counterpart is being recorded. All of such counterparts together shall
constitute one and the same instrument.
8.6 BINDING EFFECT. All the covenants and agreements of Grantor
and Grantee herein contained shall be deemed to be covenants running with
Grantor's and Grantee's interest in the Subject Interests and the lands
affected thereby. All of the provisions hereof shall inure to the benefit of,
and shall be
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binding upon, each of the parties hereto and their respective successors and,
subject to the provisions of this Section 8.6, their assigns. Any sale,
conveyance, assignment, sublease or other transfer of the Subject Interests, or
any interest therein or any part thereof, shall provide that the assignee
assume all of the obligations of the assignor with respect to the interest so
transferred, and unless the non-assigning party otherwise expressly consents in
writing, the assigning party shall also remain liable for the discharge of its
obligations.
8.7 PARTITION. Grantor and Grantee acknowledge that Grantor and
Grantee have no right or interest that would permit either to partition any
portion of the Subject Interests, and Grantor and Grantee waive any such right.
8.8 SPECIFIC PERFORMANCE. In addition to any other remedy which
Grantor may enjoy under this Agreement, at law or in equity, Grantor shall have
the right to seek and enforce the remedy of specific performance by Grantee of
its obligations under this Agreement.
8.9 EFFECTIVE DATE. This Assignment shall become effective for
all purposes as of 7:00 a.m. (at the respective locations of the Subject
Interests) on the Effective Date.
IN WITNESS WHEREOF, the parties have executed this Assignment
effective as of the Effective Date.
GRANTOR:
HS RESOURCES, INC.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Annette Montoya
Vice President
- - ----------------------------
Name: James M. Piccone
Title: Secretary
GRANTEE:
WATTENBERG GAS INVESTMENTS, LLC,
By its Manager, Fontenelle, Inc.
[CORPORATE SEAL]
Attest: By:
---------------------------------
Gary L. Greenstein
Vice President
- - ----------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
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STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
-------------------------------------
Notary Public
My commission expires:
---------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 2nd
day of July, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc. in
its capacity as Manager of Wattenberg Gas Investments, LLC, a Delaware limited
liability company on behalf of the company.
Witness my hand and official seal.
---------------------------------------
Notary Public
My commission expires:
-----------------
(SEAL)
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SCHEDULE 1
SIDETRACK WELLBORE TERMS
1. DEFINITIONS:
"Sidetrack Wellbore" as used in this agreement shall mean and
include all down hole operations performed in an existing well (a "Well") in an
attempt to establish production through a sidetrack wellbore from a formation
in which the Well may or may not currently be completed.
2. EXPENSES OF SIDETRACK WELLBORES:
The costs and expenses of all Sidetrack Wellbore operations
shall be borne in accordance with the provisions of Section 12.6 of the
Purchase Agreement.
3. OWNERSHIP OF WELL AND EQUIPMENT:
The wellhead equipment and down hole equipment through the
depth where the Sidetrack Wellbore commences shall be owned equally by the
owners of the Sidetrack Wellbore and the Wellbore. The tubing and equipment
run on or in the tubing string shall be owned by the owners of the Well and/or
Sidetrack Wellbore being served by the tubing. The casing in the Well below
the depth where the Sidetrack Wellbore commences shall be owned by the owners
of the Well. The lease facilities shall be owned by the owners of the Well or
Sidetrack Wellbore being served thereby, and if both the Well and Sidetrack
Wellbore are being served, they shall be owned equally by such owners.
4. OPERATING RIGHTS OF OWNERS:
The rights, duties and obligations of the owners of Wells
containing a Sidetrack Wellbore, as set out in the operating or other
agreements governing the operation of such wellbores, are not changed, altered
or amended by these terms except as specifically provided herein.
(a) Subject to the further provisions hereof, the owners of a
Well and the owners of the associated Sidetrack Wellbore each have the right to
enter the Well. If the owners of a Sidetrack Wellbore desire to drill, operate
and maintain a Sidetrack Wellbore in the Well and such work will necessitate
the shutting in of the existing production in the Well, the owners of the Well
shall be given reasonable notice of such Sidetrack Wellbore and the estimated
number of days required to complete such work. Such notice shall be given
promptly, either before or after Sidetrack Wellbore drilling or rework
operations commence.
(b) Should a blowout, explosion, fire or other sudden
emergency occur during the course of drilling or rework of any
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Sidetrack Wellbore, the owners drilling such Sidetrack Wellbore shall, at their
expense, take such steps as are necessary to deal with the emergency and to
safeguard life and property, and shall, as promptly as possible, report the
emergency and the action taken to the owners of the Well.
(c) Should a blowout, explosion, fire or other sudden
emergency occur at any time other than during the course of drilling or rework
of a Sidetrack Wellbore, the cost of dealing with any such emergency shall be
borne equally by the owners of the Well and the Sidetrack Wellbore.
5. LIABILITIES OF THE OWNERS:
If a Sidetrack Wellbore is drilled in a Well, the liabilities
of the owners of the Well and the Sidetrack Wellbore shall be as follows:
(a) No liability shall be incurred by the owners of the
Sidetrack Wellbore for causing production to cease from the Well during the
time drilling or rework operations are being conducted on the Sidetrack
Wellbore, as long as such operations are conducted with diligence and without
unreasonable delay; provided, however that if the number of days required to
complete Sidetrack Wellbore operations results in a cessation of production
from the Well for a period greater than 90 days, the owners of the Sidetrack
Wellbore shall pay to the owners of the Well an amount equal to the lesser of
(i) the product of $0.15 multiplied by the average daily production rate from
the Well (in MMBTU/day) prior to the cessation of production for each day that
the Well does not produce after such 90-day period, or (ii) an amount equal to
the fair market value of the last 5% of the reserves associated with the Well
as of the date the Well was acquired by the owners of the Well, based on a
reserve evaluation conducted in accordance with the procedures of the
Securities and Exchange Commission and using an annual discount rate of 10%.
Such payment shall be made within 60 days of the date such obligation accrues.
As an alternative to making a payment under (i) or (ii) immediately above, the
owners of the Sidetrack Wellbore may exercise their rights under the Option to
Purchase Oil and Gas Interests between HS Resources, Inc. and Wattenberg Gas
Investments, LLC and such exercise may be made without an obligation to make
any penalty payment thereunder.
(b) If the Sidetrack Wellbore drilling or rework operations
are continued for a period which might cause the termination of a lease being
maintained by production from the Well and any such lease terminates because of
the Sidetrack Wellbore operations, the owners of the Sidetrack Wellbore shall
be liable to the owners of the Well for an amount equal to the fair market
value of the last 5% of the reserves associated with the Well as of the date
the Well was acquired by the owners of the Well, based on a reserve evaluation
conducted in accordance with the procedures of the Securities and Exchange
Commission and
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<PAGE> 63
using an annual discount rate of 10%. Such payment shall be made within 60
days of the date such obligation accrues. As an alternative to making a
payment under the foregoing provisions of this Section 5(b), the owners of the
Sidetrack Wellbore may exercise their rights under the Option to Purchase Oil
and Gas Interests between HS Resources, Inc. and Wattenberg Gas Investments,
LLC and such exercise may be made without an obligation to make any penalty
payment thereunder.
(c) If the Sidetrack Wellbore drilling operations disturb or
remove the means of separation of the reserves in the Well from the reserves to
be exploited from the Sidetrack Wellbore, or otherwise cause a permanent
cessation or reduction of production from the Well, the Operator shall, before
and after the operation, conduct a test of the Well for the purpose of
determining whether or not the producing capacity of the formation completed in
the Well has been impaired, by employing the procedure set forth as follows:
(1) The producing capacity of the Well shall be
determined by comparing the actual production before and after
the Sidetrack Wellbore drilling operations during the thirty
(30) days in which there was actual production immediately
before and after such operations, with the Well producing
under similar pressure differential and other conditions. If
the producing conditions or equipment size are different, an
appropriate applicable method as jointly agreed to by owners
of the Sidetrack Wellbore and the owners of the Well will be
utilized to determine the effect on deliverabilities which the
Sidetrack Wellbore drilling operations caused.
(2) If the producing capacity of the Well has been
reduced in excess of fifty percent (50%), and there is no
cause for such reduction other than the Sidetrack Wellbore
operations, damages will be deemed to have occurred. If
damage has occurred, the rights and liabilities between the
owners of the Sidetrack Wellbore and the owners of the Well
shall be adjusted in accordance with the following provisions
of this Section 5(c)(2), which adjustments shall constitute
the sole and exclusive remedies of the owners of the Well for
damage to the producing Well(s).
The owners of the Sidetrack Wellbore may, at their sole cost,
risk and expense, attempt to restore the Well to 50% or more
of its former capacity. If the attempt is unsuccessful, or if
no attempt is made, the owners of the Sidetrack Wellbore shall
pay damages to the owners of the Well in an amount equal to
the fair market value of the last 5% of the reserves
associated with the Well as of the date the Well was acquired
by the owners of the Well, based on a reserve evaluation
conducted in
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<PAGE> 64
accordance with the procedures of the Securities and Exchange
Commission and using an annual discount rate of 10%. Such
payment shall be made within 60 days of the date such
obligation accrues. As an alternative to making a payment
under the foregoing provisions of this Section 5(c)(2), the
owners of the Sidetrack Wellbore may exercise their rights
under the Option to Purchase Oil and Gas Interests between HS
Resources, Inc. and Wattenberg Gas Investments, LLC and such
exercise may be made without an obligation to make any penalty
payment thereunder.
6. CLASSIFICATION OF PAYMENTS
Any payment under Section 5 above, received by the owners of
the Well(s), shall not be considered as Gross Proceeds or Other Income for
purposes of the Wellbore Assignment of Oil and Gas Leases with Reservation of
Production Payment dated June 28, 1996 between HS Resources, Inc. and
Wattenberg Gas Investments, LLC.
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<PAGE> 65
SCHEDULE 2
PAYMENT SCHEDULE OF THE PRODUCTION PAYMENT
Date Payment Interest
- - --------------------------------------------------------------------------------
<PAGE> 66
EXHIBIT D
OPTION TO PURCHASE OIL AND GAS INTERESTS
This Option to Purchase Oil and Gas Interests (this "Option")
is granted effective as of July 1, 1996 (the "Effective Date") by Wattenberg
Gas Investments, LLC, a Delaware limited liability company, 82 Devonshire
Street, R22C, Boston, Massachusetts 02109 ("Grantor") to HS Resources, Inc., a
Delaware corporation, 1999 Broadway, Suite 3600, Denver, Colorado 80202
("Grantee").
For $10.00 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Grantor grants and
conveys to Grantee the exclusive and irrevocable option to purchase from time
to time all or any portion of the following (the "Subject Interests") upon the
terms and conditions set forth herein (the "Option"):
A. All of Grantor's right, title and interest
in and to the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the right to
produce the wells described in Exhibit B from the intervals in
such wells identified in Exhibit B as of the Option Effective
Date (the above described interests in such leases being
herein called the "Leases" and the above described interest in
such wells being herein called the "Wells"), subject to any
restrictions, exceptions, reservations, conditions,
limitations, burdens, contracts, agreements and other matters
applicable to the Leases and the Wells, and excluding such
portion of the Leases and the Wells which were not conveyed to
Grantor because of Defective Interests or which were
determined to be Excluded Assets (as such terms are defined in
the Purchase and Sale Agreement between Grantor and Grantee
dated June 28, 1996 (the "Purchase Agreement"), and such
exclusions being referred to herein as the "Reserve
Reductions");
B. The right, title and interest of Grantor in
and to overriding royalty interests in the Leases insofar and
only insofar as the Leases cover the wellbores associated with
the Wells from the producing intervals identified in Exhibit
B;
C. To the extent affected, the right, title and
interest of Grantor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization, pooling,
operating and communitization agreements, declarations and
orders affecting the Leases and Wells, and in and to the
properties covered and the units created thereby;
D-1
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D. To the extent affected, the right, title and
interest of Grantor in and to the personal property and
fixtures that are appurtenant to the Wells, including all
wells, casing, tubing, pumps, separators, tanks, lines and
other personal property and oil field equipment appurtenant to
such Wells; provided, however, that Grantor shall remain
co-owner of any personal property appurtenant to any property
owned by Grantor that is not exclusively part of the Wells;
E. To the extent affected, the right, title and
interest of Grantor in and to and under, or derived from, the
presently existing and valid gas sales, purchase, gathering
and processing contracts and operating agreements, joint
venture agreements, partnership agreements, rights-of-way,
easements, permits and surface leases and other contracts,
agreements and instruments (but specifically excluding any
management agreements), only in relevant part to the extent
and insofar as the same are appurtenant to the Leases, Wells
and the units referred to in item C above; provided, however,
that Grantor shall remain co-owner of any agreements,
including unitization and pooling agreements, if they pertain
to any property owned by Grantor that is not exclusively part
of the Leases or Wells.
1. EXERCISE OF THE OPTION. The Option may be exercised
as follows:
a. PRIOR TO JANUARY 1, 2003. From the date
of this Option until January 1, 2003, Grantee has the right to exercise the
Option, without penalty, one or more times to purchase up to a cumulative total
of 15% of the Subject Interests (by volume of the sum of the estimated reserves
for such Subject Interests under the Reserve Report, less Reserve Reductions,
if any (such difference, the "Total Reserves")). If Grantee exercises the
Option to purchase a portion of the Subject Interests and such portion by
itself, or when added to any other portion of the Subject Interests previously
purchased by Grantee pursuant to an earlier exercise of the Option, exceeds 15%
of the Subject Interests by volume of the Total Reserves then, in addition to
the Option Price, Grantee shall pay to Grantor a penalty payment as set forth
below, subject to certain exceptions. At the time Grantee exercises the Option
and for the first time a cumulative total of more than 15% of the Subject
Interests has been or is to be repurchased, then the penalty payment shall be
determined based on the cumulative total of the Subject Interests purchased.
If the Grantee exercises the Option again for an additional incremental group
of Subject Interests, then the penalty payment shall be determined based on the
incremental Subject Interests purchased.
D-2
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(1) Penalty Payment Before 2000.
If the Option Effective Date is on or before December 31,
1999, Grantee shall pay to Grantor an amount equal to the
product obtained by multiplying $300,000 by a fraction, the
numerator of which is the sum of the volume of estimated
reserves for the Subject Interests (as set forth in the
Reserve Report, less applicable Reserve Reductions) which
Grantee desires to purchase and the denominator of which is
the volume of Total Reserves (the "Reserve Fraction").
(2) Penalty Payment, 2000 through
2002. If the Option Effective Date is between January 1, 2000
and December 31, 2002, Grantee shall pay to Grantor an amount
equal to the product obtained by multiplying $200,000 by the
applicable Reserve Fraction.
The foregoing penalty payment amounts shall not be payable if Grantee exercises
the Option on or before December 31, 2002 in its entirety with respect to
paragraphs (i) through (vii) below, or in part with respect to paragraphs (vi)
and (vii) below, in each case which it may do from time to time, because:
(i) Credit Payment Amounts (as defined in the
Purchase Agreement) are no longer paid or
credited to Grantee;
(ii) a Tax Audit (as defined in the Purchase
Agreement) has commenced and Grantor has not
waived its right to an escrow pursuant to
Section 8.3 of the Purchase Agreement;
(iii) the Management Agreement dated effective
as of the Effective Date between Grantor and
Grantee, or any successor agreement (the
"Management Agreement") is terminated (other
than by, or on account of a breach thereof
by, Grantee), is held invalid or void, or
Grantor or its successors or assigns fails
to perform thereunder;
(iv) Grantor breaches the Purchase Agreement or
any agreement contemplated thereunder (other
than any obligation of Grantor to pay
Expense Amounts in excess of Credit Payment
Amounts (as such terms are defined in the
Management Agreement)), which breach if
uncured would have a material adverse effect
on Grantee and which has not been cured by
Grantor within 60 days of receipt of a
written notice from Grantee of such breach;
D-3
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(v) payments remain unsatisfied for a period
exceeding 60 days under one or both of the
Contribution Agreements or one or both of
the Guaranty Agreements contemplated by the
Ratification of Obligations under the
Purchase Agreement;
(vi) Grantor denies approval of certain
operations on the Subject Interests in
accordance with Section 2.1(p) or (q) of the
Management Agreement and Grantee elects to
exercise the Option on the properties
affected by the proposed operations rejected
by Grantor; and
(vii) an aggregate of $2,250,000 in Credit
Payment Amounts has been credited or paid to
Grantee; provided, however, that such amount
shall, at Grantor's election, be reduced to
$372,000. Grantor shall be deemed to have
made such an election unless Grantor commits
in writing to the higher amount on or before
January 1, 1998 in order to effect a deferral
of Grantee's rights under this clause
(vii).
Exercises of the Option by Grantee pursuant to paragraph (vi) or (vii) above
shall not be counted towards the cumulative total of 15% of the Subject
Interests in Paragraph 1.a.
Notwithstanding anything herein provided to the contrary, prior to December 31,
1997, Grantee agrees that it will not exercise the Option and purchase the
Subject Interests so that Grantee may enter into a transaction with a third
party under a substantially similar arrangement as the transaction contemplated
by the Purchase Agreement for the primary purpose of monetizing the tax credits
under Section 29 of the Internal Revenue Code of 1986, as amended from time to
time (the "Code"), attributable to production from the Subject Interests at a
more favorable rate. If Grantee breaches its agreement set forth in the
immediately preceding sentence, Grantee shall be obligated to pay Grantor all
profits received by Grantee from such third party as a result of the
consummation of such transaction with the third party.
b. ON OR AFTER JANUARY 1, 2003 UNTIL
JANUARY 1, 2005. From January 1, 2003 until January 1, 2005, Grantee has the
right to exercise the Option one time to purchase the remaining Subject
Interests as an entirety without penalty for the associated Option Price.
c. PARTIAL EXERCISE LIMITED. Grantee may
not exercise the Option to purchase in the aggregate more than 25% of the Total
Reserves unless Grantee exercises the Option as to all of the Subject
Interests; provided, however that this
D-4
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limitation shall not apply to exercises of the Option contemplated by
Paragraphs 1.a.(vi) and (vii) above.
d. MINIMUM PAYMENT. If the Option is
exercised by Grantee, from time to time, on or prior to December 31, 1998,
Grantee shall pay to Grantor a payment equal to (i) $528,000, if the Option is
exercised in full, or (ii) $528,000 multiplied by the Reserve Fraction if the
Option is exercised in part, which amount shall apply to, and be a direct
off-set of, the Option Price for all purchased Subject Interests. In no event
shall the aggregate of payments under the immediately preceding sentence ever
exceed $528,000. The penalties set forth in Paragraph 1.a. are in addition to
the minimum payment set forth in the immediately preceding sentence.
2. OPTION TERM. The Option shall terminate on January
1, 2005 (the "Option Term").
3. METHOD OF EXERCISE. To exercise the Option within
the Option Term, Grantee must deliver written notice of such exercise,
delivered personally, by prepaid telecopy or similar means (with signed
confirmed copy to follow by mail in the manner provided below), or by
registered or certified mail, postage prepaid, or by delivery service for which
a receipt is obtained, at the addresses set forth below, and shall be deemed
delivered on the date of receipt.
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
D-5
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Grantor may specify an alternative address by giving written notice to Grantee
of such change.
4. OPTION EFFECTIVE DATE. The effective date of a
purchase of all or any portion of the Subject Interests pursuant to the Option
(the "Option Effective Date") shall be the first day of the month following the
date Grantor receives the notice of exercise of the Option specifying the
Subject Interests which Grantee desires to purchase pursuant to such exercise
of the Option.
5. OPTION PRICE. The purchase price (the "Option
Price") for the Subject Interests, or any portion thereof, shall be the
appraised current fair market value of the Subject Interests in question as of
the Option Effective Date. Unless Grantor and Grantee agree otherwise, the
appraised fair market value of the Subject Interests in question shall be the
present value as of the Option Effective Date of the future net revenue
estimated to be received therefrom, determined in accordance with generally
accepted engineering principles in effect at the time, by Williamson Petroleum
Consultants, Inc. or some other nationally recognized petroleum engineering
firm agreed upon by Grantor and Grantee. The price of natural gas used in the
forecast shall be based on an unescalated average gas price for the most recent
12-month period, as quoted in the first monthly publication of Inside FERC's
Gas Market Report for the Colorado Interstate Gas Co. ("CIG") Index (or a
mutually agreeable substitute index if such index is no longer published), less
an unescalated average gathering and transportation cost from wellhead to the
CIG mainline for the most recent 12-month period, multiplied by a BTU/SCF
factor appropriate to the affected properties; the price of hydrocarbon liquids
used in the forecast shall be based on the unescalated actual price received on
the Subject Interests during the most recent 12- month period; and the costs
used in the forecast shall be the unescalated average of the monthly costs
attributable to the Subject Interests in question during the most recent
12-month period preceding the Option Effective Date. The discount rate to be
applied shall be the 6-month London Interbank Offered Rate in effect on the
date on which the fair market value determination is made plus 6%.
6. TERMS OF PURCHASE. Upon the closing of the purchase
of all or any portion of the Subject Interests pursuant to an exercise of the
Option, Grantee shall be entitled to receive the proceeds, accounts receivable,
income, revenues, monies and other items attributable to the Subject Interests
in question from and after the Option Effective Date in question and same shall
be paid over to Grantee, and Grantee shall be liable to pay the expenses
attributable to the Subject Interests in question from and after the Option
Effective Date in question. Subject to the terms of the Assignment, Grantor
shall be entitled to receive the production from the Subject Interests in
question prior to the Option Effective Date in question and shall be liable to
pay the expenses attributable to the Subject Interests
D-6
<PAGE> 72
in question prior to the Option Effective Date in question. Upon the closing
of the purchase of all or any portion of the Subject Interests pursuant to an
exercise of the Option, Grantee shall assume all obligations and liabilities
attributable to the ownership or operation of the Subject Interests in question
on and after the Option Effective Date in question, including the contractual
and regulatory obligations in connection with the Subject Interests in
question, and Grantee shall defend, indemnify and hold harmless Grantor (and
its successors, assigns, members, officers, managers (including the employees,
representatives, agents, successors and assigns of such members), employees,
representatives, agents and consultants) from and against all claims, demands,
actions, obligations, liabilities and expenses (including reasonable attorney,
consultant and expert witness fees) arising from such obligations and
liabilities assumed by Grantee hereunder.
7. PAYMENT AND CLOSING. The closing of a purchase
pursuant to an exercise of the Option shall occur at the offices of Grantee at
9:00 a.m., on a mutually agreed upon business day no later than 30 days from
the date Grantor receives the notice of an exercise of the Option. At the
closing, Grantee shall deliver by wire transfer of immediately available U.S.
funds, to the account designated by Grantor, the Option Price for the Subject
Interests in question, and Grantor shall deliver to Grantee an assignment fully
executed and in recordable form of the Subject Interests in question dated
effective as of the Option Effective Date in question and in form and substance
reasonably satisfactory to Grantee with warranty of title as to all matters
arising by, through or under Grantor, but not otherwise.
8. GOVERNING LAW. The validity, effect and construction
of this Option shall be governed by the law of the State of Colorado, without
reference to its conflict of laws provisions.
9. SPECIFIC PERFORMANCE. In addition to any other
remedy which Grantee may enjoy under this Option, at law or in equity, Grantee
shall have the right to seek and enforce the remedy of specific performance by
Grantor of its obligations under this Option.
10. FURTHER ASSURANCES. Grantor and Grantee agree to
execute and deliver to the other all such other and additional instruments,
notices, division orders, transfer orders and other documents and to do all
such other and further acts and things as may be necessary to more fully and
effectively grant, convey and assign to Grantee the rights, titles, interests
and estates conveyed to Grantee hereby or intended to be so conveyed.
11. COUNTERPARTS. This Option may be executed in
multiple originals, all of which are identical except that, for the convenience
of recording, counterparts hereof which are being
D-7
<PAGE> 73
recorded include only those certain portions of Exhibit A which include
descriptions of properties located in the recording jurisdiction in which the
particular counterpart is being recorded. All of such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Option
effective as of the Effective Date.
GRANTOR:
Wattenberg Gas Investments, LLC
By: its Manager, Fontenelle, Inc.
[CORPORATE SEAL]
Attest: By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
- - -----------------------------------
Name: Roger D. Tullberg
Title: Assistant Secretary
GRANTEE:
HS Resources, Inc.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
- - -----------------------------------
Name: James M. Piccone
Title: Secretary
[CORPORATE SEAL]
D-8
<PAGE> 74
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th
day of June, 1996, by Annette Montoya, in her capacity as Vice President of HS
Resources, Inc., a Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
---------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 2nd
day of July, 1996 by Gary L. Greenstein, Vice President of Fontenelle, Inc., a
Delaware Corporation, in its capacity as Manager of Wattenberg Gas Investments,
LLC, a Delaware limited liability company on behalf of the company.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
---------------
(SEAL)
D-9
<PAGE> 75
EXHIBIT E
RESERVE REPORT
SEE ATTACHED
E-1
<PAGE> 76
EXHIBIT F
PREFERENTIAL RIGHTS AND CONSENTS
WELL NAME AGREEMENT RESPONSE
--------- --------- --------
F-1
<PAGE> 77
EXHIBIT G
PREPAYMENTS
NONE
G-1
<PAGE> 78
EXHIBIT H
GAS IMBALANCES
NONE
H-1
<PAGE> 79
EXHIBIT I
OPERATIONS IN PROGRESS
NONE
I-1
<PAGE> 80
EXHIBIT J
HYDROCARBON SALES CONTRACTS
1. Gas Processing Agreement between Amoco Production Company and
HS Resources, Inc. dated November 16, 1990, as modified by
letter agreement dated October 25, 1995.
2. Gas Gathering Agreement between K N Front Range Gathering
Company and HS Resources, Inc. dated July 16, 1992.
3. Gas Purchase and Processing Agreement between Associated
Natural Gas, Inc. and Elk Exploration, Inc. (now HS
Resources, Inc.) dated November 18, 1986.
4. Gas Purchase and Processing Agreement between Associated
Natural Gas, Inc. and Elk Exploration, Inc. (now HS
Resources, Inc.) dated August 12, 1992.
5. Gas Purchase Contract between K N Production Company and K N
Gas Marketing, Inc. (assigned to HS Resources, Inc.) dated
April 1, 1993.
6. Gas Gathering Agreement between K N Gathering, Inc. and HS
Resources, Inc. dated March 1, 1995.
7. Gas Purchase Contract between Koch Hydrocarbon Company and
Energy Minerals Corporation (no HS Resources, Inc.) dated
February 5, 1992.
J-1
<PAGE> 81
EXHIBIT K
LEGAL PROCEEDINGS
1. During 1994, HS Resources, Inc. (the "Company") was named as a
defendant, in addition to three other companies, in an action brought by
certain landowners in Colorado. The action challenges certain mineral
reservations of one of the Company's assignor in its original surface
conveyance involving two small tracts of the Company's minerals.
2. Participation in Joint Defense Agreement, and potential
participation in clean-up or payment of costs, damages or penalties related to
claims made by the United States Environmental Protection Agency against Weld
County Waste Disposal et al.
While the Company cannot predict the ultimate outcome of these
matters, based on facts presently known to it, the Company does not believe
adverse resolution of any of these matters will have a material impact on its
financial condition or the results of operations.
K-1
<PAGE> 82
EXHIBIT L
TAX PARTNERSHIPS
NONE
L-1
<PAGE> 83
EXHIBIT M
NO NGPA CERTIFICATE FILED
M-1
<PAGE> 84
EXHIBIT N
NON-FOREIGN OWNERSHIP AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a
buyer of a United States real property interest must withhold tax if the seller
is a foreign person. To inform Wattenberg Gas Investments, LLC (the "Buyer")
that withholding of tax is not required upon the disposition of a United States
real property interest owned by HS Resources, Inc. (the "Seller"), the
undersigned hereby certifies the following on behalf of Seller:
1. The Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, or
foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The United States employer/taxpayer identification
number of the Seller is 94-3036964; and
3. Seller's address is:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Seller understands that this affidavit may be disclosed to the Internal Revenue
Service by the Buyer and any false statement contained herein may be punished
by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
affidavit and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of Seller.
By:
----------------------------------
Name: Annette Montoya
Title: Vice President
N-1
<PAGE> 85
Subscribed and sworn before me this 28th day of June, 1996.
--------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - -----------------------
N-2
<PAGE> 86
NON-FOREIGN OWNERSHIP AFFIDAVIT
SEE ATTACHED FORM - DR 1083
REGARDING
COLORADO REAL PROPERTY WITHHOLDING TAX
N-3
<PAGE> 87
EXHIBIT O
RATIFICATION OF OBLIGATIONS
THIS RATIFICATION OF OBLIGATIONS (this "Ratification") dated
June 28, 1996, but effective July 1, 1996 is entered into by FMR Corp., a
Massachusetts corporation ("FMR"), State Street Boston Corporation, a
Massachusetts corporation ("State Street"), Fontenelle, Inc., a Delaware
corporation and affiliate of FMR ("Fontenelle"), Bald Prairie, Inc., a Delaware
corporation and affiliate of FMR ("Bald Prairie"), and SSB Investments, Inc., a
Massachusetts corporation and affiliate of State Street ("SSBI"). FMR, State
Street, Fontenelle, Bald Prairie and SSBI are collectively referred to herein
as the "Parties," and singularly as a "Party."
Recitals
A. Fontenelle, Bald Prairie and SSBI are members (the
"Members") of Wattenberg Gas Investments, LLC, a Delaware limited liability
company ("WGI"), in accordance with the terms of the Operating Agreement of WGI
dated as of November 8, 1995, and amended and restated April 25, 1996, May 21,
1996, June 14, 1996 and June 28, 1996 (the "LLC Agreement").
B. Pursuant to Article 3 of the LLC Agreement, the
Members are obligated to make certain capital contributions with respect to
WGI.
C. WGI entered into (i) that certain Purchase and Sale
Agreement dated December 1, 1995 with HS Resources, Inc. ("HS") (the "Original
Purchase Agreement"), as amended by that First Amendment to Purchase and Sale
Agreement, Assignment, Option, Management Agreement, Gas Purchase Agreement and
Limited Power of Attorney dated April 25, 1996 (the "First Amendment"), (ii)
two Purchase and Sale Agreements, one dated May 21, 1996 and the other dated
June 14, 1996, with Wattenberg Resources Land, L.L.C. (the "WRL Agreements"),
and (iii) two Purchase and Sale Agreements dated June 14, 1996 with Orion
Acquisition, Inc. (the "Orion Agreements") whereby WGI acquired certain oil and
gas interests located in Colorado. WGI has negotiated a Purchase and Sale
Agreement dated June 28, 1996 (including all exhibits, schedules, related
documents and conveyances, the "Agreement") with HS to acquire certain
additional oil and gas interests located in Colorado, as further described on
the attached Exhibit A and Exhibit B (the "Assets").
D. Pursuant to the Original Purchase Agreement,
Fontenelle and Bald Prairie executed a Contribution Agreement with WGI dated
December 14, 1995 (the "FMR Contribution Agreement"), wherein they agreed to
contribute funds to WGI in accordance with the LLC Agreement. FMR entered into
a Guaranty
O-1
<PAGE> 88
Agreement with WGI dated December 14, 1995 (the "FMR Guaranty") to guarantee
the payment and performance of the obligations of Fontenelle and Bald Prairie
under the FMR Contribution Agreement.
E. Pursuant to the Original Purchase Agreement, SSBI
executed a Contribution Agreement with WGI dated December 14, 1995 (the "SS
Contribution Agreement"), wherein it agreed to contribute funds to WGI in
accordance with the LLC Agreement. By an Assignment of Contribution
Obligations dated December 14, 1995, SSBI acknowledged an assignment of the SS
Contribution Agreement from WGI to HS. State Street entered into a Guaranty
Agreement with WGI dated December 14, 1995 (the "SS Guaranty") to guarantee the
payment and performance of SSBI's obligations under the SS Contribution
Agreement. By an Assignment of Guaranty Rights dated December 14, 1995, State
Street acknowledged an assignment of the SS Guaranty from WGI to HS.
F. The Parties entered into a Ratification of
Obligations dated April 25, 1996 regarding matters covered by the First
Amendment and providing for certain amendments to the FMR Contribution
Agreement. The Parties entered into a Ratification of Obligations dated May
21, 1996 regarding matters covered by the first WRL Agreement, and again on
June 14, 1996 regarding matters covered by the second WRL Agreement and the
Orion Agreements.
G. To induce WGI to enter into the Agreement, the
Parties desire to ratify and amend their respective obligations under the FMR
Contribution Agreement, as amended, the FMR Guaranty, the SS Contribution
Agreement and the SS Guaranty which were given with respect to the Original
Purchase Agreement, the First Amendment, the WRL Agreements and the Orion
Agreements and to provide that the Assets will be covered by the terms of such
documents. The Parties desire to provide for an Assignment of Contribution
Obligations and an Assignment of Guaranty Rights, and their respective
acknowledgments, if any, thereunder, to assign such obligations and rights with
respect to the Assets to HS.
NOW THEREFORE, in consideration of the mutual benefits the
Parties will each receive as a result of WGI entering into the Agreement, the
Parties each respectively agree as follows:
1. Ratification. The Parties hereby ratify and amend
their respective individual and joint, if any, obligations under (i) the FMR
Contribution Agreement, as amended, (ii) the FMR Guaranty, (iii) the SS
Contribution Agreement, and (iv) the SS Guaranty, as such documents apply to
the Agreement, in the same manner and to the same extent as such documents
apply to (1) the Original Purchase Agreement, as amended by the First
Amendment, (2) the WRL Agreements, and (3) the Orion Agreements.
2. Assignment of Rights. To the extent and in the
capacity so provided, the Parties agree to execute and
O-2
<PAGE> 89
acknowledge, as appropriate, the Assignment of Contribution Obligations and the
Assignment of Guaranty Rights attached hereto (the "Assignments").
3. No Conditions. Each Party represents as to itself
that (i) there are no conditions precedent to the effectiveness of this
Ratification and the Assignments that have not been satisfied or waived, (ii)
this Ratification and the Assignments have been duly authorized by all
necessary corporate action, (iii) this Ratification, and the Assignments if
applicable, is/are binding upon and enforceable against the Party, and (iv)
that the undersigned officer of the Party has determined that this
Ratification, and the Assignments if applicable, may reasonably be expected to
benefit, directly or indirectly, the Party.
4. Counterparts. This Ratification may be executed in
one or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each Party.
5. Governing Law. This Ratification shall be governed
by and construed in accordance with the law of the Commonwealth of
Massachusetts, without reference to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the Parties have caused this Ratification
to be duly executed and delivered by their respective duly authorized
representatives as of the date first written above.
FMR CORP. STATE STREET BOSTON CORPORATION
By: By:
------------------------------ ------------------------------
Name: Gary L. Greenstein Name: William M. Reghitto
Title: Vice President Title: Vice President
FONTENELLE, INC. SSB INVESTMENTS, INC.
By: By:
------------------------------ ------------------------------
Name: Gary L. Greenstein Name: Susan A. Feig
Title: Vice President Title: Vice President
BALD PRAIRIE, INC.
By:
------------------------------
Name: Gary L. Greenstein
Title: Vice President
O-3
<PAGE> 90
ASSIGNMENT OF CONTRIBUTION OBLIGATIONS
This Assignment of Contribution Obligations (this
"Assignment") dated June 28, 1996, and effective as of July 1, 1996, is by and
between Wattenberg Gas Investments, LLC, a Delaware limited liability company
("WGI") and HS Resources, Inc., a Delaware corporation ("HS").
1. As used herein, the term "Contribution Agreement"
shall mean the Contribution Agreement by and between SSB Investments, Inc., a
Massachusetts corporation ("SSBI") and WGI dated December 14, 1995, setting
forth the obligation of SSBI to contribute funds to WGI subject to the limits
as provided therein.
2. WGI has incurred or will incur certain obligations to
HS under the Purchase and Sale Agreement dated June 28, 1996 between HS and WGI
(the "Purchase Agreement").
3. WGI hereby assigns to HS all of WGI's right, title
and interest under the Contribution Agreement with respect to the Assets
contemplated under the Purchase Agreement. SSBI hereby acknowledges the
foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of HS and WGI and their respective successors and assigns.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
---------------------------------
Gary L. Greenstein
Vice President
HS RESOURCES, INC.
By:
---------------------------------
Annette Montoya
Acknowledged: Vice President
SSB INVESTMENTS, INC.
By:
------------------------------
Susan A. Feig, Vice President
O-4
<PAGE> 91
ASSIGNMENT OF GUARANTY RIGHTS
This Assignment of Guaranty Rights (this "Assignment") dated
June 28, 1996, and effective as of July 1, 1996, is by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company ("WGI") and HS
Resources, Inc., a Delaware corporation ("HS").
1. As used herein, the term "Guaranty Agreement" shall
mean the Guaranty Agreement by and between State Street Boston Corporation, a
Massachusetts corporation ("SSBC") and WGI dated December 14, 1995, setting
forth the guarantee by SSBC of the performance of the obligations of SSB
Investments, Inc., a Massachusetts corporation, under the Contribution
Agreement dated as of December 14, 1995 between SSB Investments, Inc. and WGI.
2. WGI hereby assigns to HS all of WGI's right, title
and interest to the Guaranty Agreement with respect to the Assets covered by
the Purchase and Sale Agreement dated June 28, 1996 between WGI and HS.
3. SSBC hereby acknowledges the foregoing assignment.
4. This Assignment shall be binding upon and inure to
the benefit of HS and WGI and their respective successors and assigns.
5. This Assignment shall be governed by and construed in
accordance with the law of the Commonwealth of Massachusetts, without reference
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date first written above.
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
---------------------------------
Gary L. Greenstein
Vice President
HS RESOURCES, INC.
By:
---------------------------------
Annette Montoya
Vice President
Acknowledged:
STATE STREET BOSTON CORPORATION
By:
----------------------------
William M. Reghitto
Vice President
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<PAGE> 92
EXHIBIT P
SELLER'S OFFICER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Annette Montoya, in her capacity as Vice President of HS Resources, Inc., who,
after being duly sworn, did state as follows:
1. This certificate is being given pursuant to Section 11.9 of
that certain Purchase and Sale Agreement ("Agreement") dated
June 28, 1996 between HS Resources, Inc. ("Seller") and
Wattenberg Gas Investments, LLC ("Buyer"). Unless defined
otherwise, the capitalized terms used herein shall have the
meaning set forth in the Agreement.
2. All of the representations and warranties of Seller contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Seller in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Seller has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it prior to the Closing Date.
By:
---------------------------------
Name: Annette Montoya
Title: Vice President
Subscribed and sworn before me June 28, 1996.
-------------------------------------
Notary Public in and for
the State of Colorado
Name: Shelley Thompson
My Commission Expires: Address: 370 - 17th Street
Suite 4700
Denver, Colorado 80202
- - -----------------------
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EXHIBIT Q
Form of Opinion on Behalf of Seller
June 28, 1996
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, MA 02109
Attn: Roger D. Tullberg
Ladies and Gentlemen:
I am General Counsel to HS Resources, Inc. (the "Company").
In my capacity as General Counsel for the Company, I am familiar with the
provisions of the Purchase and Sale Agreement dated June 28, 1996 between the
Company and Wattenberg Gas Investments, LLC (the "Agreement").
I have examined the Agreement, the Assignment, the Option and
the Management Agreement (as such terms are defined in the Agreement) and the
other documents and instruments affecting the Company with respect to the
transactions contemplated by the Agreement (collectively the "Documents"), and
have made such other factual and legal investigations as I have deemed
necessary.
In examining and reviewing the Documents, I have assumed (i)
the genuineness of all signatures and (ii) the due authorization, execution,
and delivery by parties to the Documents other than the Company.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, I am of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the law of the State of Delaware, and is duly qualified to carry
on its business, and is in good standing, in the States of Delaware and
Colorado and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse impact on the Assets or the
transactions contemplated by the Agreement.
2. The Company has all requisite corporate power and
authority to carry on its business as presently conducted, to execute the
Agreement and each of the documents contemplated to be executed by the Company
at Closing, and to perform its obligations under the Agreement and under such
documents. The obligations of the Company contemplated by the Agreement and
each of the documents contemplated to be executed by the Company at Closing
will not violate, nor be in conflict with, (i) any
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provision of the Company's Certificate of Incorporation, bylaws or governing
documents, (ii) any material agreement or instrument to which the Company is a
party or is bound, or (iii) any judgment, decree, order, statute, rule or
regulation applicable to the Company; provided that, the Company has used or
has covenanted to use reasonable efforts to secure (a) consents of or filings
with the United States Department of Interior or the applicable state agencies
or authorities in connection with the assignment of any federal or state leases
or any interest therein ("Governmental Consents"), (b) waivers of preferential
rights to purchase all or any portion of the Assets and consents to or notices
of assignment necessary to convey all or any portion of the Assets which are
not Governmental Consents, and (c) waivers of maintenance of uniform interest
provisions in applicable operating agreements.
3. The execution, delivery and performance of the Agreement
and each of the documents contemplated to be executed by the Company at Closing
and the transactions contemplated thereby have been duly and validly authorized
by all requisite corporate action on the part of the Company.
4. The Agreement has been duly executed and delivered on
behalf of the Company, and all documents and instruments required thereunder to
be executed and delivered by the Company have been duly executed and delivered.
Based on and assuming the application of Colorado law, the Agreement and the
other Documents to which the Company is a signatory do and shall, constitute
legal, valid and binding obligations of the Company enforceable in accordance
with their terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application with
respect to creditors, (ii) general principles of equity, and (iii) the power of
a court to deny enforcement of remedies generally based upon public policy.
The opinions expressed in this letter are subject to the
following qualifications and limitations:
A. This opinion letter states my opinion on the points
covered if the substantive law of Colorado were applied, even though certain of
the Documents may be governed by the law of other jurisdictions. No opinion is
given as to the effect of the application of such other laws.
B. This opinion letter is rendered solely for the use
and benefit of FMR Corp., State Street Boston Corporation, their respective
affiliates, and Wattenberg Gas Investments, LLC and their respective counsel in
connection with the transactions contemplated by the Documents and may not be
relied upon by any other person or for any other purpose without my prior
written consent.
C. This opinion letter is rendered as of the date
hereof. I do not undertake to advise you of matters that may come to my or the
Company's attention subsequent to the date
<PAGE> 95
hereof and that may affect the opinions expressed herein, including, without
limitation, future changes in applicable laws.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
HS RESOURCES, INC.
James M. Piccone
General Counsel
<PAGE> 96
EXHIBIT R
BUYER'S MANAGER'S CERTIFICATE
Before me, the undersigned authority, on this day personally appeared
Gary L. Greenstein, a Vice President of Fontenelle, Inc., in its capacity as
Manager of Wattenberg Gas Investments, LLC, who, after being duly sworn, did
state as follows:
1. This certificate is being given pursuant to Section 11.11 of
that certain Purchase and Sale Agreement dated June 28, 1996
("Agreement") between HS Resources, Inc. ("Seller") and
Wattenberg Gas Investments, LLC ("Buyer"). Unless defined
otherwise, the capitalized terms used herein shall have the
meaning set forth in the Agreement.
2. All of the representations and warranties of Buyer contained
in the Agreement are true and correct in all material respects
on and as of the Closing Date.
3. No suit, action or other proceeding by a third party or
governmental authority is pending or threatened which seeks
damages from Buyer in connection with, or seeks to restrain,
enjoin or otherwise prohibit the consummation of, the
transactions contemplated by the Agreement.
4. Buyer has performed in all material respects all of its
obligations contained in the Agreement required to be
performed by it on or as of the Closing Date.
By:
---------------------------------
Name: Gary L. Greenstein
Title: Vice President
Subscribed and sworn before me July 2, 1996.
-------------------------------------
Notary Public in and for
the Commonwealth of Massachusetts
Name:
My Commission Expires: Address:
- - ----------------------
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<PAGE> 97
EXHIBIT S
Form of Opinion on Behalf of Buyer
June 28, 1996
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
New York City, New York 10005
Attn: Richard F. Betz
Ladies and Gentlemen:
We are counsel to Wattenberg Gas Investments, LLC, a Delaware
limited liability company (the "Company"). In our capacity as counsel for the
Company, we are familiar with the transactions contemplated by the Purchase and
Sale Agreement dated as of June 28, 1996 (the "Agreement") between HS
Resources, Inc. (the "Seller") and the Company as the Buyer. Any capitalized
terms used herein which are not defined herein shall have the meanings given to
them in the Agreement.
We have examined the Agreement, the Assignment, the Option,
the Management Agreement and the Ratification of Obligations, as such terms are
defined in the Agreement (collectively the "Documents"). We have made such
other factual and legal investigations as we have deemed necessary. In
addition, in rendering this opinion we have examined and relied upon a
certificate of the Manager of the Company with respect to certain factual
matters.
In examining and reviewing the Documents, we have assumed (i)
the genuineness of all signatures; (ii) the conformity to originals of all
documents submitted to us as copies; (iii) the authenticity of all original
documents of which we have received copies; (iv) the due authorization,
execution, and delivery by the Seller of the Agreement and the other Documents
to which it is a signatory; and (v) that the Documents to which the Seller is a
signatory are binding on and enforceable against the Seller.
Based on the foregoing, and subject to the assumptions,
qualifications, and limitations set forth herein, we are of the opinion that
the Documents to which the Company is a signatory are binding on and
enforceable against the Company by the Seller or by other signatories thereto,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors'
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<PAGE> 98
rights generally and to the assumption that enforcement of remedies will be
undertaken in good faith and in a commercially reasonable manner and subject,
as to enforceability, to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or law.
The opinion expressed in this letter is subject to the
following qualifications and limitations:
A. The opinion expressed in this letter is limited
solely to the law of the State of Colorado and applicable federal law of the
United States of America.
B. This opinion letter is rendered solely for the use
and benefit of Seller and its lender banks, including The Chase Manhattan Bank,
N.A., and their respective legal counsel in connection with the transactions
contemplated by the Documents and may not be relied upon by any other person or
for any other purpose without our prior written consent.
C. This opinion letter is rendered as of the date
hereof. We do not undertake to advise you of matters that may come to our
attention subsequent to the date hereof and that may affect the opinions
expressed herein.
D. This opinion letter is limited to the matters stated
herein. No opinion is implied, nor may any opinion be inferred, beyond the
matters expressly stated herein.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
S-2
<PAGE> 99
EXHIBIT T
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement"), dated effective
as of July 1, 1996 (the "Effective Date"), is by and between Wattenberg Gas
Investments, LLC, a Delaware limited liability company, (the "Company" or
"WGI") and HS Resources, Inc., a Delaware corporation ("HS" or "Manager")
(collectively, the "Parties").
RECITALS
A. The Company owns certain working interests and
overriding royalty interests in oil and gas leases and wells, as identified on
the attached Exhibits A and B, respectively (collectively, the "Assets");
B. Manager has the resources and expertise necessary to
operate and manage the Assets and to provide management services to the Company
as set forth in this Agreement (collectively, the "Services" as defined in
Article 2 below); and
C. The Company desires to retain Manager to provide such
Services and Manager desires to provide such Services, all pursuant to the
terms of this Agreement.
AGREEMENT
In consideration for the Parties entering other agreements
concurrently herewith and the mutual promises hereunder, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
All capitalized terms used herein without definition shall
have the have the meaning given in the Wellbore Assignment of Oil and Gas
Leases with Reservation of Production Payment dated June 28, 1996, among the
Parties (the "Assignment"), or in the case of the terms "IRC," "Post-Effective
Date Liabilities" and "Losses," in the Purchase and Sale Agreement dated June
28, 1996, among the Parties (the "Purchase Agreement").
ARTICLE 2
SERVICES
2.1 Subject to Section 2.2 hereof, the constraints of
applicable operating and other agreements to which all or any portion of the
Assets are now or hereafter subject and the other
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terms of this Agreement, Manager agrees to and shall have the exclusive right
and authority to manage the Assets for and on behalf of the Company, such
management to include, without limitation, performance of the following
management functions (the "Services"):
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed, conditioned, marketed,
delivered, transported or sold) gas, oil and related hydrocarbons produced by
the Company from the Assets, and pay or cause to be paid all royalties,
production payments (including, without limitation, the Production Payment),
net profits interests and all other such payment obligations arising in
connection with the Assets or the production of hydrocarbons therefrom;
provided, however, that Manager shall obtain the approval of the Company to
enter into any sales or marketing agreements which have terms of one year or
greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly constituted
federal or state regulatory body), and local laws, ordinances, rules,
regulations and orders applicable to the Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or cause to be
implemented and completed, any remedial, removal or other response action
required on the Assets under applicable environmental laws, with such actions
to be implemented and completed in accordance with customary industry practices
and in compliance with applicable environmental laws.
(e) Inform the Company of any pending or
threatened action or investigation of which Manager receives written notice and
which Manager believes in good faith could have a material adverse effect on
the Assets, including all actions initiated or investigations threatened by a
third party or governmental authority under applicable environmental laws.
(f) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of the Assets in
material compliance with applicable environmental laws and to initiate and
complete any remedial, removal or other response actions required under
applicable environmental laws in response to any release of a hazardous
substance on the Assets.
(g) Employ or contract for the services of any
Person required by Manager, in its reasonable discretion, to assist Manager in
the performance of any of its duties and responsibilities under this Agreement,
including, without limitation, any legal, accounting, geological, geophysical,
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engineering, operating and other services and advice as Manager deems
advisable, in its reasonable discretion, from any Person.
(h) Except for payment of the Production Payment,
pay and perform all obligations of the Company which relate to the Assets,
including, without limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of all money to
which it becomes entitled pursuant to the Assignment, and payment to third
parties, on behalf of the Company, of working interest expenses attributable to
the Assets.
(i) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with respect to all such
insurance, cause the Company to be named as an additional insured party on all
such insurance policies.
(j) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits, applications,
requests or regulatory documents or instruments relating to the Assets.
(k) Establish and maintain all bank accounts,
books and records, capital accounts, the Net Profits Account and other accounts
as are required or convenient to operate the Assets.
(l) Perform all accounting and reporting as
required by the Assignment, the Purchase Agreement, and any other agreement
relating to the Assets and to which the Company is subject; provided, however,
for purposes of this Agreement, the Operating Agreement for Wattenberg Gas
Investments, LLC dated effective as of November 8, 1995, as amended and
restated April 25, 1996, May 21, 1996, June 14, 1996 and June 28, 1996, shall
not be deemed to be an agreement relating to the Assets to which the Company is
subject; and provided further that Manager shall not adopt an entitlement
accounting method for gas imbalances that causes the parties subject to the
imbalance to be treated as a partnership for federal income tax purposes.
All accounting and reporting shall be performed in
accordance with the provisions of this Agreement, consistently applied. Such
accounting and reporting may initially be performed based on estimated figures,
and subsequently based on actual figures. Beginning with the calendar quarter
commencing on July 1, 1996, and every applicable calendar quarter thereafter,
Manager shall prepare and furnish to the Company within 60 days after the end
of each calendar quarter a Quarterly Report. "Quarterly Report" shall mean a
report detailing gas production and sales from the Assets attributable to the
Wells for the most recent calendar quarter. Such Quarterly Report shall
include (1) an accounting of the Net Profits Account, including a summary of
all credits and debits, and Production Payments determined in accordance with
the
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Assignment, (2) an accounting of the Company's share of all tax credit
qualified gas sales and production, total gas sales and production attributable
to the Assets and produced from the Wells, and (3) all other information
necessary and sufficient for the Company to calculate and verify Expense
Amounts.
On or before March 15th of each year, with respect to
the preceding calendar year, Manager shall furnish to the Company a report
(referred to herein as the "Annual Report"), based upon mutually agreeable
procedures, of (1) the Net Profits Account, including all credits and debits,
and all Production Payments determined in accordance with the Assignment, (2)
the Company's share of all tax credit qualified gas sales and production, total
gas sales and production attributable to the Assets and produced from the
Wells, (3) credits under IRC Section 29 which are attributable to the Assets,
(4) Expense Amounts determined in accordance with this Agreement, and (5) all
other information necessary and sufficient for the Company to calculate and
prepare its tax return for such year. If the production figures reported by
Manager are amended by it or other producers subsequent to Manager furnishing
an Annual Report to the Company, an amended Annual Report for the affected time
period shall be furnished to the Company within 60 days after the end of a
calendar quarter during which Manager received the amended production figures.
Notwithstanding the immediately foregoing, Manager shall have no obligation to
amend a prior Annual Report if the applicable period of limitations for the
Internal Revenue Service to make assessments with respect to the year in
question has expired.
(m) Calculate, supply adequate substantiation,
and invoice the Company for the Expense Amounts determined in accordance with
this Agreement and the Production Payment determined in accordance with the
Assignment.
If the production information is amended after an
Expense Amount or Production Payment for any given quarter has been calculated,
the Expense Amount and/or the Production Payment for that quarter shall be
recalculated using the amended information (the "Amended Payment Amount").
Manager shall invoice the Company for all Expense
Amounts and Production Payments within 60 days after the end of each calendar
quarter, or partial calendar quarter, and the receipt of all supporting data.
Manager shall invoice the Company for all Amended Payment Amounts within 60
days after the end of the quarter during which Manager received the amended
production information from HS or other producers.
(n) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the Purchase Agreement).
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(o) Receive and collect all revenues and income
attributable to the Assets, including, without limitation, all Gross Proceeds
and Other Income; the parties understand that all Expense Amounts are deemed
not to be revenues and income attributable to the Assets for the purposes of
this subsection (o), however, submitting invoices and sufficient supporting
documentation to the Company for Expense Amounts is a required obligation of
Manager under this Agreement.
(p) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and agreements affecting
the Assets which Manager believes are necessary or desirable in connection with
the ownership, development, operation, production and maintenance of the Assets
or to perform any of the Services hereunder; provided, however, that Manager
shall obtain the approval of the Company to enter into any such contract or
agreement which has a cost exceeding $25,000 per well (or per separately owned
formation within a well), net to the interest of the Company. Unless Manager
obtains the prior approval of the Company, Manager shall not intentionally
undertake or approve any of the Services described in this Section 2.1(p) if
any such Services will exceed by more than 10% the cost levels or estimates
upon which the Company's approval was based.
(q) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits, mediations,
arbitrations and other forms of dispute resolutions and other proceedings which
relate in any way to the Assets or the Services performed pursuant to this
Agreement; provided, however, that Manager shall obtain the approval of the
Company to settle any claim, demand, cause of action or other proceeding if the
cost exceeds $25,000 per well, net to the interest of the Company.
(r) Serve as the Company's representative as to all
hearings, proceedings, filings, permits, bonds, licenses or such other similar
matters as they relate to the drilling of sidetrack wellbores from the Wells
and which relate to any governmental, quasi-governmental or regulatory body or
agency (other than the Internal Revenue Service), and to execute all
applications, permits, orders, consents, waivers and agreements, as such relate
to the Wells with respect to such body or agency. Should a conflict arise
between the interests of Manager and the Company regarding the foregoing
matters, Manager shall advise the Company of (i) any such conflict, and (ii)
Buyer's right to represent itself with respect to such matters.
(s) All other acts and things as are necessary to
carry out Manager's responsibilities under this Agreement.
If Manager is not at any time the operator of a particular portion of the
Assets, the obligations of Manager under this Agreement with respect to such
portion of the Assets shall be
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construed to require only that Manager use its reasonable best efforts to cause
the operator of such portion of the Assets to take such actions or render such
performance within the constraints of the applicable contracts.
2.2 Determination and Payment of the Expense Amount.
(a) The Parties anticipate that the aggregate of (i)
Gross Proceeds and Other Income from the Assets and (ii) the Expense Amount (as
hereinafter defined) (collectively, the "Aggregate Amount") will be sufficient
to perform all of the Services hereunder. Unless Manager obtains the prior
approval of the Company and except for emergency situations, Manager will not
undertake or approve Services or operations on the Assets that in any instance
are anticipated to involve costs and expenses exceeding the Aggregate Amount
for such period when such costs and expenses are payable and which excess costs
and expenses cannot reasonably in good faith be expected to be recouped from
the Aggregate Amount from a subsequent period or periods. If Manager
reasonably in good faith anticipates that costs and expenses which will need to
be incurred during a particular period in order to perform the Services
hereunder for such period will exceed the Aggregate Amount for that same
period, and that the excess of costs and expenses over the Aggregate Amount
cannot reasonably in good faith be expected to be recouped from the Aggregate
Amount from a subsequent period or periods, then Manager shall forward to the
Company a timely request for the amount of funds required for Manager to timely
perform such Services, together with documentation supporting Manager's
request. The Company shall respond to Manager's request on or before 10
business days after receipt of such request. If the Company in its reasonable
and sole discretion elects to grant Manager's request, Manager will undertake
such Services or operations on the Assets and the Company shall pay to Manager
the funds required for Manager to timely perform such Services, with the
Company to recoup all such funds out of the revenues and income collected by
Manager pursuant to Section 2.1(o) and amounts payable by the Company pursuant
to Section 2.2(b) on a schedule to be determined by the Parties.
(b) The Company recognizes and agrees that for any
Payment Period during which credits are available to the Company under IRC
Section 29 from the production of "qualified fuels" (within the meaning of IRC
Section 29) from the Assets, the Gross Proceeds and Other Income from the
Assets attributable to such Payment Period after reduction for funds necessary
to satisfy the Production Payment payable to HS for such period will be
insufficient to pay "all expenses attributable to the Assets," which shall
mean, for the purposes of this Agreement, all debits made to the Net Profits
Account as set forth in Section 4.3 of the Assignment for such Payment Period.
The Company hereby agrees to pay all such excess costs and expenses for any
Payment Period (the "Expense Amount") from sources other than Gross Proceeds
and Other Income from the Assets. The Company's
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obligation to fund Expense Amounts shall survive the termination of this
Agreement for any reason.
2.3 The Company hereby covenants and agrees with Manager
as follows:
(a) All revenues and income collected by Manager
pursuant to Section 2.1(o) and amounts payable by the Company pursuant to
Section 2.2(b) shall be used by Manager to perform the Services hereunder.
(b) Any Person is entitled to rely on this
Agreement as granting to Manager the power and authority to manage the Assets
and to perform the Services on behalf of the Company. In order to allow
Manager to carry out its duties and to exercise its powers hereunder, the
Company has executed a Memorandum of Management Agreement and Power of Attorney
(the "Power of Attorney") in the form set forth on Schedule 1. The Company
shall execute such counterparts of the Power of Attorney as are necessary to
carry out the purpose of this Agreement and to evidence that Manager has the
power and authority to manage the Assets and to perform the Services on behalf
of the Company. The Company and Manager acknowledge that, for purposes of
administrative convenience, certain limitations on the authority of Manager
which are set forth in this Agreement are not set forth in the Power of
Attorney, and that this circumstance shall not result in any expansion in the
authority of Manager. The Company shall, for all purposes of this Agreement,
be deemed to have elected to participate in any actions properly taken by
Manager in accordance with the Power of Attorney.
ARTICLE 3
PERFORMANCE OF SERVICES
Manager agrees to use reasonable best efforts to perform all
of the Services in a reasonable prudent and timely manner consistent with good
oil field and business practices.
ARTICLE 4
FEES AND EXPENSES
4.1 Management Fee. Commencing on the Effective Date and
continuing throughout the term of this Agreement, the Company shall pay Manager
a fee of $500 per month (the "Management Fee"). The Management Fee is intended
to reimburse Manager for all of its corporate level internal administrative
expenses incurred in managing the Assets. The Management Fee does not cover
and the Manager shall pay all COPAS overhead charges payable to any Person
(including Manager) with respect to the Assets under any applicable operating
or other agreements, in accordance with Section 2.1(h) as part of the Company's
obligations relating to the Assets. With respect to any Well which is not
covered by an
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operating agreement, Manager shall charge the Company and pay to itself out of
the revenue and income collected by it pursuant to Section 2.1(o) above or paid
to it pursuant to Section 2.2(b), a monthly overhead charge of $350 per Well;
provided, however that such well rate shall be adjusted in the manner provided
in Paragraph 1(A)(3) of Section III of the 1985 COPAS Accounting Procedure.
4.2 Expenses Attributable to the Assets. As the owner of the
Assets, the Company is obligated to pay the expenses associated with the Assets
and it is recognized and agreed that during each Payment Period for which a
Credit Payment Amount is due, the Company must fund the Expense Amount from
sources other than Gross Proceeds and Other Income from the Assets during such
Payment Period. In connection with providing the Services, if and to the
extent that Manager pays or advances expenses associated with the Assets on
behalf of the Company, the Company agrees to reimburse Manager for such
expenses as follows: Within 60 days following the end of each Payment Period,
Manager shall invoice the Company for that portion of the Expense Amount paid
by Manager on behalf of the Company (the "Reimbursable Expense Amount").
(a) The Company agrees to pay each Reimbursable
Expense Amount to Manager within 15 days following its receipt of an invoice
therefor from Manager. On any past due Reimbursable Expense Amount, the
Company agrees to pay (i) interest at the Agreed Rate (defined below) from the
date on which such Reimbursable Expense Amount is due until the date on which
such Reimbursable Expense Amount is paid, and (ii) an additional amount equal
to the amount, if any, of all interest paid to the Company under the
Contribution Agreements on any contributions that were not timely made. The
term "Agreed Rate" shall mean the annual rate of interest equal to the lesser
of (i) the prime rate in effect at The Chase Manhattan Bank, N.A. (or its
successor, or if such bank no longer exists, the U.S. prime rate generally
recognized in the financial media from time to time) and (ii) the maximum rate
of interest allowed by applicable law.
(b) Each invoice delivered by Manager to the Company
pursuant to this Section 4.2 shall include the calculation of the expenses
which are the subject thereof, together with supporting documentation.
ARTICLE 5
INDEMNIFICATION
5.1 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all Losses
which arise directly or indirectly from or in connection with
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Manager's breach of its duties or obligations under this Agreement; provided
that the Company is not in material default under the terms and conditions of
this Agreement and does not remain in material default under the terms and
conditions of this Agreement after Manager has given the Company written notice
of such material default and given the Company a reasonable amount of time to
cure such material default; and provided further, Manager's indemnity
obligations under the terms of this Agreement shall not extend to any Losses
which arise or result directly or indirectly from or in connection with the
Company's gross negligence, willful misconduct, and/or material non-compliance
with its obligations under this Agreement if the Company continues to be in
material non-compliance with its obligations under this Agreement after Manager
has given the Company written notice of material non-compliance and given the
Company a reasonable amount of time to cure said material non-compliance or
correct the results of the Company's gross negligence or willful misconduct.
5.2 Manager shall defend, indemnify and hold harmless the
Company, and its members; officers; partners; directors; employees; agents;
administrators and representatives; including the officers, employees, agents,
administrators and representatives of such members; from and against all losses
which arise directly or indirectly from or in connection with Post-Effective
Date Liabilities involving environmental matters, to the extent that Manager,
or its successors and assigns, is jointly liable with the Company and such
environmental matters are attributable to the period of time during which this
Agreement is in force and effect. HS shall be responsible for and liable for
all costs, expenses, liabilities and obligations accruing or relating to the
owning, operating, or maintaining of the Assets or the producing, transporting
and marketing of hydrocarbons from the Assets relating to periods before the
Effective Date in accordance with Section 13.2 of the Purchase Agreement.
ARTICLE 6
ASSIGNMENT
This Agreement may be assigned by the Company with the prior
written consent of Manager, which consent shall not be unreasonably withheld.
Without the prior written consent of the Company, the accounting functions to
be performed by Manager hereunder and Manager's indemnity obligations hereunder
may not be assigned and shall remain the obligations of Manager. With respect
to all of the other rights, authority, duties and obligations, this Agreement
may be assigned by Manager in whole or in part at the same time and to the same
extent the Production Payment may be assigned by HS pursuant to the Assignment.
Upon any such assignment of this Agreement and except for the indemnity
obligations and accounting obligations of Manager, Manager shall have no
further liability to the Company with
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respect to any obligations or duties accruing following the effective date of
such assignment as to the portion of the Agreement so assigned.
ARTICLE 7
TERM / TERMINATION
7.1 This Agreement shall be effective for the period from the
Effective Date until June 1, 1997. Thereafter, this Agreement shall continue
on a year-to-year basis, but may be terminated by either party upon 90 days
written notice to the other party. Notwithstanding the foregoing, if the
Internal Revenue Service ("IRS") publishes a Revenue Procedure or other
guidance in the IRS Cumulative Bulletin allowing for a longer term with respect
to management agreements contemplated under a transaction essentially similar
to the Purchase Agreement, the Company and Manager agree to extend the term of
this Agreement in accordance with such guidance, but in no event shall the term
of this Agreement extend beyond January 1, 2005. This Agreement shall not be
applicable to any portion of the Assets as to which HS has effected a partial
exercise of the Option.
7.2 If Manager is in breach of its obligations set forth in
Article 3, and the Company is materially damaged as a result of such breach,
the Company shall so inform Manager in writing of such breach (an "Event of
Default"). Thereafter, Manager shall have 30 days in which to cure the Event
of Default or such longer period of time as is reasonably necessary under the
circumstances so long as Manager undertakes to commence the cure of such Event
of Default within such 30-day period and such cure is diligently prosecuted
thereafter. If Manager does not cure the Event of Default within that time
frame, the Company, at its sole option and discretion, may terminate this
Agreement, and retain any legal and equitable rights and remedies it may have
against Manager on account of such breach.
ARTICLE 8
MISCELLANEOUS
8.1 This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
of the Parties and delivered to the other.
8.2 This Agreement shall be governed by and construed in
accordance with the law of the State of Colorado without reference to the
conflict of laws provisions thereof.
8.3 All notices hereunder shall be sufficiently given for
all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed,
by United States mail, telecopy,
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telefax or other electronic transmission service to the appropriate address as
set forth below.
If to Manager:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
If to Company:
Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attention: Roger D. Tullberg
Fax: (617) 476-6248
Telephone: (617) 563-4791
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Curtis, Esq.
Telephone: (617) 338-2839
Fax: (617) 338-2880
and a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
or at such other address and to the attention of such other person as such
Party may designate by written notice to the other Party.
8.4 Notwithstanding anything herein provided to the
contrary, the Company shall be deemed to have given its approval to Manager for
any matter requiring the Company's approval if the Company fails to deny its
approval to Manager within 7 days of receipt from Manager of a request for
approval under this Agreement, or within such shorter time period if the
situation requires Manager to act before the 7-day period has expired and
Manager notifies Company of such shorter time frame.
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8.5 Subject to Article 6 hereof, this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors and assigns. Further, this Agreement, and the rights and
obligations hereunder, shall be a covenant running with the lands attributable
to the Assets.
8.6 This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the Parties. Any party
hereto may, only by an instrument in writing, waive compliance by another Party
with any term or provision of this Agreement on the part of such other Party to
be performed or complied with. The waiver by any Party of a breach of any term
or provision of this Agreement shall not be construed as a waiver of any
subsequent breach.
8.7 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 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.
8.8 In addition to any other remedy which Manager may
enjoy under this Agreement, at law or in equity, Manager shall have the right
to seek and enforce the remedy of specific performance by the Company of its
obligations under this Agreement.
8.9 The provisions of Section 2.2 and of Article 5 shall
survive the termination of this Agreement for any reason with respect to
liabilities or obligations under such provisions that accrue or arise during
the period of time that this Agreement, including any amendments, replacements
or renewals of this Agreement, is valid and in effect.
8.10 This Agreement is not intended to create, and shall
not be construed to create, a relationship of partnership or an association for
profit between Manager and the Company.
8.11 The Parties agree not to record this Management
Agreement.
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IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first above written.
Wattenberg Gas Investments, LLC
By: Its Manager, Fontenelle, Inc.
By:
---------------------------
Name: Gary L. Greenstein
Title: Vice President
HS Resources, Inc.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
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SCHEDULE 1
MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
This MEMORANDUM OF MANAGEMENT AGREEMENT AND POWER OF ATTORNEY
(this "Power of Attorney") is dated as of June 28, 1996 and effective as of
July 1, 1996 (the "Effective Date"), and is executed by and between Wattenberg
Gas Investments, LLC, a Delaware limited liability company having an office at
82 Devonshire Street, R22C, Boston, Massachusetts 02109 (the "Company") and HS
Resources, Inc., a Delaware corporation, having an office at 1999 Broadway,
Suite 3600, Denver, Colorado 80202 ("HS" or the "Manager") (collectively, the
"Parties").
The Parties hereby give notice that they entered into a
Management Agreement dated June 28, 1996 (the "Agreement"), whereby the Company
contracted with Manager for Manager to perform certain operating and management
services relative to the lands and leases identified on Exhibit A and to the
wells identified on Exhibit B (collectively, the "Assets" as further defined in
that Purchase and Sale Agreement dated June 28, 1996 between the Parties (the
"Purchase Agreement")). The Company does hereby appoint and constitute Manager
as its duly authorized Attorney-in-Fact with the powers and obligations set
forth herein. Manager may present this Power of Attorney to any third party as
evidence of its authority to perform the duties and obligations of Manager
under the Agreement.
Manager has agreed to manage the Assets for and on behalf of
the Company, by performing certain management services, as limited and
described in more detail in the Agreement (the "Services").
Effective as of the Effective Date, the Company does hereby
revoke all prior powers of attorney granted in connection with the following
matters and does hereby appoint and constitute Manager as its duly authorized
Attorney- in-Fact with power and authority for the Company and in its name,
place and stead to execute, acknowledge and deliver such instruments as Manager
deems necessary or convenient in connection with the following matters relating
to real or personal property constituting the Assets:
(a) Operate, manage, and maintain the Assets.
(b) Gather, process, condition, market, deliver,
transport or sell (or cause to be gathered, processed,
conditioned, marketed, delivered, transported or sold) gas,
oil and related hydrocarbons produced by the Company from the
Assets, and pay or cause to be paid all royalties, production
payments, net profits interests and all other such payment
obligations
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<PAGE> 113
arising in connection with the Assets or the production of
hydrocarbons therefrom; provided, however, that Manager shall
obtain the approval of the Company to enter into any sales or
marketing agreements which have terms of one year or greater.
(c) Operate the Assets in compliance in all
material respects with all federal, state (including any duly
constituted federal or state regulatory body), and local laws,
ordinances, rules, regulations and orders applicable to the
Assets.
(d) Operate the Assets in material compliance
with all environmental laws and to implement and complete, or
cause to be implemented and completed, any remedial, removal
or other response action required on the Assets under
applicable environmental laws, with such actions to be
implemented and completed in accordance with customary
industry practices and in compliance with applicable
environmental laws.
(e) Manage and dispose of all solid and/or
hazardous wastes generated in connection with the operation of
the Assets in material compliance with applicable
environmental laws and to initiate and complete any remedial,
removal or other response actions required under applicable
environmental laws in response to any release of a hazardous
substance on the Assets.
(f) Employ or contract for the services of any
person required by Manager, in its reasonable discretion, to
assist Manager in the performance of any of its duties and
responsibilities under the Agreement, including, without
limitation, any legal, accounting, geological, geophysical,
engineering, operating and other services and advice as
Manager deems advisable, in its reasonable discretion, from
any person.
(g) Pay and perform all obligations of the
Company which relate to the Assets, including, without
limitation, the payment to itself, on behalf of the Company,
of working interest expenses attributable to the Assets and of
all money to which it becomes entitled, and payment to third
parties, on behalf of the Company, of working interest
expenses attributable to the Assets.
(h) Maintain insurance with respect to the Assets
as is reasonable and customary in the industry, and with
respect to all such insurance, cause the Company to be named
as an additional insured party on all such insurance policies.
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<PAGE> 114
(i) Execute and file and record, when appropriate
or required, all assignments and other instruments, permits,
applications, requests or regulatory documents or instruments
relating to the Assets.
(j) Establish and maintain all bank accounts,
books and records, capital accounts, Net Profits Account and
other accounts as are required or convenient to operate the
Assets.
(k) Perform all accounting and reporting related
to the Assets.
(l) Calculate and invoice the Company for amounts
due under the Purchase Agreement.
(m) Manage all contracts relating to the Assets
to which the Company is or becomes a party (except for the
Purchase Agreement and the Operating Agreement of the
Company).
(n) Receive and collect all revenues and income
attributable to the Assets.
(o) Negotiate, execute and deliver all contracts
and agreements and amendments to existing contracts and
agreements affecting the Assets which Manager believes are
necessary or desirable in connection with the ownership,
development, operation, production and maintenance of the
Assets or to perform any of the Services under the Agreement.
(p) Assume the defense of, handle, investigate
and/or settle all claims, demands, causes of action, lawsuits,
mediations, arbitrations and other forms of dispute
resolutions and other proceedings which relate in any way to
the Assets or the Services performed pursuant to the
Agreement.
(q) Act on behalf of and bind the Company with
respect to all hearings, proceedings, filing, permits, bonds,
licenses or such other similar matters as they relate to the
Assets (including, but not limited to the drilling of
sidetrack wellbores from the Wells) or a portion thereof and
which relate to any governmental, quasi-governmental or
regulatory body or agency (other than the Internal Revenue
Service), and to execute all applications, permits, orders,
consents, waivers and agreements, as such relate to the Assets
or a portion thereof, with respect such body or agency.
(r) Exercise on behalf of the Company the right
to not participate or to non-consent any proposal.
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<PAGE> 115
(s) Pool or unitize the Company's interests in
the Assets.
(t) All other acts and things as are necessary to
carry out Manager's responsibilities under the Agreement.
The powers herein conferred shall extend to all acts and
transactions described in (a) - (t) above affecting the Assets and extend to
all forms of interests in the Assets. This Power of Attorney is irrevocable by
the Company and is coupled with an interest in the lands covered by the Assets
for the period from the Effective Date until the Agreement is terminated. If
HS elects to exercise its rights under the Option to Purchase Oil and Gas
Interests dated June 28, 1996 among the Parties (the "Option"), this Power of
Attorney shall no longer be effective as to the Assets on which HS has
exercised the Option.
If Manager is not at any time the operator of a particular
portion of the Assets, the obligations of Manager under the Agreement with
respect to such portion of the Assets shall be construed to require only that
Manager use reasonable best efforts to cause the operator of such portion of
the Assets to take such actions or render such performance within the
constraints of the applicable contracts.
Manager shall use reasonable best efforts to perform the
Services in a reasonable and prudent manner consistent with good oil field and
business practices.
Any person is entitled to rely on this Power of Attorney as
notice that Manager has been given the power and authority to manage the Assets
and to perform the Services on behalf of the Company.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
-----------------------------------
Name: Gary L. Greenstein
Title: Vice President
HS RESOURCES, INC.
By:
-----------------------------------
Name: Annette Montoya
Title: Vice President
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<PAGE> 116
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th
day of June, 1996, by Annette Montoya, Vice President of HS Resources, Inc., a
Delaware corporation, on behalf of such corporation.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 2nd
day of July, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
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<PAGE> 117
EXHIBIT U
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this ____ day
of ______________, by and between HS Resources, Inc. ("Seller"), Wattenberg Gas
Investments, LLC ("Buyer"), and __________________ BANK ("Escrow Agent").
Seller and Buyer are sometimes herein jointly referred to as the "Parties."
RECITALS
A. Seller and Buyer are the Seller and Buyer,
respectively, under that certain Purchase and Sale Agreement dated June 28,
1996 (the "Purchase Agreement"), and Grantor and Grantee, respectively, under
the Wellbore Assignment of Oil and Gas Leases with Reservation of Production
Payment dated June 28, 1996 (the "Assignment"); and
B. Pursuant to Section 8.3 of the Purchase Agreement,
Seller and Buyer have agreed that Buyer shall deposit certain amounts in an
escrow account; and
C. Escrow Agent has agreed to act as such in accordance
with the terms, provisions and conditions of this Escrow Agreement and to hold
the funds described herein in accordance with the terms and provisions hereof.
AGREEMENT
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Of even date herewith, Buyer has delivered to Escrow
Agent and Escrow Agent hereby acknowledges the receipt of an Expense Amount (as
defined in the Management Agreement dated June 28, 1996 between Seller and
Buyer) for deposit into the account set up hereunder (the "Escrow Account").
Seller and Buyer have advised Escrow Agent that Buyer will deliver additional
Expense Amounts for deposit into the Escrow Account. Such sums, together with
any interest or other earnings of the money so deposited shall be referred to
herein as the "Escrow Funds."
2. During the term of this Escrow Agreement, Escrow
Agent shall hold and maintain the Escrow Funds and said funds shall be invested
or reinvested by Escrow Agent at the joint written direction of Seller and
Buyer. Seller and Buyer hereby
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direct Escrow Agent to invest the Escrow Funds in the _______________________
Fund.
The Escrow Agent shall sell all or any designated part of such
investments so directed in writing jointly by Seller and Buyer. All
commissions, brokerage taxes, fees and expenses, if any, applicable to the
acquisition or sale of the investments under this paragraph shall be paid
initially from the interest or income generated from the Escrow Funds and
thereafter from any remaining amounts in the Escrow Funds. The Escrow Agent
shall not be liable for losses on any investments made by it pursuant to and in
compliance with such instructions.
3. The Escrow Agent shall hold and disburse the Escrow
Funds during the term of this Escrow Agreement in accordance with the joint
written instructions from Seller and Buyer. The Escrow Agent shall deliver the
Escrow Funds or any part thereof to the party designated to receive such funds
if Escrow Agent receives joint written instructions from both Seller and Buyer
to do so. The Escrow Agent shall hold the Escrow Funds until it has received a
joint written instruction notice from Seller and Buyer as to how delivery of
the Escrow Funds shall be made. Should any controversy arise between Seller
and Buyer and/or the Escrow Agent with respect to this Escrow Agreement or with
respect to the right to receive the Escrow Funds, the Escrow Agent shall have
the right to consult counsel and/or to institute a bill of interpleader in any
court of competent jurisdiction to determine the rights of the Parties. Should
such actions be necessary, or should the Escrow Agent become involved in
litigation in any manner whatsoever on account of this Escrow Agreement or the
Escrow Funds held hereunder, the Parties bind and obligate themselves, their
successors, assigns and legal representatives to pay the Escrow Agent, in
addition to any charge made hereunder for acting as Escrow Agent, reasonable
attorney's fees incurred by the Escrow Agent, and any other disbursements,
expenses, losses, costs and damages in connection with and resulting from such
actions.
4. Duties of the Escrow Agent
(a) The duties of the Escrow Agent are only such
as are herein specifically provided, being purely ministerial in nature, and
the Escrow Agent shall incur no liability whatsoever except for gross
negligence or willful misconduct. The Escrow Agent is not a party to any other
agreement regarding the subject matter contained herein and as such shall only
be bound by the terms and conditions of this Escrow Agreement.
(b) The Escrow Agent shall be under no
responsibility for the recitals in this Escrow Agreement, the covenants or
undertakings set forth in the Purchase Agreement, the Assignment, or in respect
of any of the items deposited with the Escrow Agent other than to comply with
the specific duties and responsibilities set forth herein and with any written
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instructions or other communications herein provided for; and, without limiting
the generality of the foregoing, the Escrow Agent shall have no obligation or
responsibility to determine the correctness of any statement or calculation
made by any party hereto in any written instruction or other communication or
the genuineness or validity of any document. The Escrow Agent shall be fully
protected in acting in accordance with any written instructions or other
communications from Seller and Buyer given to it in accordance with the
provisions hereof and reasonably believed by it to have been signed by the
proper parties. The Escrow Agent shall have no liability for losses arising
from any cause beyond its control, including (but not limited to) the
following: (i) the act, failure or neglect of any agent or correspondent
selected by the Escrow Agent for the remittance of funds; (ii) any delay,
error, omission or default of any mail, delivery, cable or wireless agency or
operator; (iii) the acts or edicts of any government or governmental agency or
other group or entity exercising governmental powers. The Escrow Agent shall
be entitled to pay from the Escrow Funds the cost and expense of defending any
legal proceedings which may be instituted against it with respect to the
subject matter of this Escrow Agreement (including counsel and investigatory
fees); provided, however, the Escrow Agent shall consult with Seller and Buyer
prior to incurring any such legal expenses. The Escrow Agent shall not be
required to institute legal proceedings of any kind.
5. The Escrow Agent may resign at any time by giving
written notice to Seller and Buyer. Such resignation shall not be effective
until a new Escrow Agent has been appointed by the joint written agreement of
Seller and Buyer. The Escrow Agent may at any time be removed by notice in
writing delivered to the Escrow Agent by Seller and Buyer. The Escrow Agent's
sole responsibility thereafter shall be to keep safely all Escrow Funds then
held by it and to deliver the same to a person designated by the Parties or in
accordance with the directions of a final order or judgment from a court having
competent jurisdiction.
6. For its services pursuant to this Escrow Agreement,
the Escrow Agent shall be entitled to a fee of _______________________ DOLLARS
($______.00 U.S.). Any fees and expenses due the Escrow Agent shall be borne
one- half (1/2) by Seller and one-half (1/2) by Buyer and shall be paid within
10 days after the receipt of an invoice from the Escrow Agent for such fees and
expenses. The Parties jointly and severally agree to pay to the Escrow Agent
its fees for the services rendered by it pursuant to the provisions of this
Escrow Agreement and will reimburse the Escrow Agent for its reasonable
expenses, including reasonable attorney's fees incurred in connection with the
negotiations, drafting and performance by it of such services. Except as
otherwise noted, this fee covers account acceptance, set-up and termination
expenses, plus usual and customary related administrative services such as
safekeeping, investment, collection and distribution of assets, including
normal record
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<PAGE> 120
keeping and reporting requirements. Any additional services beyond the
receipt, investment and payment of funds specified in this Escrow Agreement, or
activities requiring excessive administrator time or out-of-pocket expenses
such as optional substitution of collateral or securities, shall be deemed
extraordinary fees for which related costs, transaction charges and additional
fees will be billed at the Escrow Agent's standard charges for such items.
7. The Parties agree to jointly and severally indemnify,
defend and hold the Escrow Agent harmless from and against any and all loss,
damage, tax, liability and expense that may be incurred by the Escrow Agent
arising out of or in connection with its acceptance or appointment as the
Escrow Agent hereunder, including the legal costs and expenses of defending
itself against any claim or liability in connection with its performance
hereunder. Any fees and expenses resulting from the foregoing indemnification
shall be borne one-half (1/2) by Seller and one-half (1/2) by Buyer.
8. The Escrow Agent is hereby given a lien on the Escrow
Funds for all indebtedness that may become owing to the Escrow Agent hereunder,
which lien may be enforced by the Escrow Agent by setoff or appropriate
foreclosure proceedings.
9. The Parties warrant to the Escrow Agent that there
are no federal, state or local tax liabilities or filing requirements
whatsoever concerning the Escrow Agent's actions contemplated hereunder and
warrant and represent to the Escrow Agent that the Escrow Agent has no duty to
withhold or file any report regarding any tax liability (other than with
respect to interest on the Escrow Funds) under any federal or state income tax,
local or state property tax, local or state sales or use taxes, or any other
tax by any taxing authority. The Parties agree to jointly and severally
indemnify the Escrow Agent fully for any tax liability, penalties or interest
incurred by the Escrow Agent arising hereunder and agree to pay in full any
such tax liability together with penalty and interest if any tax liability is
ultimately assessed against the Escrow Agent for any reason as a result of its
actions hereunder (except for the Escrow Agent's individual income tax
liability with respect to its fees).
10. All notices, requests, directions, instructions,
waivers, approvals or other communications to any party hereto shall be made or
delivered in person or by registered mail or certified mail, postage prepaid,
addressed to such party as provided below, or to such other address as such
party may hereafter specify in a written notice to the other parties named
herein, and all such notices or other communications shall be in writing so
addressed and shall be effective upon receipt by the addressee thereof:
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<PAGE> 121
Escrow Agent: _____________________ BANK
Corporate Trust Department
Attn: ______________________
Telephone: ( )
Fax: ( )
Seller: HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-3600
Fax: (303) 296-3601
Buyer: Wattenberg Gas Investments, LLC
c/o FMR Corp.
82 Devonshire Street, R22C
Boston, Massachusetts 02109
Attn: Roger D. Tullberg
Telephone: (617) 563-4791
Fax: (617) 476-6248
with a copy to:
SSB Investments, Inc.
225 Franklin Street, M-8
Boston, Massachusetts 02110
Attention: Susan A. Feig
Telephone: (617) 654-3685
Fax: (617) 654-4850
11. No agreement shall be effective to amend or
supplement this Escrow Agreement unless such agreement is in writing and signed
by the parties hereto. This Escrow Agreement may be executed in any number of
execution counterparts.
12. This Escrow Agreement shall be governed by and
construed in accordance with the law of the State of Colorado, except that
statutory provisions regarding fiduciary duties and liabilities of Trustees
shall not apply to this Escrow Agreement. The Parties expressly waive such
duties and liabilities, it being their intent to create solely an agency
relationship and hold the Escrow Agent liable only in the event of its gross
negligence or willful misconduct in order to obtain lower fee schedule rates as
specifically negotiated with the Escrow Agent.
13. This Escrow Agreement shall terminate by its own
terms when no funds remain in the Escrow Account, unless sooner terminated in
writing by the Parties, in which case the balance of any funds remaining in the
Escrow Account upon such termination shall promptly be paid in accordance with
written instructions signed by Seller and Buyer.
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IN WITNESS WHEREOF, the parties hereto have executed this
Escrow Agreement as of the date first above written.
HS RESOURCES, INC.
By:
----------------------------------
Name: Annette Montoya
Title: Vice President
WATTENBERG GAS INVESTMENTS, LLC
By its Manager, Fontenelle, Inc.
By:
----------------------------------
Name: Gary L. Greenstein
Title: Vice President
BANK,
-------------------------------
as Escrow Agent
By:
----------------------------------
Name:
Title: President
--------------------
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<PAGE> 123
EXHIBIT V
LIMITED POWER OF ATTORNEY
Wattenberg Gas Investments, LLC, a Delaware limited liability
company, having an office at 82 Devonshire Street, R22C, Boston, Massachusetts
02109 (the "Company") does hereby make, constitute and appoint David G.
Stolfa, having an office at 3300 South Columbine Circle, Englewood, Colorado
80110, to be its true and lawful attorney (attorney-in-fact), for it and in its
name and behalf, to execute and deliver the Assignment, Bill of Sale and
Conveyance attached hereto as Schedule 1, requiring execution and delivery in
the name of the Company pursuant to the terms of that certain Purchase and Sale
Agreement dated June 28, 1996 between the Company and HS Resources, Inc.
("HS"), for the leases and wells identified by exhibit therein (the "Assets").
The attorney-in-fact shall execute and is obligated to execute
from time to time the attached Assignment, Bill of Sale and Conveyance, in any
number of counterparts and covering all or any portion of the Assets, upon the
written request of HS, regardless of any objection by any party including the
Company. Such written request shall include a copy of a written notice from HS
to the Company, which HS represents has been received by the Company at least
60 days prior to the submittal to the attorney-in-fact (which the
attorney-in-fact shall not be required to verify), stating that (a) the Company
failed to perform an obligation under (i) the Purchase and Sale Agreement, (ii)
the Wellbore Assignment of Oil and Gas Leases with Reservation of Production
Payment dated June 28, 1996 between HS and the Company, (iii) the Option to
Purchase Oil and Gas Interests dated June 28, 1996 between the Company and HS
(the "Option"), or (iv) the Management Agreement dated June 28, 1996 between
the Company and HS, and (b) that HS tendered any required payment to WGI for
the Assets to be conveyed by the Assignment, Bill of Sale and Conveyance in
accordance with the terms of the Option. The written request shall also
include a signed statement by an officer of HS, that the Company has not
remedied such failure to perform in the 60 days since the Company's receipt of
the written notice of such failure to perform.
This Limited Power of Attorney is irrevocable by the Company
and is coupled with an interest in the lands covered by the Assets. The
foregoing power of attorney shall be effective from the date hereof until HS
receives a conveyance of all of the Assets or until the Option expires, which
ever is earlier.
Gary L. Greenstein, Vice President of Fontenelle, Inc., in its
capacity as Manager of the Company, hereby certifies that the execution of this
Limited Power of Attorney is authorized by the Operating Agreement of the
Company dated effective as of November 8, 1995, as amended and restated April
25, 1996, May 21,
V-1
<PAGE> 124
1996, June 14, 1996 and June 28, 1996 and other governing authority of the
Company and that the Company will ratify and confirm all lawful actions taken
by David G. Stolfa, or his successor, on behalf of the Company which are
authorized by this Limited Power of Attorney. The Company and HS each waive
any and all claims against the attorney-in-fact and the right to enjoin the
attorney-in-fact for any actions authorized herein. The Company and HS each
shall indemnify and release the attorney-in-fact from any damages incurred by
or claims made against the attorney-in-fact for any exercise of authority
granted herein.
David G. Stolfa may not resign as attorney-in-fact under this
Limited Power of Attorney until he appoints a successor attorney-in-fact and
notifies the Company and HS of such appointment, and the successor agrees to
such appointment in a writing delivered to HS. In the event that David G.
Stolfa is deceased, is permanently incapacitated or otherwise is unable to
perform under this Limited Power of Attorney, Thomas H. McCarthy, Jr. having an
office at 3047 So. Claude Court, Denver, Colorado 80210 is appointed as the
successor attorney-in-fact for the Company.
This Limited Power of Attorney is executed on June 28, 1996,
and effective for all purposes as of July 1, 1996.
WATTENBERG GAS INVESTMENTS, LLC
By: Its Manager, Fontenelle, Inc.
By:
----------------------------
Name: Gary L. Greenstein
Title: Vice President
HS RESOURCES, INC.
By:
----------------------------------
Name: Annette Montoya
Title: Vice President
DAVID G. STOLFA
By:
----------------------------------
Name: David G. Stolfa
V-2
<PAGE> 125
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
The foregoing instrument was acknowledged before me this 2nd
day of July, 1996, by Gary L. Greenstein, Vice President of Fontenelle, Inc. a
Delaware corporation, Manager of Wattenberg Gas Investments, LLC, a Delaware
limited liability company on behalf of such company.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th
day of June, 1996, by Annette Montoya, in her capacity as Vice President of HS
Resources, Inc., a Delaware corporation on behalf of such corporation.
Witness my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
----------------
(SEAL)
V-3
<PAGE> 126
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 28th
day of June, 1996, by David G. Stolfa, an individual.
Witness my hand and official seal.
-------------------------------------
Notary Public
My commission expires:
---------------
(SEAL)
V-4
<PAGE> 127
SCHEDULE 1
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE ("Assignment") is
dated this ____ day of _________, but effective as of _______________ (the
"Effective Date"), from WATTENBERG GAS INVESTMENTS, LLC, a Delaware limited
liability company with an office at 82 Devonshire Street, R22C, Boston,
Massachusetts 02109 (herein called "Assignor"), to HS RESOURCES, INC., a
Delaware corporation with an office at 1999 Broadway, Suite 3600 Denver,
Colorado 80202 (herein called "Assignee").
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor does hereby GRANT,
BARGAIN, SELL, CONVEY, ASSIGN, and DELIVER unto Assignee all of the following:
A. All of Assignor's right, title and interest in and to
the oil and gas leases described in Exhibit A,
insofar and only insofar as said leases cover the
right to produce the wells described in Exhibit B
from the intervals in such wells identified in
Exhibit B as of the Effective Date (the above
described interests in such leases being herein
called the "Leases" and the above described interest
in such wells being herein called the "Wells"),
subject to any restrictions, exceptions,
reservations, conditions, limitations, burdens,
contracts, agreements and other matters applicable to
the Leases and the Wells, and excluding such portion
of the Leases and the Wells which were not conveyed
to Assignor because of Defective Interests or which
were determined to be Excluded Assets (as such terms
are defined in the Purchase and Sale Agreement
between Assignor and Assignee dated June 28, 1996
(the "Purchase Agreement");
B. The right, title and interest of Assignor in and to
overriding royalty interests in the Leases insofar
and only insofar as the Leases cover the wellbores
associated with the Wells from the producing
intervals identified in Exhibit B;
C. To the extent affected, the right, title and interest
of Assignor in and to, or derived from, the presently
existing and valid oil, gas and mineral unitization,
pooling, operating and communitization agreements,
declarations and orders affecting the Leases and
Wells, and in and to the properties covered and the
units created thereby;
V-5
<PAGE> 128
D. To the extent affected, the right, title and interest
of Assignor in and to the personal property and
fixtures that are appurtenant to the Wells, including
all wells, casing, tubing, pumps, separators, tanks,
lines and other personal property and oil field
equipment appurtenant to such Wells; provided,
however, that Assignor shall remain co-owner of any
personal property appurtenant to any property owned
by Assignor that is not exclusively part of the
Wells;
E. To the extent affected, the right, title and interest
of Assignor in and to and under, or derived from, the
presently existing and valid gas sales, purchase,
gathering and processing contracts and operating
agreements, joint venture agreements, partnership
agreements, rights- of-way, easements, permits and
surface leases and other contracts, agreements and
instruments (but specifically excluding any
management agreements), only in relevant part to the
extent and insofar as the same are appurtenant to the
Leases, Wells and the units referred to in Paragraph
C above; provided, however, that Assignor shall
remain co-owner of any agreements, including
unitization and pooling agreements, if they pertain
to any property owned by Assignor that is not
exclusively part of the Leases or Wells.
All of the foregoing leases, interests, rights and properties
described in Paragraphs A through E, above, are herein called the "Properties"
and are located in the various counties identified in Exhibits A and B.
To have and to hold the Properties forever, subject to the
following:
1. THIS ASSIGNMENT IS MADE WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, EXCEPT AS TO PARTIES CLAIMING BY,
THROUGH OR UNDER ASSIGNOR.
2. Assignor shall execute such forms of assignment
conveying Assignor's interest in the Properties as may be required by any
governmental authority to conform to governmental regulation and such
assignments shall not serve to enlarge or diminish the rights herein conveyed.
3. This Assignment shall be binding upon and inure to
the benefit of Assignee and Assignor and their respective successors and
assigns.
V-6
<PAGE> 129
Executed and effective as of the day and year first above
written.
WATTENBERG GAS INVESTMENTS, LLC
By:
----------------------------------
Name: David G. Stolfa
Title: Attorney-in-Fact
STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this ____
day of ______________ by David G. Stolfa as Attorney-in-Fact of WATTENBERG GAS
INVESTMENTS, LLC, a Delaware limited liability company, on behalf of such
company.
Witness my hand and official seal.
My Commission Expires: ---------------------------------------
Notary Public
Name:
Address:
- - --------------------------------
[seal]
V-7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,478,800
<SECURITIES> 0
<RECEIVABLES> 36,875,928
<ALLOWANCES> 0
<INVENTORY> 955,180
<CURRENT-ASSETS> 46,778,036
<PP&E> 785,004,579
<DEPRECIATION> 107,672,799
<TOTAL-ASSETS> 730,166,341
<CURRENT-LIABILITIES> 54,465,977
<BONDS> 399,800,821
<COMMON> 17,118
0
0
<OTHER-SE> 185,444,546
<TOTAL-LIABILITY-AND-EQUITY> 730,166,341
<SALES> 39,815,401
<TOTAL-REVENUES> 41,023,887
<CGS> 4,732,728
<TOTAL-COSTS> 25,580,843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,744,682
<INCOME-PRETAX> 2,965,634
<INCOME-TAX> 1,129,907
<INCOME-CONTINUING> 1,835,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,835,727
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
