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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
FEBRUARY 18, 1997
GOTHIC ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
OKLAHOMA 0-19753 22-2663839
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5727 SOUTH LEWIS AVENUE, SUITE 700, TULSA, OKLAHOMA 74105
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(Address of principal executive offices)
Registrant's telephone number, including area code: (918) 749-5666
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS:
On February 18, 1997, the Company acquired from Norse Exploration, Inc.,
and Norse Pipeline, Inc. (collectively, "Norse"), various working interests in
11 oil and gas producing properties and, through the acquisition of the
outstanding capital stock of Norse Pipeline, Inc., its 40.09% general
partnership interest in the Sycamore Gas System (the "Sycamore System"), an
Oklahoma gathering system, processing plant and storage facility. The oil and
gas wells and the gathering system are located in the Springer Field in Carter
County, Oklahoma. The total purchase price was $10,750,000, plus two-year
warrants to purchase 200,000 shares of the Company's Common Stock at a per share
exercise price of $2.50. The estimated fair value of such warrants at the date
of acquisition was approximately $254,000. The Company paid a deposit of
$1,075,000 toward the purchase price in December 1996.
The Company also on February 18, 1997, acquired from H. Huffman & Company
("Huffman"), an Oklahoma limited partnership, various working interests in 13
oil and gas producing properties and an additional 10.97% interest in the
Sycamore System. The oil and gas wells are located in the same producing area
as the properties acquired from Norse. The total purchase price for the assets
acquired was $3,950,000, of which the Company paid a deposit of $287,500
toward the purchase price in December 1996.
The Company also acquired, on February 18, 1997, from Horizon Gas Partners,
L.P. and HSRTW, Inc. (collectively, "Horizon"), various working and royalty
interests in approximately 100 oil and gas producing properties. The producing
properties are located in Major and Blaine counties of Oklahoma. The purchase
price was $10,000,000.
The effective date of all three acquisitions was January 1, 1997.
Financing for the acquisition was provided primarily by bank borrowing. On
February 17, 1997, the Company and Bank One, Texas, N.A., entered into a
Restated Loan Agreement (the "Credit Facility") which currently enables the
Company to borrow, from time to time and, subject to meeting certain borrowing
base requirements and other conditions, a maximum aggregate of $75,000,000 as of
February 17, 1997. The current maximum aggregate available to be borrowed under
the Credit Facility is $44,000,000 and is comprised of a $32,000,000 borrowing
availability (the "borrowing base") based on the Company's oil and gas reserve
reports, a $10,000,000 special advance facility (the "Special Advance Facility")
and a $2,000,000 special drilling facility. On February 18, 1997, the Company
drew down both the borrowing base and the Special Advance Facility for a total
of $41,668,000. These funds were used to repay all existing indebtedness then
outstanding owing to the bank in the amount of $21,264,000, to finance the cash
consideration paid for the three February 18, 1997 acquisitions discussed above
which aggregated $19,404,000, and to pay a $1,000,000 loan fee to Bank One. An
aggregate of $1,291,295 of the previously paid deposits against the purchase
price for the Norse and
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Huffman acquisitions had been borrowed from the bank in December 1996 against
the Company's borrowing availability at the time.
The remaining funds necessary to complete the acquisitions were provided by
loans to the Company from two investors. On February 18, 1997, such persons
loaned to the Company the aggregate sum of $4,500,000 represented by the
Company's promissory notes. Of the aggregate amount, $2,500,000 bears interest
at 5% per annum and matures on April 18, 1997, with the remaining $2,000,000
bearing interest at 12% per annum and maturing on October 31, 1997. In the
event the principal and accrued interest is not paid when due, such amount is
automatically converted into a number of shares of the Company's Common Stock
determined by dividing such amount by a sum equal to 75% of the closing bid
price for the Company's Common Stock on the five (5) days prior to the maturity
date, with respect to the $2,500,000 obligation, and on the maturity date with
respect to the $2,000,000 obligation. As additional consideration for making
the loan, the investors also purchased at a price of $.01 per share a total of
250,000 shares of the Company's common stock. The fair value of the Company's
common stock was $2.63 per share on the date such shares were issued.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
It is impracticable for the Registrant to provide the required
financial statements for the business acquired at the time this Current Report
on Form 8-K is filed. Such financial statements will be filed as soon as
practicable but not later than 60 days after the date this Current Report on
Form 8-K is required to be filed.
(b) Pro forma financial information.
It is impracticable for the Registrant to provide the required pro
forma financial information for the business acquired at the time this Current
Report on Form 8-K is filed. Such proforma financial information will be filed
as soon as practicable but not later than 60 days after the date this Current
Report on Form 8-K is required to be filed.
(c) Exhibits:
(i) Sale and Purchase Agreement dated December 11, 1996 between
Norse Exploration, Inc., Norse Pipeline, Inc., and the Company.
(ii) Common Stock Purchase Warrant issued to Norse Exploration,
Inc., and Norse Pipeline, Inc.
(iii) Agreement dated December 13, 1996 between the Company and H.
Huffman & Company.
(iv) Agreement dated January 13, 1997 between Horizon Gas Partners,
L.P., HSRTW, Inc., and the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GOTHIC ENERGY CORPORATION
Dated: February 28, 1997 By: /S/ MICHAEL K. PAULK
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Michael K. Paulk, President
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EXHIBIT 99(i)
SALE AND PURCHASE AGREEMENT
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THIS SALE AND PURCHASE AGREEMENT (this "Agreement") is made and entered as
of the 11th day of December, 1996, by and between NORSE EXPLORATION, INC., AND
NORSE PIPELINE, INC., both Delaware Corporations, ("Seller"), and GOTHIC ENERGY
CORPORATION, an Oklahoma corporation ("Buyer").
WITNESSETH THAT:
WHEREAS, Norse Exploration, Inc. is the owner of the Properties, as
hereinafter defined; and
WHEREAS, Norse Pipeline, Inc. is the owner of the general partnership
interest in the Sycamore Gas System, as hereinafter defined; and
WHEREAS, Norse Exploration desires to sell its Properties and all of its
shares in Norse Pipeline, Inc. to Buyer with the understanding between the
parties that Buyer can assign its right to purchase the shares of Norse Pipeline
to a wholly owned subsidiary,
NOW THEREFORE, in consideration of the premises and of the mutual covenants
of the parties hereinafter expressed, it is hereby agreed as follows:
ARTICLE 1
INTERESTS
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1.1 INTERESTS. Seller Norse Exploration, Inc., is the non-operator owner
of (i) undivided interests in and under oil and gas leases covering lands upon
which the wells described in Exhibit A is attributed by reason of inclusion in a
statutory or voluntary unit, together with undivided interests attributable to
said leases in the wells, personal property, fixtures and equipment located on
the lands covered by said leases or units, or used or obtained in connection
with the agreements, licenses, permits, easements, orders of regulatory agencies
and other rights and interests relating thereto, but specifically excluding any
royalty, overriding royalty or other interests in or under the leases,
hereinafter referred to collectively as the "Properties", and (ii) Seller, Norse
Pipeline, Inc. is a 40.09 % general partnership interest in Sycamore Gas System,
an Oklahoma general gathering system, processing plant and storage facilities
described in Exhibit B (together with all real property, easements, rights of
way, surface use agreements and other interests in real property related or
appurtenant thereto, all personal property, fixtures and equipment comprising or
used in connection therewith, and all contracts and agreements of every
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nature whatsoever relating thereto, hereinafter referred to as the "Sycamore
System". Seller's interests in the Properties, its ownership of all the issued
and outstanding shares of Norse Pipeline, Inc. being sold herein, which includes
the ownership of Norse Pipeline, Inc. in the general partnership interest in
Sycamore are hereinafter referred to collectively as the "Interests".
1.2 EXCLUSION: RESERVATION. To the extent Seller owns a mineral, royalty,
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overriding royalty, production payment, net profits or other non-cost bearing
interest in any of the Properties or the production therefrom, such interest is
not intended to be included in the Interests and is specifically reserved to
Seller.
ARTICLE 2
SALE AND PURCHASE OF THE INTERESTS
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2.1 AGREEMENT FOR SALE AND PURCHASE: EFFECTIVE TIME. Seller hereby agrees
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to sell to Buyer and Buyer hereby agrees to purchase from Seller on the Closing
Date (as hereinafter defined) the Interests. The effective time of the sale and
purchase of the Interests shall be 7:00 a.m. Central Daylight Time on January 1,
1997 (the "Effective Time").
2.2 PURCHASE PRICE. The purchase price for the Interests (the "Purchase
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Price") shall be the sum of (i) Ten Million Seven Hundred Fifty Thousand and
No/100 Dollars $10,750,000.00 (the "Base Price") plus Two Hundred Thousand
(200,000) warrants as further described in Article 2.6 below, less (ii) the Net
Adjustment (as hereinafter defined) all subject to the Maximum Adjustment set
out in Article 3.7 below. The Purchase Price shall be paid by Buyer in
immediately available funds at the Closing (as hereinafter defined).
2.3 NET ADJUSTMENT. The Net Adjustment (as limited by Article 3.7) shall
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be the sum of the adjustment amounts described in Sections 3.4 (Title Defects),
Section 7.4 (Gas Imbalances), Section 7.5 (Disapproved Operations), Section 7.6
(Preferential Rights), Section 7.7 (Operations Subsequent to the Effective Time)
and Section 8.5 (Environmental Defects).
2.4 DEPOSIT. Contemporaneously with the execution of this Agreement,
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Buyer Buyer is delivering to Seller, immediately available funds in accordance
with wire instructions furnished by Buyer, the sum of One Million Seventy-Five
Thousand and No/100 Dollars $1,075,000.00 [10% of the Base Price] as a deposit
toward the Purchase Price (the "Deposit"). In the event that Buyer shall fail to
close the transaction contemplated hereby in accordance with the terms of this
Agreement, and provided that the conditions precedent to the obligations of
Buyer as set forth in Article 9 hereof have been fulfilled or Seller is ready,
willing and able to comply with all such conditions precedent, Seller shall be
entitled to retain as its sole remedy the Deposit as liquidated damages pursuant
to Section 11.2.
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2.5 AGREED VALUES. The Base Price has been allocated by the parties among
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the Properties and Seller's interest in Sycamore as set out in Exhibit D. The
amounts so allocated and are referred to herein as the "Agreed Values" of such
items of the Interests.
2.6 WARRANTS OF BUYER. The warrants being issued to purchase Two Hundred
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Thousand (200,000) shares of Buyer shall be exercisable at the sole election of
the Buyer at any time during the two (2) year period from the date of closing.
Such warrants shall be exercisable at a price of $2.50 per share, and in the
event of any change in the capitalization of the company after the issuance of
the warrants, then in such event, the number of warrants to purchase shares of
Buyer shall be proportionately increased to reflect such change in
capitalization. Buyer shall piggyback the registration of any shares of Seller
from the exercise of the warrants with any registration after the date of this
Agreement. In the event the Board of Directors of Buyer authorizes a
registration of shares at any time during the 2 year period after the date of
this Agreement, then within ten (10) days after such authorization, Buyer shall
notify Seller in order for Seller to exercise the warrants and participate in
the registration of shares.
ARTICLE 3
TITLE EXAMINATION: ADJUSTMENTS
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3.1 TITLE MATERIALS. From the date hereof to the Closing Date, Seller
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shall provide Buyer full opportunity to examine the books, records and files of
Seller insofar as they pertain to the Interests. Seller makes no warranty or
representation, express or implied, with respect to the accuracy or completeness
of any title information, records or other data made available to Buyer in
connection with this Agreement.
3.2 TITLE DEFECTS; DEFENSIBLE TITLE.
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(a) Adjustments to the Base Price for failure of title may be made
with respect to the Properties and the Sycamore System (insofar as any
title failure affects the value of Seller's interest in Sycamore). The
Properties and the Sycamore System are hereinafter referred to collectively
as the "Examined Interests". As used herein, the term "Title Defect" shall
mean any lien, claim, defect, encumbrance, security interest, burden of
deficiency such that (i) Seller does not have Defensible Title (hereinafter
defined), as distinguished from technically marketable title, to any of the
Properties, or (ii) to the extent of Seller's interest in Sycamore,
Sycamore does not have Defensible Title to the assets and properties
comprising the Sycamore System; provided, no Permitted Encumbrances
(hereinafter defined) shall constitute a Title Defect.
(b) As used herein, the term "Defensible Title" (i) with respect to
the Sycamore System means clear, unencumbered and uncontested title in
Sycamore to the real and personal property comprising the Sycamore System,
and (ii) with respect to the
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Properties means clear, unencumbered and uncontested title in Seller to the
Properties such that (A) after giving effect to existing spacing orders,
operating agreements, unit agreements, unitization orders and pooling
designations, and subject to the limitations, if any, described in Exhibit
A, and after taking into account all royalty interests, overriding royalty
interests, net profit interests, production payments and other burdens on
production, Seller is entitled to a share (expressed as a decimal) of all
oil, gas and other minerals produced from each well described in Exhibit A
which is not less than the Net Revenue Interest set out in Exhibit A in
connection with the description of such well, (B) Seller owns an undivided
interest (expressed as a decimal) equal to the Working Interest set out in
Exhibit A in connection with the description of each such well in and to
all property and rights incident thereto, including all rights in, to and
under all agreements, leases, permits, easements, licenses and orders in
any way relating thereto, and in and to all wells, personal property,
fixtures and improvements thereon, appurtenant thereto or used or obtained
in connection therewith or with the production or treatment or sale or
disposal of hydrocarbons or water produced therefrom or attributable
thereto, (C) Seller is obligated for a fraction of the costs relating to
the exploration, development and operation of such well no greater than the
Working Interest set out in Exhibit A in connection with the description of
such well, and (D) except as shown in Exhibit A, Seller's interests in such
wells and the production therefrom are not subject to being reduced by
virtue or reversionary interests owned by third parties.
(c) As used herein, the term "Permitted Encumbrances" means (i)
matters described without material omission in any of the Exhibits or
Schedules attached hereto, (ii) royalties, overriding royalties, net
profits interests, production payments and other burdens on production
which do not reduce Seller's Net Revenue Interest in any of the Properties
to less than that described in Exhibit A, (iii) mortgage liens to be
discharged at Closing, liens for taxes, assessments, labor and materials
where payment is not due, (iv) operating agreements, unit agreements,
farmout agreements, letter agreements, easements, rights-of-way,
unitization and pooling designations and declarations, gathering and
transportation agreements, processing agreements, gas, similar agreements
which are not required by the terms of this Agreement to be disclosed on
any Schedule hereto, provided (A) all amounts due and payable by Seller
thereunder have been paid, and (B) Seller is not in default thereunder, (v)
regulatory authority of governmental agencies not presently or previously
violated, easements, surface leases and rights, plat restrictions and
similar encumbrances, provided that they do not detract from the value, and
can increase the cost of operation of any of the Properties or the Sycamore
System or otherwise adversely affect the operation thereof, and (vi) liens,
charges, encumbrances and irregularities in the chain of title which,
because of statutory cure periods or marketable title acts have and cannot
affect adversely or interrupt, the claimed ownership of Seller or its
predecessors in or the receipt of production revenues from the Properties
affected thereby.
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3.3 TITLE EXAMINATION; NOTICE OF DEFECTS.
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(a) Promptly after execution of this Agreement, Buyer shall, at
Buyer's sole cost and expense, commence and pursue such examination of
title to the Examined Interests as Buyer deems necessary or proper. Buyer
will conclude its title review and give notice to Sellers of any asserted
Title Defects affecting the Examined Interests not later than fifteen (15)
days prior to the date scheduled for the Closing in Section 12.1 hereof
(the "Title Notice Date"). Each such notice shall include a brief
description of each Title Defect of which notice is being given, the action
required to cure such Title Defect and the proposed adjustment to the Base
Price by reason of the existence of such Title Defect. Buyer shall be
deemed to have waived any Title Defects existing with respect to the
Examined Interests except to the extent such Title Defects are set out in a
notice given on or prior to the Title Notice Date.
(b) Seller shall have a period of twelve (12) days after the Title
Notice Date to cure all or any portion of the Title Defects described in
any notice(s) of Title Defects affecting Examined Interests properly given
by Buyer prior to such date. In the event Seller is unable or unwilling to
cure any of the asserted Title Defects prior to the expiration of each cure
period, and exceed ten percent (10%) of the interests set out in Exhibit A,
Seller shall have the right to terminate this Agreement, or if Seller
elects not to terminate, the parties shall proceed in accordance with
Section 3.4.
3.4 ADJUSTMENTS.
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(a) If any uncured Title Defect is based on Buyer's substantiated
notice in reasonable detail that Seller owns a Net Revenue Interest less
than that shown on Exhibit A with respect to a particular Property, then
the Agreed Value of such Property shall be reduced in the same proportion
that the actual Net Revenue Interest bears to the Net Revenue Interest
shown therefor on Exhibit A and the amount of such reduction shall
constitute the approved adjustment amount with respect to such Title
Defect, and as a result of such reduction, Seller shall only be obligated
to convey the exact amount of the interest computed based on the actual Net
Revenue Interest and Seller shall retain all amounts in excess thereof.
(b) If any uncured Title Defect involves a substantiated claim
against or uncertainty with respect to Seller's title to a particular
Property or Sycamore's title to the Sycamore System, the parties shall
attempt to negotiate a mutually acceptable reduction in the Agreed Value of
the affected item of the Interests by reason of such defect. In the event
the parties agree on an appropriate reduction in the Agreed Value, such
amount shall constitute the principal amount of Buyer's approved claim with
respect to such Title Defect. If the parties are unable to agree on an
appropriate reduction and Buyer elects not to waive the Title Defect, then
Seller shall have the option of (i) proceeding to Closing but reducing the
Base Price by the Agreed Value of such item, or (ii) excluding the
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affected item from the Interests being sold and reducing the Base Price by
the Agreed Value of such item. Option (i) and (ii) of this subparagraph
3.4(b) shall not be applicable with respect to unresolved Title Defects
affecting the Sycamore System. In the event of any reduction in the Agreed
Value as a result of uncured Title Defects, Seller shall only be obligated
to convey the exact amount of the interest agreed upon, and Seller shall
retain all disputed amounts and revenues related thereto.
(c) Notwithstanding the provisions of subsections (a) and (b) above,
Buyer shall not be entitled to any adjustment of the Purchase Price at the
Closing by reason of asserted Title Defects unless the sum of all such
claims approved pursuant to Section 3.4(a), agreed to by Seller pursuant to
Section 3.4(b), or treated by Sellers as a reduction of the Base Price
pursuant to Section 3.4(b), exceeds the sum of $20,000 and it is agreed
adjustments shall be in excess of such amount.
3.5 DELETED.
3.6 DELETED.
3.7 MAXIMUM ADJUSTMENT. In the event of any adjustments in the Purchase
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Price pursuant to Sections 3.4, 7.4, 7.5, 7.6 and 8.5, the Purchaser shall be
responsible for all such adjustments up to $500,000. Seller shall be
responsible for all adjustments between $500,000 and $1,000,000. In the event
adjustments exceed $1,000,000, then in such event, Seller can elect in its sole
discretion to either cure the defects or cancel the transaction and return the
Deposit to Buyer.
ARTICLE 4
REPRESENTATIONS AND WARRANTEES OF SELLER
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Seller hereby represents and warrants to Buyer as of the date hereof as
follows:
4.1 ORGANIZATION. Seller, Norse Exploration, Inc., and Norse Pipeline,
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Inc., are Delaware Corporations duly organized and validly existing. Seller has
the power and authority to own and use it properties and to transact the
business in which it is engaged, and holds all franchises, licenses and permits
necessary and required therefor.
4.2 AGREEMENT AUTHORIZED. This Agreement has been duly authorized,
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executed and delivered by Seller and all requisite corporate action has been
taken to authorize the execution hereof, the transactions contemplated hereby
and all things necessary or desirable in order to accomplish the sale of the
Interests, and Seller has all necessary authority and otherwise has good right
and lawful authority to consummate the same.
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4.3 VALID AGREEMENT. This Agreement constitutes the valid and binding
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agreement of Seller enforceable against Seller in accordance with its terms, and
all instruments required hereunder to be executed and delivered by Seller at the
Closing will constitute valid and binding agreements of Seller enforceable
against Seller in accordance with their terms.
4.4 BROKERS AND FINDERS. Seller has incurred no liability, contingent or
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otherwise, for brokers' or finders' fees in respect of this transaction for
which Buyer shall have any responsibility whatsoever.
4.5 COMPLIANCE WITH AGREEMENTS AND LAWS. No default exists under any of
-----------------------------------
the terms and provisions, express or implied, of the leases or any agreement,
contract or commitment to which Seller is a party or to which any part of the
Interests is subject, and Seller has no received any notice of any claim of such
default. To the knowledge of Seller as non operator, all wells included in the
Interests have been drilled, completed and operated, and all production thereto,
and the Properties and the Sycamore System have been operated, in substantial
compliance with all applicable Federal, state and local laws and applicable
rules and regulations of the Federal, state and local regulatory authorities
having jurisdiction thereof. Seller relies on notices from the operators of the
Properties to advise them of any noncompliance with applicable laws where such
is in the control of the operators.
4.6 SALE OF PRODUCTION. Except as disclosed in Schedule 4.6, neither
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Seller nor Sycamore is obligated by virtue of any prepayment made under any
production sales contract or any other contract containing a take-or-pay clause,
or under any similar arrangement, to deliver oil, gas or other minerals produced
from or allocated to any of the Properties or the Sycamore System at any time
after January 1, 1997, without receiving full payment therefor at the time of
delivery. To the knowledge of Seller, except for routine suspense on new wells,
proceeds from the sale of oil and gas from the Properties are being received by
Seller in a timely manner and are not being held in suspense for any reason.
Seller has described in Schedule 4.6 and made extending beyond January 1, 1997
(other than agreements terminable upon less than sixty (60) days' notice)
pursuant to which hydrocarbons produced from the Properties are sold,
transported, processed or otherwise disposed of or marketed.
4.7 PRODUCTION AND AD VALOREM TAXES. All ad valorem, property,
--------------------------------
production, severance and similar taxes based on or measured by the ownership of
property or the production or removal of hydrocarbons or the receipt of proceeds
therefrom have been timely paid and all required returns and reports related
thereto filed.
4.8 MATERIAL EXECUTORY CONTRACTS RELATING TO THE INTERESTS. Unless
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specifically provided otherwise in this Agreement, the sale of the Interests
will be subject to all oil, gas and mineral leases, assignments, subleases,
farmout agreements, joint operating agreements, partnership agreements, pooling
agreements, letter agreements, easements, rights-of-way, gathering and
transportation agreements, sales agreements, and all other agreements with
respect to or pertaining to the Interests ("Related Agreements"), to the extent
that they are binding on
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Seller. Buyer will assume all of Seller's obligations and liabilities under the
Related Agreements as of the Closing Date, and the parties will execute all
documents necessary for Buyer to assume the Related Agreements. Buyer's
obligation applies to all Related Agreements, whether recorded or not.
4.9 CLAIMS OR LITIGATION. There is neither any suit, action or other
--------------------
proceeding pending before any court or governmental agency nor, to the knowledge
of Seller, any claim, dispute, suit, action or other proceeding threatened
against Seller or any of the Interests or any third party which might result in
the impairment or loss of Seller's title to any of the Interests or the value
thereof, or increase the cost of operation thereof.
4.10 ASSIGNMENTS PRIOR TO CLOSING. Seller has not since the Effective Time
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made any assignment, conveyance or encumbrance of the Interests.
4.11 OPERATIONS. No operations of the types prohibited by Section 6.2
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hereof have been conducted since the Effective Time or are now being conducted.
4.12 CONSUMMATION OF TRANSACTIONS. The consummation of the transactions
------------------------------
contemplated hereby will not constitute a violation or breach of, or an event of
default under, any contract or agreement affecting the Interests or constitute
the happening of a condition upon which any other party to such a contract may
exercise any right or option which will adversely affect any of the Interests.
4.13 SYCAMORE EXISTENCE AND QUALIFICATION: CONSENT TO ASSIGN. Sycamore is
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a partnership duly organized, validly existing and in good standing under the
laws of the State of Oklahoma. Sycamore has the power and authority under its
partnership agreement and applicable law to own and use its properties and to
transact the business in which it is engaged, and holds all franchises, licenses
and permits necessary and required therefor. Seller has made available to Buyer
true and correct copies of the organizational documents of Sycamore. At or
prior to closing, Seller shall obtain all necessary consents to assign its
partnership interest in Sycamore to Buyer.
ARTICLE 5
REPRESENTATIONS AND WARRANTEES OF BUYER
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Buyer represents and warrants to Seller as follows:
5.1 ORGANIZATION. Buyer is a corporation duly organized and validly
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existing under the laws of the State of Oklahoma.
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5.2 AGREEMENT AUTHORIZED. This Agreement has been duly authorized,
--------------------
executed and delivered by Buyer and all requisite corporate action has been
taken to authorize the execution hereof, the transactions contemplated hereby
and all things necessary or desirable in order to accomplish the purchase of the
Interests, and Buyer has all necessary authority under its charter, bylaws and
other governing documents and otherwise has good right and lawful authority to
consummate the same.
5.3 VALID AGREEMENT. This Agreement constitutes the valid and binding
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agreement of Buyer enforceable against Buyer in accordance with its terms, and
all instruments required hereunder to be executed and delivered by Buyer at the
Closing will constitute valid and binding agreements of Buyer enforceable
against Buyer in accordance with their terms.
5.4 BROKERS AND FINDERS. Buyer has incurred no liability, contingent or
--------------------
otherwise, for brokers' or finders' fees in respect of this transaction for
which Seller shall have any responsibility whatsoever.
5.5 SECURITIES LAWS. (a) Buyer intends to acquire the Interests for its
----------------
own benefit and account and is not acquiring the Interests with the intent of
distributing fractional undivided interests in them or otherwise selling them in
a manner that would be subject to regulation by federal or state securities
laws. If Buyer sell, transfer, or otherwise dispose of the Interests or
fractional undivided interests in them in the future, it will do so in
compliance with applicable federal and state laws. (b) Buyer represents that at
no time has it been presented with or solicited by or through any public
promotion or other form of advertising in connection with this transaction.
5.6 BASIS OF BUYER'S DECISION. Buyer represents as follows:
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(a) It has reviewed the Interests to its satisfaction to enable it to
evaluate the Interests in order to enter into this Agreement.
(b) It is knowledgeable and experienced in the evaluation,
acquisition, and operation of oil and gas properties.
(c) Buyer has performed sufficient review and investigation to
evaluate the Interests to its satisfaction and to enable it to make an
informed decision, as a prudent and knowledgeable purchaser, to acquire the
Interests.
(d) It has evaluated the merits and risks of purchasing the Interests
and has formed an opinion based solely upon its knowledge and experience
and not upon any statements or actions of Seller.
(e) It will acquire the Interests "as is, where is".
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ARTICLE 6
COVENANTS OF SELLER PENDING CLOSING
-----------------------------------
Seller covenants and agrees with Buyer that from and after the date of this
Agreement and until the Closing, Seller will conduct its business, and will use
its best efforts to cause Sycamore to conduct its business, subject to the
following provisions and limitations:
6.1 ORDINARY COURSE. To the extent the Seller has the right, the
---------------
Properties and the Sycamore System will be maintained and operated in a good and
workmanlike manner consistent with historical practices, and Seller will timely
pay or cause to be paid all costs and expenses incurred in connection therewith.
6.2 RESTRICTIONS ON OPERATIONS. Subject to the provisions of Section 7.5
---------------------------
hereof, except with Buyer's prior written consent no operations will be
conducted for the drilling of any new well, the reworking or redrilling of any
existing well or the making of any other capital expenditure on the Properties
or the Sycamore System requiring an expenditure by Seller. Insofar as any of
the following described actions would affect the Interests, neither Seller nor
Sycamore will waive any rights or enter into any new agreements or commitments
other than in the ordinary course of business, abandon any well capable of
commercial production (based upon prevailing economic conditions), release or
abandon any Properties, or encumber, sell or otherwise dispose of any of the
Properties other than personal property thereon which is replaced by equivalent
property or consumed in the operation of such Properties in the ordinary course
of business.
6.3 MAINTENANCE OF FILES. Seller will exercise reasonable diligence in
---------------------
safeguarding and maintaining secure all files, books and records currently
maintained.
6.4 ACCESS OF BUYER. Buyer shall have access to the employees, offices,
---------------
properties, records, files, geological and geophysical data, engineering reports
and evaluations, books of account, and all other information of the Seller
pertaining to the Interests; provided, however, that such investigation shall be
conducted during normal business hours and in a manner that does not
unreasonably interfere with Seller's normal operations. During such
investigation, Buyer shall have the right, at Buyer's sole cost and expense, to
make copies of such records, files and other materials as Buyer may deem
advisable.
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ARTICLE 7
ADDITIONAL AGREEMENTS OF THE PARTIES
------------------------------------
7.1 RETURN OF INFORMATIONAL MATERIAL. If this Agreement is not
--------------------------------
consummated, Buyer shall return to Seller all of the items of information which
Seller has delivered to Buyer hereunder, including all copies of same made by
Buyer.
7.2 CONFIDENTIALITY OF INFORMATION. If the purchase and sale of the
-------------------------------
Interests as contemplated by this Agreement is not completed, Buyer (i) will
keep the information furnished to Buyer hereunder or in contemplation hereof
strictly confidential, except to the extent such information (a) becomes public
other than as a result of dissemination by Buyer, (b) was already known to Buyer
other than as a result of a breach of a confidentiality restriction, or (c) is
furnished to Buyer by a third party independently of Buyer's investigation
pursuant to this Agreement, and (ii) will not use any of such information to
Buyer's fumcial advantage or in competition with Seller or Sycamore.
Notwithstanding the provisions of Section 14.6 hereof, this provision shall not
be construed as superseding or limiting the provisions of any confidentiality
agreement heretofore executed by and between Buyer and Seller.
7.3 COMPLIANCE WITH CONDITIONS. Buyer and Seller, respectively, will
---------------------------
proceed diligently using all reasonable efforts to cause all of the conditions
to the obligations of Seller and Buyer, respectively, to be timely satisfied.
7.4 GAS IMBALANCES. Seller and Buyer acknowledge, but Seller does not
---------------
represent or warrant, that certain gas imbalances existed at the Effective Time
with respect to production from or attributable to certain of the Properties.
The best information concerning such imbalances available to Seller as of the
date of this Agreement is set forth on Schedule 7.4 and such imbalances have
been taken into account by Buyer in determining the Purchase Price. If, prior
to the Title Notice Date, Buyer determines that the net gas imbalance (that is,
the difference between aggregate overproduction attributable to Seller's
interest in the Properties and the aggregate underproduction attributable to
such interest) at the Effective Time was different than that set forth on
Schedule 7.4, Buyer shall so notify Seller. If such difference is confirmed,
the Base Price shall be adjusted at the Closing by an amount equal to $1.00 per
Mcf for the difference from that shown in Schedule 7.4; provided, however, that
no adjustment shall be made unless the difference exceeds 20,000 Mcf.
7.5 CAPITAL EXPENDITURES. During the period from the execution of this
---------------------
Agreement to the Closing Date, Seller will consult with Buyer from time to time
with respect to any operation proposed to be conducted on the Properties or the
Sycamore System and reasonably expected to require an expenditure by Seller for
any single project, and will provide Buyer with all information reasonably
available to Seller with respect thereto. Buyer shall, within ten (10) days
after receipt of Seller's recommendation for conducting or participating in any
such project, or within such lesser period as may be required by the terms of
any applicable agreement,
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approve or disapprove such project. Failure of Buyer to respond within the time
required will be deemed to constitute disapproval by Buyer of the project. In
the event Buyer approves such project, Seller shall conduct, propose or elect to
participate in such project and shall incur and pay as they become due the
expenditures associated therewith. In the event the project or operation is a
well proposed by an unrelated third party and Seller must, by operation of an
applicable agreement or order of a regulatory agency, elect either to
participate in such well or lose the right to participate in such well and/or
other rights in the unit in which such well is proposed (for example, but not by
way of limitation, a non-consent penalty under a joint operating agreement,
requirement to accept consideration in lieu of participation under a pooling or
forfeiture of the right to participate in future development under an area of
mutual interest agreement), and Buyer disapproves or is deemed to have
disapproved participation by Seller in such well, then, five (5) days written
notice to Buyer (during which time Buyer may reverse its decision and approve
participation by Seller), Seller, at its sole option, may elect to exclude from
the Interests and the sale hereunder the Property on which such operation is to
be conducted and reduce the Base Price by the Agreed Value of such Property, or
terminate this Agreement without further obligation to Buyer.
7.6 CONSENTS; PREFERENTIAL RIGHTS TO PURCHASE. Promptly after execution
------------------------------------------
hereof, Seller will proceed diligently to solicit any consents to the transfers
contemplated hereby which are required to be obtained from third parties and
will give all notices required by existing contracts with respect to
preferential rights to purchase on the part of third parties and to obtain
waivers of such preferential rights. Any item of the Interests which requires
the consent of a third party for transfer where such consent cannot be obtained
prior to the Closing Date (other than routine consents required in connection
with federal, state and Indian leases), or which is subject to a preferential
right to purchase which has not expired and has been waived prior to the Closing
Date, may, at Buyer's option, be excluded from the Interests and the sale
hereunder and the Base Price reduced by the Agreed Value of such Property.
7.7 ADJUSTMENTS FOR OPERATIONS SUBSEQUENT TO THE EFFECTIVE TIME. The
------------------------------------------------------------
following adjustments shall be made to the Base Price for operations conducted
subsequent to the Effective Time to the extent the following described items of
revenue and expense relate to the Interests:
(a) The Base Price shall be adjusted upward by all amounts actually
paid by Seller in respect of (i) actual direct operating expenses and
capital expenditures (other than those prohibited by the terms hereof),
(ii) overhead or indirect expenses required to be paid by the terms of
existing operating agreements, and (iii) ad valorem, property, production,
severance and similar taxes and assessments based upon or measured by the
ownership of property, the production of removal of hydrocarbons or the
receipt of proceeds therefrom; to the extent such expenditures relate to
the period between the Effective Time and the Closing Date on the accrual
method of accounting. Ad valorem taxes shall be prorated on the basis of
time, and if the taxes cannot be determined for the current taxable year,
then the amount thereof for the taxable year most recently ended shall be
used in determining ad valorem taxes attributable to a particular period of
time.
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(b) The Base Price shall be adjusted downward by all proceeds
actually received by Seller (including proceeds from sale or salvage of any
personal property forming a part of the Interests as well as the
hydrocarbons produced therefrom and attributable thereto) to the extent
such proceeds relate to the period from the Effective Time to the Closing
Date on the accrual method of accounting. Proceeds received by Seller after
the Effective Time for the sale of production in storage at the Effective
Time shall remain the property of Seller and shall not give rise to an
adjustment.
ARTICLE 8
ENVIRONMENTAL MATTERS
---------------------
8.1 PHYSICAL CONDITION OF THE PROPERTIES. The Properties (solely for
------------------------------------
purposes of this Article, the term "Properties" shall include the Sycamore
System) have been used for oil and gas drilling, production, gathering and
processing operations, and related oil field operations. Physical changes in or
under the Properties or adjacent lands may have occurred as a result of such
uses. The Properties also may contain buried pipelines and other equipment,
whether or not of a similar nature, the locations of which may not be known to
Seller or be readily apparent by a physical inspection of the Properties. Third
parties may have used the Properties or the surface rights thereon for other
purposes as well. Buyer understands that Seller does not have the requisite
information with which to determine the exact nature or condition of the
Properties nor the effect any such use has had on the physical condition of the
Properties. Buyer is hereby notified that detectable amounts of regulated and
unregulated chemicals and other substances which may pose a threat to health or
to plants or wildlife, or which are known to cause illnesses, diseases, cancer,
birth defects and other reproductive harm, may be found in, on or around the
Properties. Adverse physical conditions, including the presence of such
chemicals and other substances, may not be revealed by Buyer's investigation.
In addition, Buyer acknowledges that some oil field production equipment may
contain various contaminants or hazardous substances, including without
limitation, asbestos and/or naturally-occurring radioactive material ("NORM").
In this regard, Buyer expressly understands that NORM may affix or attach itself
to the inside of wells, materials, pipes and equipment as scale or in other
forms, and that wells, materials, pipes and equipment located on the Properties
may contain NORM and that NORM-containing materials may be buried or have been
otherwise disposed of on the Properties. Buyer also expressly understands that
special procedures may be required for the removal and disposal of various
contaminants or hazardous substances, including without limitation, asbestos and
NORM, from the Properties where it may be found. The statements in this Section
8.1 are intended as disclosures and acknowledgments of possible conditions
existing on the Properties. Seller hereby advises that it has not been notified
of any noncompliance up to the date of closing.
8.2 ENVIRONMENTAL ASSESSMENT. Buyer shall have the right, at Buyer's sole
-------------------------
cost, risk, and expense, to undertake an environmental assessment of the
Properties during the period ending on the Title Notice Date (the "Inspection
Period"). Buyer and its agents shall have the
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same right as Seller to enter upon the Properties, inspect the same, conduct
soil and water sampling, analysis and monitoring, including soil borings (and,
after notice and consultation with Seller, drilling groundwater monitoring
wells), and generally conduct such tests, examinations, investigations and
studies as Buyer deems necessary or appropriate for preparing appropriate
engineering and other reports and making judgments relating to the Properties,
their condition, and the presence of chemicals and other substances. Seller
shall cooperate with any efforts of Buyer and its agents to obtain third party
consents for access to those parcels of land within the Properties to which
Seller may not presently have access. Buyer and its agents shall have reasonable
access to Seller's agents and employees in the course of conducting Buyer's
environmental assessment. Buyer agrees to provide to Seller a copy of all facts
discovered in the course of conducting Buyer's environmental assessment,
including all direct observations (if in writing or other tangible or
transferable medium), data and summaries thereof. Buyer shall keep any data or
information acquired in the course of such examinations and the results of all
analyses of such data and information strictly confidential and not disclose
same to any person or agency without the prior written approval of Seller,
except that Buyer may disclose to authorities having jurisdiction such
information as is required by law or by court order at the same time that Buyer
provides such information to Seller. If Buyer determines that conditions on a
Property do not satisfy the environmental standards set forth in Section 8.4
below in a material respect, then Buyer may notify Seller of such condition by
providing Seller, on or prior to the Title Notice Date, a written "Notice of
Environmental Defect" setting forth in detail the facts giving rise to the
claimed defect, the environmental standard which Buyer claims is not satisfied,
any Applicable Environmental Law (hereinafter defined) which Buyer contends has
been breached or violated and, if the claimed defect arises from information
contained in a document, a copy of such document or the relevant parts thereof.
Buyer shall be deemed to have accepted without objection (i) the environmental
conditions described in Schedule 8.4, and (ii) any Property which does not meet
the environmental standards or which is subject to an environmental defect
unless a Notice of Environmental Defect is given with respect to such Property
on or prior to the First Title Notice Date.
8.3 ACCESS; INDEMNIFICATION. Access to the Properties to conduct Buyer's
------------------------
environmental assessment shall be subject to the following conditions: Buyer
waives and releases all claims against Seller and its successors, assigns,
directors, officers, contractors, affiliates, partners, employees and agents,
for injury to or death of persons or damage to property arising in any way from
the exercise of rights granted to Buyer hereby or the activities of Buyer or its
employees, agents or contractors on the Properties, provided that Buyer does not
hereby assume the risk of damage, injury or death attributable to the willful
misconduct or gross negligence of Seller. Buyer shall indemnify Seller, its
partners, employees, and agents, and shall hold each and all of said indemnities
harmless from and against any and all loss whatsoever arising out of (i) any and
all statutory or common-law liens or other encumbrances for labor or materials
furnished in connection with such tests, samplings, studies or surveys as Buyer
may conduct with respect to the Properties, and (ii) any injury to or death of
persons or damage to property occurring in, on or about the Properties as a
result of such exercise or activities (except for any such injuries or damages
caused by the gross negligence or willful misconduct of any
14
<PAGE>
said indemnities). Notwithstanding any provision of this Agreement to the
contrary, the foregoing obligation of indemnity shall survive the Closing or the
termination of this Agreement without Closing.
8.4 ENVIRONMENTAL STANDARDS. This section sets out the environmental
------------------------
standards applicable to the Properties for purposes of this Agreement and do not
constitute covenants, representations or warranties of Seller. Seller disclaims
all warranties and representations regarding and makes no covenants with respect
to environmental conditions on the Properties.
(a) The Properties shall not have been used for the generation,
treatment, storage or disposal of a Hazardous Substance (as defined below)
in a manner or to an extent that would subject Seller to a material
liability for violation of any Applicable Environmental Laws (as defined
below). Except as disclosed in Schedule 8.4, there shall not have been any
release or discharge of a Hazardous Substance from the Properties in a
manner or to an extent that would subject Seller to a material liability
for violation of any Applicable Environmental Laws. "Hazardous Substance"
shall mean any hazardous substance, pollutant, contaminant, solid or
hazardous waste, hazardous waste constituents, hazardous material or toxic
substance subject to regulation or liability under Applicable Environmental
Laws in force as of the date hereof, including asbestos, radioactive
substances, and any other substance or material that would constitute or
cause a health, safety or environmental hazard on or at the Properties
under Applicable Environmental Laws. "Applicable Environmental Laws" shall
mean (i) all federal statutes regulating or prescribing restrictions
regarding the use of the Properties or other activities affecting the
environmental (air, water, land, animal and plant life), including but not
limited to the following: the Clean Air Act, Clean Water Act, Comprehensive
Environmental Response, Compensation and Liability Act, Emergency Planning
and Community Right-to-Know Act, Endangered Species Act, Hazardous
Materials Transportation Act, Migratory Bird Treaty Act, National
Environmental Policy Act, Occupational Safety and Health Act, Oil Pollution
Act of 1990, Resource Conservation and Recovery Act, Safe Drinking Water
Act, and Toxic Substances Control Act; (ii) any regulations promulgated
under such federal statutes; (iii) any state law counterparts of such
federal statutes and the regulations promulgated thereunder; (iv) any other
state or local statutes, rules regulations or ordinances regulating the use
of or affecting the environmental; and (v) all common law rights, duties
and obligations regarding the use of or matters affecting the environment.
(b) Except as disclosed in Schedule 8.4, there are no agreements,
consent or administrative orders, injunctions, decrees, judgments, license
or permit conditions, or other directives of governmental authorities based
on any Applicable Environmental Laws that require any material change in
the present condition of the Properties, and Seller has not received any
notice from any government authority or private or public entity advising
Seller that it is or is potentially responsible for response costs under an
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Applicable Environmental Law as a result of Seller's ownership or
activities in connection with the Properties.
(c) Except as disclosed in Schedule 8.4, no conditions or
circumstances exist on the Properties that would subject Seller to any
material damages, penalties, injunctive relief or clean-up or closure costs
under any Applicable Environmental Laws or that would require clean-up,
removal, remedial or corrective action or other response involving a
material expenditure by Seller pursuant to Applicable Environmental Laws.
8.5 PROPERTIES SUBJECT TO ENVIRONMENTAL DEFECT. Seller shall have a
-------------------------------------------
period of twelve (12) days after the title Notice Date to cure or remediate the
environmental defect(s) set out in any Notice of Environmental Defect timely and
properly given by Buyer. In the event Seller is unable or unwilling to cure or
remediate any such defect prior to Closing, one of the following shall occur:
(a) The parties shall agree upon an adjustment to the Purchase Price
to compensate Buyer (i) for the defect and all future liability associated
therewith or resulting therefrom, and (ii) for agreeing to indemnify,
defend and hold harmless Seller from and against any and all loss, cost,
liability or expense associated therewith or resulting therefrom.
(b) Deleted.
(c) Notwithstanding the provisions of (a) above, Purchaser shall not
be entitled to an adjustment of the Base Price pursuant to the provisions
of this Section 8.5 unless the amount of the adjustment for each occurrence
exceeds $25,000 to the interest of Seller. Buyer shall be responsible for
all adjustments up to $25,000, and Seller shall be responsible for amounts
in excess of $25,000. In the event there is an adjustment in excess of
$50,000 to the interest of Seller for each occurrence, then in such event,
Seller at its sole election can remove such property from the transaction,
close and agree to adjust the purchase price.
8.6 INDEMNIFICATION OF SELLER. All liabilities attributable to conditions
--------------------------
existing and operations conducted on the Properties assigned to Buyer, under
Applicable Environmental Laws and under all future environmental laws, shall be
liabilities of Buyer, and Buyer shall indemnify, defend, and hold harmless
Sellers from and against all loss, cost, liability or expense attributable
thereto or resulting therefrom.
8.7 MATERIALITY DEFINED. For purposes of this Article VIII, material and
--------------------
materiality is hereby defined as any matter in excess of $25,000.00 chargeable
to the interests of Seller per occurrence.
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ARTICLE 9
CONDITIONS TO OBLIGATIONS OF BUYER
----------------------------------
The obligation of Buyer to consummate the transactions provided for in this
Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Buyer to waive
any one or more of such conditions:
9.1 REPRESENTATIONS AND WARRANTIES OF SELLER. At and as of the Closing
----------------------------------------
Date, the representations and warranties of Seller contained in Article 4 hereof
shall be true and correct in all material aspects as though made on such date.
9.2 PERFORMANCE OF THIS AGREEMENT. Seller shall have duly performed or
-----------------------------
complied in all material respects with all of the obligations to be performed or
complied with by Seller under the terms of this Agreement on or prior to the
Closing Date.
9.3 EFFECT OF CLOSING. In the event Buyer proceeds to Closing
-----------------
in the absence of satisfaction or affirmative waiver of any of the foregoing
conditions, Buyer shall be deemed to have waived its right not to close by
reason thereof.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF SELLER
-----------------------------------
The obligations of Seller to consummate the transactions provided for in
this Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Seller to
waive any one or more of such conditions:
10.1 REPRESENTATIONS AND WARRANTIES OF BUYER. The representations and
---------------------------------------
warranties of Buyer contained in Article 5 hereof shall be true and correct in
all material respects at and as of the Closing Date.
10.2 PERFORMANCE OF THIS AGREEMENT. Buyer shall have duly performed or
-----------------------------
complied in all material respects with all of the obligations to be or complied
with by Buyer under the terms of this Agreement on or prior to the Closing Date.
10.3 EFFECT OF CLOSING. In the event Seller proceeds to Closing in the
-----------------
absence of satisfaction or affirmative waiver of any of the foregoing
conditions, Seller shall be deemed to have waived its right not to close by
reason thereof.
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ARTICLE 11
TERMINATION
-----------
11.1 NONCOMPLIANCE BY SELLER. Buyer may terminate this Agreement by
-----------------------
written notice to Seller if the conditions to Buyer's obligations under this
Agreement, as set forth in Article 9 hereof, shall not have been complied with
or performed in all material respects (and Seller shall not be prepared to
comply with or perform the same) by the date on which the Closing is to occur
(as set forth in Section 12. 1), and such non-compliance or non-performance
shall not have been waived in writing by Buyer. Under such circumstances, Buyer
shall be entitled to a return of the Deposit, which shall be Buyer's sole remedy
hereunder unless such termination is a result or Seller's failure or refusal to
close the transaction contemplated hereby under circumstances in which all
conditions precedent to Seller's obligations as set forth in Article 10 have
been performed or satisfied in all respects, in which event Buyer shall be
entitled to pursue any remedies existing at law or in equity.
11.2 NONCOMPLIANCE BY BUYER. Seller may terminate this Agreement by
-----------------------
written notice to Buyer if the conditions to Seller's obligations under this
Agreement, as set forth in Article 10 hereof, shall not have been complied with
or performed in all material respects (and Buyer shall not be prepared to comply
with or perform the same) by the date on which the Closing is to occur (as set
forth in Section 12. 1), and such non-compliance or non-performance shall not
have been waived in writing by Seller. In such event, Seller shall retain the
Deposit as liquidated damages for Buyer's failure to purchase the Interests at
the time specified herein. The parties hereto agree that time is of the essence
for the consummation of the transactions contemplated hereby, that the amount of
damages caused by Buyer's breach would be very difficult to calculate exactly,
and that the provision for liquidated damages contained in this Section 11.2
shall not be construed as a penalty provision. Such right to liquidated damages
shall be Seller's sole remedy hereunder.
11.3 COOPERATION BY BUYER. In the event of termination of this Agreement,
---------------------
Seller shall be free to sell the Interests to any third party without any
limitation under or by reason of this Agreement. Buyer shall cooperate with
Seller in effectuating any such sale by promptly executing any instrument
reasonable requested by Seller evidencing the termination of this Agreement or
Buyer's right to acquire the Interests.
11.4 ARBITRATION. Unless otherwise specified in this Agreement, any
------------
controversy arising under this Agreement which the parties are unable to resolve
by mutual agreement, shall be submitted to binding arbitration in Dallas, Texas
in accordance with the then current rules of The Judicial Arbitration &
Mediation Services, Inc. (hereinafter referred to as the "JAMS"). Either party
may give to the other written notice of its desire to have a matter arbitrated,
in which event a hearing thereon shall commence within a reasonable time (not to
exceed fifteen (15) days thereafter. Any decision of the arbitrators shall be
conclusive as to the matters submitted to them, shall be final and binding upon
the parties hereto, and may be enforced in any court of
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competent jurisdiction. Notwithstanding anything herein to the contrary, the
parties agree that any decision or award resulting from arbitration which
exceeds the sum of $ 1,000,000 shall be subject to appeal and judicial review
upon petition of either party.
ARTICLE 12
CLOSING
-------
12.1 DATE AND PLACE. The Closing shall be held on or before at 10 a.m. on
--------------
February 15, 1997 (the date on which the Closing actually occurs is referred to
herein as the "Closing Date"). The Closing shall take place in the offices of
the Seller, 2500 Tanglewilde, Suite 250, Houston, Texas 77063, or such other
place as mutually agreed between the parties.
12.2 SATISFACTION OF CONDITIONS. Not later than two (2) business days
--------------------------
prior to the Closing Date, each party shall provide the other party such
evidence of satisfaction of conditions under Section 9.2 and 10.2 hereof as the
other party shall have reasonably and timely requested.
12.3 ASSIGNMENTS. At the Closing, Seller shall deliver to Buyer (i) a
-----------
fully executed and acknowledged Assignment, Conveyance and Bill of Sale, in the
form attached hereto as Exhibit F, assigning to Buyer Seller's interest in the
Properties, and (ii) a fully executed and acknowledged Assignment of General
Partnership Interest, in the form attached hereto as Exhibit G, assigning to
Buyer Seller's general partnership interest in Sycamore.
12.4 DETERMINATION AND PAYMENT OF PURCHASE PRICE. On the day that is two
-------------------------------------------
(2) business days prior to the Closing Date, Seller shall furnish to Buyer (i) a
summary of the Base Price adjustments to be effected at the Closing pursuant to
Section 3.4, 7.4, 7.5, 7.6, 7.7 and 8.5 hereof, and subject to the provisions of
Section 3.7, and (ii) based upon the information at (i), a calculation of the
Purchase Price. Buyer and Seller shall work together diligently and in good
faith prior to the Closing in an effort to agree upon the amount of the
adjustments necessary to determine the Purchase Price, and if they do so agree,
the agreed amount shall be paid by Buyer to Seller by wire transfer of
immediately available funds at the Closing (less any amount deposited in escrow
by Buyer pursuant to Section 3.5) If the parties cannot agree on the adjustment
amounts necessary to determine the Purchase Price, the Closing shall occur as
scheduled based on Seller's reasonable, good faith estimate of the Purchase
Price ("Seller's Estimate") and the difference between Seller's Estimate and
Buyer's calculation of the Purchase Price (less any amount deposited in escrow
by Buyer pursuant to Section 3.5) shall be deposited in escrow with the Escrow
Agent pending a determination of the final Purchase Price. In such event the
final Purchase Price shall be determined either (i) by subsequent agreement of
the parties, or (ii) by binding arbitration pursuant to an arbitration
proceeding initiated and conducted substantially in accordance with the
procedures set out in Section 11.4 hereof. In the event arbitration is
necessary to determine the Purchase Price, prior to initiating the arbitration,
each party shall furnish to the other a statement of such party's calculation of
the Purchase Price. All
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fees and expenses of the arbitration, including attorneys' fees, expert witness
fees and all other out-of-pocket expenses of both parties, shall be paid by the
party whose calculation of the Purchase Price bears the greatest difference from
the Purchase Price determined by the arbitrator. The award of the arbitrator
shall not be subject to appeal or judicial review of any nature and shall be
promptly furnished to the Escrow Agent who shall make distribution of the
escrowed funds in a manner consistent with such award.
12.5 LETTERS IN LIEU. Seller shall execute and deliver to Buyer at the
----------------
Closing, on forms prepared by Buyer in the form set out in Exhibit H, transfer
orders or letter in lieu thereof directing all purchasers of production to make
payment to Buyer of proceeds attributable to production from the Interests.
12.6 BUYER'S CERTIFICATE. Buyer shall execute and deliver to Seller at
--------------------
Closing, Buyer's certificate that all its representations and warranties under
this Agreement are true and correct as of the Closing Date.
ARTICLE 13
POST-CLOSING MATTERS
--------------------
13.1 SALES TAXES. It is understood that the Purchase Price does not
------------
include sales taxes imposed on account of the transactions contemplated hereby.
Buyer will be responsible for all such taxes, and Buyer hereby agrees to hold
harmless Seller and will hold Seller harmless with respect thereto, including
any penalties, costs, attorneys fees or interest assessed for late payment.
13.2 RECEIPTS AND DISBURSEMENTS. If, after the Closing, Buyer receives any
---------------------------
funds relating to operations on or production from the Interests prior to the
Effective Time, or Seller receives any funds relating to operations on or
production from the Interests after the Effective Time, then the party receiving
such funds shall account therefor and pay the same to the other party promptly
after receipt thereof. Likewise, if Buyer shall be required to pay any amount
relating to items of the Interests which accrued to the owner of the Interests
before the Effective Time, or if Seller shall be required to pay any amount (not
otherwise prohibited by the ten-ns of this Agreement) relating to items of the
Interests which accrued to the owner of the Interests after the Effective Time,
then the party making such payment shall invoice the other party for the amount
of such payment and the party receiving such invoice promptly shall pay the
same. Notwithstanding the foregoing, there shall be no accounting for amounts
received or paid which have already been taken into account in calculating the
Purchase Price. In determining the amount paid by a party accruing during a
period of time in respect of ad valorem taxes, the taxes shall be prorated as
provided in Section 7.7.
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13.3 ALLOCATION OF LIABILITY. Seller shall, except as otherwise provided
-----------------------
in clause (ii) of Section 13.4 hereof, remain liable and responsible for all
costs and expenses attributable to the ownership or operation of the Interests
prior to the Effective Time. Buyer shall cause Seller to remain on policies of
insurance until any unknown claims are barred by statute of limitations. Buyer
shall be liable and responsible for all costs and expenses attributable to the
ownership or operation of the Interests after the Effective Time, together with
those additional liabilities and obligations assumed by Buyer pursuant to clause
(ii) of Section 13.4 hereof.
13.4 ASSUMPTION. By acceptance of the Assignment, Conveyance and Bill of
----------
Sale at the Closing, Buyer shall be deemed to have accepted and assumed
responsibility for all obligations and liabilities of Seller (i) accruing from
and after the Effective Time under the terms of the leases included in the
Interests, under all prior assignments in the chain of title to said leases, and
under all joint operating agreements and other similar agreements to which said
leases are subject or pursuant to which operations are conducted on the Land,
(ii) relating to the environmental condition of and other conditions on and
under the Land, whether existing as of the Effective Time or thereafter arising,
and whether created by statute, regulation, rule, order, common law or contract,
including, without limitation, any obligation to plug, replug or repair any
well, or to restore, clean up or remediate the surface of the Land, and (iii)
all obligations attributable to the Interests relating to gas overproduction,
including balancing rights of third parties and any cash balancing obligations
determined by contract, common law, settlement or court order or judgment. By
acceptance of the Assignment of General Partnership Interest at the Closing,
Buyer shall be deemed to have accepted and assumed responsibility for all
obligations and liabilities of Seller as a general partner in Sycamore arising
from and after the Effective Time.
13.5 BOOKS AND RECORDS. Seller shall deliver to Buyer, as soon as
-----------------
practicable after the Closing Date (but in no event more than thirty (30) days
after the Closing Date), all books, files, records and other information of
Seller (including, without limitation, land, geological, geophysical and
accounting files, records and other material) relating to the Interests. For a
period of five (5) years after the delivery of such files and records, Buyer
shall permit Seller reasonable access to such files and records, bust such right
of access shall not constitute an obligation of Buyer to maintain such files in
the same form as maintained by Seller prior to delivery thereof.
ARTICLE 14
MISCELLANEOUS
-------------
14.1 NOTICES. All communications required or permitted to be given under
--------
this Agreement shall be in writing and delivered, mailed or transmitted to the
parties at the addresses set out below. Notices shall be deemed given when
received except that notices given by
21
<PAGE>
facsimile transmission on weekends, holidays or after 5:00 p.m. Central Time,
shall be deemed received on the next business day. If delivered by commercial
delivery service or mailed by registered or certified mail, the delivery receipt
shall be evidence of the date of receipt. Either party may, by written notice so
delivered to the other, change the address to which delivery shall thereafter be
made.
(a) Notices to Buyer:
Gothic Energy Corporation
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105-7148
Attn: Mr. Mike Paulk
With copy to:
Pray, Walker, Jackman, Williamson & Marlar
900 Oneck Plaza - 100 West 5th Street
Tulsa, Oklahoma 74103-4218
(918) 581-5599 Facsimile
Attn: Mr. Ira L. Edwards, Jr.
(b) Notices to Seller:
Norse Exploration, Inc.
Norse Pipeline, Inc.
2500 Tanglewilde, Suite 250
Houston, Texas 77063
(713) 975-0221 Facsimile
Attn: Mr. Oivind Risberg
With copy to:
Steelhammer & Miller, P.C.
Three Riverway, Suite 700
Houston, Texas 77056
(713) 960-9204 Facsimile
Attn: Mr. Robert H. Steelhammer
14.2 BINDING, EFFECT. This Agreement shall be binding upon and shall
----------------
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Buyer may not assign this Agreement or any of
its rights or obligations hereunder without the prior written consent of Seller,
which consent may be withheld in Seller's sole discretion.
22
<PAGE>
14.3 COUNTERPARTS. This Agreement may be executed in any number of
-------------
counterparts which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes.
14.4 EXPENSES. Each party hereto will bear and pay its own expenses of
---------
negotiating and consummating the transactions contemplated hereby.
14.5 SECTION HEADINGS. The section headings contained in this Agreement
----------------
are for convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
14.6 SUPERSEDING, EFFECT. This Agreement supersedes any prior agreement or
---------------------
understanding between the parties with respect to the subject matter hereof
14.7 GOVERNING LAW; ENFORCEMENT. This Agreement shall be governed by,
---------------------------
construed and enforced in accordance with the laws of the state of Oklahoma
applicable to contracts made and to be performed entirely therein. The
prevailing party in any litigation initiated to enforce rights under or collect
damages for breach of this Agreement shall be entitled to reimbursement from the
non-prevailing party of all costs and expenses, including attorneys' fees,
incurred by the prevailing party in connection with such litigation.
14.8 EXHIBITS AND SCHEDULES. The Exhibits and Schedules referred to herein
-----------------------
are attached hereto and by this reference made a part hereof.
14.9 ANNOUNCEMENTS. Seller and Buyer shall consult with each other with
--------------
regards to all press releases and other announcements issued by either party
concerning this Agreement or the transaction 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 publicity without the prior written consent of
the other party.
14.10 SURVIVAL. The representations and warranties of Seller set in
--------
Article 4 hereof shall expire at, and be of no further force or effect after,
the Closing, and Buyer shall have no claim against Seller for inaccuracy of any
such representation or breach of any such warranty from and after the Closing.
Buyer's only recourse for discovery of the inaccuracy of any representation or
the breach of any warranty set out in Section 4 hereof shall be excused
performance of Buyer's obligation to close pursuant to Section 9. 1 hereof. The
representations and warranties of Buyer as set out in Article 5 hereof shall
survive the Closing. The covenants of the parties under this Agreement shall
survive the Closing (for this purpose, nothing contained in Article 4 hereof
shall be deemed to be a covenant).
14.11 FURTHER ASSURANCES. After the Closing, the parties shall, at the
-------------------
sole cost and expense of the requesting party if more than an immaterial expense
is involved, (i) furnish such
23
<PAGE>
additional information, (ii) execute and deliver such additional documents, and
(iii) perform such additional acts, as may be necessary and reasonably requested
by the other party or parties to effect the transaction contemplated by this
Agreement.
14.12 WAIVER. The rights and remedies of the parties to this Agreement
-------
are cumulative and not alternative. Neither the failure nor any delay by any
party exercising any right, power or privilege under this Agreement or the
documents referred to herein will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. Except as
otherwise provided in this Agreement, to the maximum extent permitted by
applicable law, (i) no waiver of any claim or right under this Agreement will be
valid unless evidenced by a writing signed by the waiving party, (ii) no waiver
given by a party will be applicable except in the specific instance for which it
is given, and (iii) no notice to or demand on a party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to herein.
ARTICLE 15
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976
----------------------------------------------------
The parties have determined that the Hart-Scott-Rodino Antitrust Act of
1976 does not apply to this transaction.
ARTICLE 16
DISCLAIMERS OF WARRANTIES
-------------------------
Seller has not made, and will not make, any warranty or representation,
express, implied, or statutory, whatsoever in connection with this Agreement or
the transaction contemplated by it, including the accuracy or completeness of
data, information, or materials furnished at any time to Buyer in connection
with the Interests, or the quality or quantity of hydrocarbons reserves (if any)
attributable to the Properties, or the ability of the Properties to produce
hydrocarbons. None of Seller's Associated Parties is authorized to make any
warranty or representation on Seller's behalf. All data, information, and other
materials furnished by Seller are provided to Buyer as a convenience, and
reliance on or use of them is at Buyer's sole risk.
24
<PAGE>
Executed as of the date first above written.
SELLERS:
NORSE EXPLORATION, INC.,
A DELAWARE CORPORATION
BY:
--------------------------------------------------
BRUCE L. TAYLOR, VICE PRESIDENT LAND
* EXECUTED SUBJECT TO THE RECEIPT OF DEPOSIT IN
THE AMOUNT OF $1,075,000 PER ARTICLE 2.4.
AND
NORSE PIPELINE, INC.,
A DELAWARE CORPORATION
BY:
--------------------------------------------------
BRUCE L. TAYLOR, VICE PRESIDENT LAND
* EXECUTED SUBJECT TO THE RECEIPT OF DEPOSIT IN
THE AMOUNT OF $1,075,000 PER ARTICLE 2.4.
AND
BUYER:
GOTHIC ENERGY CORPORATION
AN OKLAHOMA CORPORATION
BY:
--------------------------------------------------
MICHAEL PAULK, PRESIDENT
25
<PAGE>
EXHIBIT 99(II)
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE HOLDER HEREOF AGREES
THAT THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
SHALL NOT BE TRANSFERRED AND ANY TRANSFER OR PURPORTED TRANSFER SHALL NOT BE
RIGHTFUL UNDER THE UNIFORM COMMERCIAL CODE AND THE ISSUER OF SUCH SECURITIES
SHALL HAVE NO DUTY TO REGISTER A TRANSFER OF SUCH SECURITIES UNTIL (i) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SHALL HAVE BECOME
EFFECTIVE WITH RESPECT THERETO, OR (ii) RECEIPT OF AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, BOTH AS TO THE
IDENTITY OF SUCH OTHER COUNSEL AND THE FORM AND SUBSTANCE OF THE OPINION OF SUCH
OTHER COUNSEL, TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT OF 1933
IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER, OR (iii) A "NO-
ACTION" LETTER HAS BEEN OBTAINED FROM THE SECURITIES AND EXCHANGE COMMISSION TO
THE EFFECT THAT REGISTRATION UNDER SUCH ACT IS NOT REQUIRED IN CONNECTION WITH
THE PROPOSED TRANSFER. THE RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE
HOLDER HEREOF AND HIS SUCCESSORS AND ASSIGNS.
COMMON STOCK PURCHASE WARRANT
-----------------------------
GOTHIC ENERGY CORPORATION
-------------------------
Void after February 18, 1999 Right to Purchase 200,000 Shares
Warrant No. 97-1 of Common Stock
Gothic Energy Corporation, an Oklahoma corporation (the "Company"),
hereby certifies that, for value received, Norse Exploration, Inc. and Norse
Pipeline, Inc., or registered assigns, is entitled, subject to the terms set
forth below, to purchase from the Company at any time or from time to time
before 5 P.M., New York City time, on or before February 18, 1999, 200,000 fully
paid and non-assessable shares of the Common Stock, par value $.01 per share, of
the Company, at a price (the "Purchase Price") of $2.50 per share, which amount
is equal to the closing sale price of the Company's Common Stock on the Nasdaq
SmallCap Market on December 10, 1996. The term "Common Stock" shall mean,
unless the context otherwise requires, the stock and, under certain
circumstances, other securities and property at the time receivable upon the
exercise of this Warrant.
1. The Warrants. As used herein, the term "Issue Date" shall mean
------------
December 11, 1996 and the term "Warrant" refers to this Warrant and "Warrants"
refers to all of the substantially identical warrants issued concurrently
herewith unless the
<PAGE>
context should otherwise require. This Warrant has been issued as partial
consideration for the assets purchased by the Company pursuant to the Sale and
Purchase Agreement dated December 11, 1996 between the Company and Norse
Exploration, Inc. and Norse Pipeline, Inc.
2. Exercise of Warrant; Partial Exercise. This Warrant may be exercised
-------------------------------------
for the full number of shares of Common Stock (herein referred to as "Warrant
Stock") at the time called for hereby and exercisable as herein provided by the
holder surrendering this Warrant, properly endorsed, to the Company at its
principal office in Tulsa, Oklahoma, or to the Company's transfer agent,
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, or successor transfer agent, accompanied by payment, in cash or by
certified or official check, payable to the order of the Company, of the sum
(the "Sum") obtained by multiplying (a) the number of shares of Common Stock
called for on the face of this Warrant or with respect to which this Warrant is
exercisable by (b) the Purchase Price.
This Warrant may be exercised for less than the full number of shares
of Common Stock at the time called for hereby and exercisable hereunder by such
a surrender except that the number of shares receivable upon the exercise of
this Warrant as a whole, and the amount payable upon the exercise of this
Warrant as a whole, shall be proportionately reduced. Upon any such partial
exercise, the Company, at its expense, will forthwith issue to the holder hereof
a new Warrant or Warrants of like tenor calling in the aggregate on their face
for the number of shares of Common Stock issuable upon exercise of this Warrant
less the number of shares purchased on such exercise, issued in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct; provided that, in case this Warrant shall not have
been registered under the Securities Act of 1933, as amended (the "Act"), the
Company shall not be obligated to issue and deliver any Warrant or Warrants to
or in the name of any person other than the holder of this Warrant unless, in
the opinion of counsel to the Company, such Warrant or Warrants may be so issued
and delivered without registration under the Act.
3. Delivery of Stock Certificates on Exercise. As soon as practicable
------------------------------------------
after the exercise of this Warrant and payment of the Purchase Price, the
Company, at its expense (including the payment by it of any applicable issue
tax) will cause to be issued in the name of and delivered to the holder hereof,
or as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, a certificate or certificates for the number of full shares of
Common Stock to which such holder would be entitled upon such exercise, plus, in
lieu of any fractional shares to which such holder would otherwise be entitled,
cash equal to such fraction multiplied by the greater of (i) the then current
market value of one full share, or (ii) the book value per share as of the close
of the Company's most recent fiscal quarter, provided that, in case such
-2-
<PAGE>
shares or other securities shall not have been registered under the Act, (i) the
Company may require that such holder furnish to the Company a written statement
that such holder is purchasing such shares or other securities for such holder's
own account for investment and not with a view to the distribution thereof
(other than sales permitted by the Act or the rules and regulations thereunder
to be made without registration), subject, nevertheless, to any requirement of
law that the disposition of the property of such holder shall at all times be
within its own control, and further agreeing that the legend hereinafter
provided shall appear on the certificates for the shares of Common Stock and be
applicable to a transfer thereof, (ii) the Company shall not be obligated to
issue and deliver any certificate for Common Stock to or in the name of any
person other than the holder of this Warrant unless, in the opinion of counsel
to the Company, such certificate may be so issued and delivered without
registration under the Act, and (iii) the Company may place on each certificate
delivered to any such person a legend substantially identical to the legend
appearing at the beginning of this Warrant, applicable however to the Common
Stock, evidencing that the shares represented thereby have not been registered
under the Act.
4. Adjustment for Dividends in Other Stock, Property; Reclassifications.
------------------------------------------------- -----------------
In case at any time or from time to time after the Issue Date, the holders of
the Common Stock of the Company (or any shares of stock or other securities at
the time receivable upon the exercise of this Warrant) shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
(i) other or additional stock or other securities or property (other
than cash) by way of dividend or spin-off,
(ii) any cash paid or payable out of capital or paid-in surplus or
surplus created as a result of a revaluation, or
(iii) other or additional stock or other securities or property
(including cash) by way of stock-split, split-up, reclassification, combination
of shares or similar corporate rearrangement,
(other than additional shares of Common Stock of the Company, or any other stock
or securities into which such Common Stock shall have been changed, or any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stock or securities, adjustments in respect of which shall be covered
by the terms of Paragraph 5), then and in each such case, the holder of this
Warrant, upon the exercise hereof as provided in Paragraph 2, shall be entitled
to receive the amount of stock and other securities and property (including cash
in the cases referred to in clauses (ii) and (iii) above) which such holder
would hold on the date of such exercise if on the Issue
-3-
<PAGE>
Date he had been the holder of record of the number of shares of Common Stock of
the Company called for on the face of this Warrant and had thereafter, during
the period from the Issue Date to and including the date of such exercise,
retained such shares and/or all other or additional stock and other securities
and property (including cash in the cases referred to in clauses (ii) and (iii)
above) receivable by him as aforesaid during such period, giving effect to all
adjustments called for during such period by Paragraph 5.
5. Adjustment for Reorganization, Consolidation, Merger. In case of any
----------------------------------------------------
reorganization of the Company (or any other corporation, the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issue Date or in case, after the Issue Date, the Company (or any other
corporation) shall consolidate with or merge with or into another corporation,
whether or not the Company shall be the surviving corporation, or convey all or
substantially all its assets to another corporation, then and in each such case
the holder of this Warrant, upon the exercise hereof as provided in Paragraph 2
at any time after the consummation of such reorganization, consolidation, merger
or conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise of this Warrant prior to
such consummation, the stock or other securities or property (including cash) to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Paragraph 4; in each such case, the terms of this
Warrant shall be applicable to the shares of stock or other securities or
property receivable upon the exercise of this Warrant after such consummation.
6. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any shares of
stock receivable upon the exercise of the Warrants above the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and non-assessable shares upon the exercise of all Warrants at the time
outstanding, and (c) will take no action to amend its certificate of
incorporation which would change to the detriment of the holders of Common Stock
(whether or not any Common Stock be at the time outstanding) the dividend or
voting rights of the Company's Common Stock as constituted on the Issue Date.
-4-
<PAGE>
7. Officer's Certificate as to Adjustments. In each case of an
---------------------------------------
adjustment in the Purchase Price (including the adjustment referred to in the
first paragraph of this Warrant) or in the shares of Common Stock or other
stock, securities or property receivable on the exercise of the Warrants, the
Company, at its expense, shall cause its principal financial officer to compute
such adjustment in accordance with the terms of the Warrants and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including, without limitation, a statement of
the Adjusted Purchase Price. The Company will forthwith mail a copy of each
such certificate to each holder of a Warrant at the time outstanding.
8. Notices of Record Date. In case
----------------------
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
the Warrants) for the purpose of entitling them to receive any dividend (other
than a cash dividend), or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up of the
Company;
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 30 days prior to the date therein specified.
-5-
<PAGE>
9. Registration of Common Stock
----------------------------
9.1 Incidental Registrations.
------------------------
(a) In the event the Company hereafter shall take action to register
any of its equity securities under the Act for the purpose of registering under
the Act securities of the Company to be sold by security-holders of the Company,
the Company agrees that it will give to the holder or holders of the Warrants
and any shares previously issued on exercise thereof notice that such
registration of securities is to be effected and that registration of the shares
of Common Stock of the Company issuable on exercise of the Warrants will then be
effected by the Company under the then applicable law and regulations and
practices of the Securities and Exchange Commission or other governmental agency
substituted therefor. All of the shares of Common Stock issuable on exercise of
such Warrants and all shares of Common Stock previously issued to such Holder on
exercise of a Warrant held by such holder will be included in such registration
unless, within 15 days of the receipt of such notice, such holder notifies the
Company in writing that such holder desires none or only a portion (specifying
the number) of the shares to be included in such registration whereupon the
Company shall include in such registration only the number of shares specified
in such notice from the holder. The Company will, at its own expense, take
action to register thereunder the shares of Common Stock to be registered and
such other action as may be requested by such holder to effect qualification
under and compliance with any state laws or other governmental requirements, as
above provided.
(b) Any holder whose securities shall be included in the Company's
registration under the Act pursuant to subsection (a) of this Paragraph 9.1
shall furnish to the Company such information regarding his holdings of shares
of Common Stock to be registered and the proposed manner of distribution thereof
as the Company may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in subsection (a)
of this Paragraph 9.1 and shall otherwise cooperate with the Company in
connection with such registration, qualification or compliance. The Company, at
its expense, will furnish to holders of shares of Common Stock included in such
registration such number of prospectuses, offering circulars or other documents
incident to any registration, qualification or compliance referred to in this
Paragraph 9.1 as such holders from time to time reasonably may request, and will
indemnify and defend each such holder of shares of Common Stock being sold by
any such holder (and any person who controls such holder within the meaning of
Section 15 of the Act) against all claims, losses, damages, liabilities and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact contained therein (or in any related registration statement,
notification or the like) or from any omission or alleged omission to state
therein a material fact
-6-
<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same may have been based upon information
furnished in writing to the Company by such holder expressly for use therein,
and with respect to such information furnished to the Company, such holder will
indemnify and defend the Company against all claims, losses, damages,
liabilities and expenses resulting from any untrue statement or alleged untrue
statement of a material fact contained therein or any omission or alleged
omission to state a material fact required to be stated or necessary to make the
information not misleading. Notwithstanding anything herein contained, the
Company shall not be obligated to pay any underwriting or brokers' discounts or
commissions applicable to the holder's shares of Common Stock or fees or
disbursements of counsel to the selling stockholders.
(c) Notwithstanding anything herein to the contrary, the Company
shall not be obligated to offer to include the shares of Common Stock issuable
or previously issued on exercise of such warrants on any occasion other than the
first occasion after the date hereof that the Company files a registration
statement under the Act relating to securities of the Company to be sold by
security-holders of the Company. In addition, the Company's obligations under
this Section 9 shall terminate on the date when all of the shares issuable and
issued on exercise of this Warrant are permitted to be sold without registration
pursuant to Rule 144(k) under the Act or any similar successor rule.
9.2. Registration Procedures. If and whenever the Company is
-----------------------
required to use reasonable efforts to effect or cause the registration of any
Common Stock under the Act as provided in this Section 9, the Company will, as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Common Stock and use reasonable
efforts to cause such registration statement to become effective;
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than nine months or such shorter
period in which the disposition of all securities in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement shall be completed, and to comply with the
provisions of the Act (to the extent applicable to the Company) with respect to
such dispositions;
(c) furnish to each seller of such Common Stock such number of copies
of such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus),
in conformity with
-7-
<PAGE>
the requirements of the Act, and such other documents, as such seller may
reasonably request, in order to facilitate the disposition of the Common Stock
owned by such seller;
(d) use of its reasonable efforts to register or qualify such Common
Stock covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as any seller reasonably requests, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Common Stock owned by such seller, except that the Company will not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not, but for the requirements of this
Paragraph 9.2(d) be obligated to be qualified, to subject itself to taxation in
any such jurisdiction, or to consent to general service of process in any such
jurisdiction; and
(e) notify each seller of such Common Stock at any time when a
prospectus relating thereto is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of any such seller, the Company will prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of such
Common Stock, such prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein not
misleading.
9.3 Registration and Selling Expenses.
---------------------------------
(a) All expenses incurred by the Company in connection with the
Company's performance of or compliance with this Section 9, including, without
limitation (i) all registration and filing fees (including all expenses incident
to filing with the National Association of Securities Dealers, Inc.), (ii) blue
sky fees and expenses, (iii) all necessary printing and duplicating expenses and
(iv) all fees and disbursements of counsel and accountants for the Company
(including the expenses of any audit of financial statements), retained by the
Company (all such expenses being herein called ("Registration Expenses"), will
be paid by the Company except as otherwise expressly provided in this Paragraph
9.3.
(b) The Company will, in any event, in connection with any
registration statement, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal, accounting or other duties in connection therewith and expenses of audits
of year-end financial statements), and the expenses and fees for listing the
securities to be registered on one or more securities exchanges on which similar
securities issued by the Company are then listed.
-8-
<PAGE>
(c) The holders of Common Stock covered by such registration
statement shall pay or reimburse the Company for any incremental Registration
Expenses incurred by reason of the inclusion of such Common Stock in such
registration.
(d) Notwithstanding any of the foregoing, all underwriting discounts,
selling commissions and stock transfer taxes applicable to sales of Common Stock
in connection with such registration statement shall be borne by all persons who
are selling Common Stock pursuant to such Registration Statement in proportion
to the dollar value of the securities being sold by each such person.
(e) All fees and expenses required to be paid by the holders of
Common Stock in connection with such registration statement shall be borne by
said holders in proportion to the dollar value of the securities of such holder
covered by such registration statement.
9.4 Transferees of Warrant Stock. Notwithstanding anything else
----------------------------
set forth in this Section 9, no person to whom this Warrant or Warrant Stock is
transferred shall have any rights under this Section 9 as a holder of such
Warrant or Warrant Stock unless such person agrees to be bound by the terms and
conditions of this Section 9.
9.5 Exercise of Warrant. As a condition to including the shares of
-------------------
Warrant Stock in any registration statement to be filed under the Act, the
holder shall agree that exercise of this Warrant into Common Stock in accordance
with the terms hereof will be undertaken immediately before such registration
statement has become effective.
9.6 Stand-off. In connection with any registration of shares of
---------
Common Stock pursuant to Paragraph 9.1 hereof, the holder thereof shall agree,
as a condition to the inclusion of such shares of Common Stock in the
registration statement and if requested by any managing underwriter of any
offering of securities on behalf of the Company, to refrain from offering or
selling any securities of the Company held by him for a period of six (6) months
from the effective date of any registration statement relating to an
underwritten public offering of securities on behalf of the Company.
10. Reservation of Stock Issuable on Exercise of Warrants. The Company
-----------------------------------------------------
will at all times reserve and keep available, solely for issuance and delivery
upon the exercise of the Warrants at the time outstanding, all such shares of
Common Stock and other stock, securities and property as from time to time shall
be receivable upon the exercise of the Warrants.
-9-
<PAGE>
11. Listing on Securities Exchanges; Registration. In case at any time any
---------------------------------------------
Common Stock or other stock or securities of a character at the time receivable
upon the exercise of the Warrants shall be listed on any securities exchange or
quotation system, the Company will also list and keep listed thereon, on
official notice of issuance upon the exercise of Warrants (provided that the
rules of such exchange shall permit such listing), all shares of Common Stock
and other stock and securities from time to time receivable upon the exercise of
all Warrants at the time outstanding, and will register the same and keep the
same registered under the Securities Exchange Act of 1934 and any other statute
at the time applicable and will timely file all reports which may be required to
be filed thereunder by companies having a class of equity securities so
registered.
12. Exchanges of Warrants. Upon surrender for exchange of this Warrant to
---------------------
the Company at its principal office in Tulsa, Oklahoma, the Company, at its
expense, will issue and deliver a new Warrant or Warrants of like tenor, calling
in the aggregate on their face for the same number of shares of Common Stock, in
the denomination or denominations requested, to and in the name of such holder
or as such holder (upon payment by such holder of any applicable transfer taxes)
may direct; provided that, in case the Warrant or Warrants so surrendered shall
not have been registered under the Act, the Company shall not be obligated to
issue and deliver any Warrant or Warrants to or in the name of any person other
than the holder of the Warrant or Warrants so surrendered or in the
denominations other than the denominations of this Warrant or Warrants so
surrendered unless, in the opinion of counsel to the Company, such Warrant or
Warrants may be so issued and delivered without registration under the Act.
13. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement in such reasonable amount as the Company may determine, or
(in the case of mutilation) upon surrender and cancellation thereof, the
Company, at its expense, will issue, in lieu thereof, a new Warrant of like
tenor.
14. Transferrability. Until this Warrant is transferred on the books of
----------------
the Company, the Company may treat the registered holder of this Warrant as
absolute owner hereof for all purposes without being affected by any notice to
the contrary.
15. Notices. All notices and other communications from the Company to the
-------
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
holder of this Warrant.
-10-
<PAGE>
16. Change; Waiver. Neither this Warrant nor any term hereof may be
--------------
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
17. Headings. The headings in this Warrant are for purposes of
--------
convenience of reference only, and shall not be deemed to constitute a part
hereof.
18. Law Governing. This Warrant is delivered in the State of Oklahoma and
-------------
shall be construed and enforced in accordance with and governed by the laws of
such State.
19. Expiration. This Warrant will be wholly void and of no effect after 5
----------
P.M., New York City time, on February 18, 1999, provided that, if the last day
on which this Warrant may be exercised, or on which it may be exercised at a
particular Purchase Price, shall be a Sunday or a legal holiday or a day on
which banking institutions doing business in the Borough of Manhattan, City and
State of New York, are authorized by law to close, this Warrant may be exercised
prior to 5 P.M., New York City, time, on the next succeeding full business day,
with the same force and effect and at the same Purchase Price, as if exercised
on such last day specified herein.
Dated: February 18, 1997
GOTHIC ENERGY CORPORATION
By: /s/ Michael Paulk
----------------------------------
President
ATTEST:
/s/ John Rainwater
- ------------------------------------ [CORPORATE SEAL OF GOTHIC ENERGY
Secretary CORPORATION APPEARS HERE]
-11-
<PAGE>
FORM TO BE USED TO EXERCISE COMMON STOCK PURCHASE WARRANT
Date:
------------------------------------
Gothic Energy Corporation
5727 South Lewis Avenue - Suite 700
Tulsa, Oklahoma 74105
The undersigned hereby elects irrevocably to exercise the within Common
Stock Purchase Warrant and to purchase __________ Shares of Gothic Energy
Corporation, and hereby makes payment of $__________ (at the rate of $__________
per Share) in payment of the Purchase Price pursuant thereto. Please issue the
Common Stock as to which this Common Stock Purchase Warrant is exercised in
accordance with the instructions given below.
--------------------------------------------------
Signature
--------------------------------------------------
Signature Guaranteed
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN COMMON STOCK PURCHASE WARRANT IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST
BE GUARANTEED BY A BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY OR BY
A FIRM HAVING MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES EXCHANGE.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
City, State, Zip:
---------------------------------------------------------------
-12-
<PAGE>
FORM TO BE USED TO ASSIGN COMMON STOCK PURCHASE WARRANT
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within
Common Stock Purchase Warrant)
For value received, _________________________ does hereby sell, assign and
transfer unto ____________________ the right to purchase __________ Shares of
Gothic Energy Corporation (the "Company") evidenced by the within Common Stock
Purchase Warrant, and does hereby authorize the Company to transfer such right
on the books of the Company.
Dated: _______________, 199___
--------------------------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN COMMON STOCK PURCHASE WARRANT IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
-13-
<PAGE>
EXHIBIT 99 (III)
H. Huffman & Co.
301 N.W. 63rd St., Suite 510
Oklahoma City, Oklahoma 73116
ATTN: Huston Huffman, Jr.
RE: Offer to Purchase Certain Oil and Gas Properties and Partnership
----------------------------------------------------------------
Interest
--------
Gentlemen:
This letter when accepted shall confirm the agreement between H. Huffman &
Co., an Oklahoma limited partnership ("Seller"), and Gothic Energy Corporation,
an Oklahoma corporation ("Buyer"), with respect to Seller's sale to Buyer of
those oil and gas properties described below, including all undeveloped oil and
gas leasehold acreage corresponding to all such wells, together with all of
Seller's 10.97% general partnership interest in Sycamore Gas System, an Oklahoma
general partnership ("Sycamore").
1. Sale and Purchase. For good and valuable consideration and subject to
-----------------
and in accordance with the terms and conditions of this Agreement, Seller hereby
agrees to sell and convey to Buyer and Buyer agrees to purchase and acquire from
Seller all of Seller's right, title and interest in and to the wells, lands and
leasehold interests described in Exhibit "A" hereto, including, without
limitation, all undeveloped oil and gas leasehold acreage, acreage comprising
the spacing unit for such wells, and well facilities and equipment used in
conjunction with such wells to the extent such interests are owned by or
allocable to Seller, specifically including all operating and other contract
rights associated with such wells (collectively the "Properties"). The
Properties do not include, and there is expressly reserved unto Seller, all
mineral interests, royalties, overriding royalties and similar interests owned
in lands and leases included in the Properties. The net revenue interests
attributable to such excluded interests are not included in the net revenue
interests shown in Exhibit A. In addition, Seller hereby agrees to sell to
Buyer Seller's 10.97% general partnership interest in Sycamore (the "Sycamore
Interest").
2. Effective Time. The effective time of the sale and purchase
--------------
contemplated by this Agreement shall be January 1, 1997, at 7:00 a.m. Central
Standard Time (the "Effective Time"). Unless otherwise provided in this
Agreement, Buyer shall be entitled to any amounts realized from and accruing to
the Properties which are attributable to periods of production on and after the
Effective Time and shall be responsible for all expenses for the development and
operation of the Properties attributable to periods on and after the Effective
Time. Seller shall be entitled to all amounts realized from and accruing to the
Properties which are attributable to periods of production prior to the
Effective Time and shall be responsible for all expenses for the development and
operation of the Properties attributable to periods prior to the Effective Time.
3. Closing. Unless extended by mutual written agreement of the parties,
-------
the closing of the sale and purchase contemplated by this agreement shall occur
on or before February 14, 1997 (the "Closing"), in the offices of Seller,
located at 301 N.W. 63rd Street, Suite 510, Oklahoma City, Oklahoma, or at such
other place as may be agreed on by the parties.
4. Purchase Price. Subject to adjustments as provided in this Agreement,
--------------
the purchase price payable by Buyer for the Properties and the Sycamore Interest
shall be $5,750,000 (the "Purchase Price"), which sum shall be
<PAGE>
H.Huffman & Co.
December 13, 1996
Page 2
allocated among the Properties and the well equipment and other personalty,
including the Sycamore Interest (the "Personalty") as set forth in Exhibit "A"
(the "Allocated Values") and shall be fully payable by Buyer at Closing.
Immediately upon the execution of this letter agreement by Seller, Buyer shall
deliver to Seller in immediately available funds a deposit in the sum of
$287,500.00 (5% of the Purchase Price) as a deposit toward the Purchase Price
(the "Deposit"). In the event that Buyer shall fail to close the transaction
contemplated hereby in accordance with the terms of this agreement, and provided
that the conditions precedent to the obligations of Buyer set forth herein, have
been fulfilled or Seller is ready, willing and able to comply with all such
conditions precedent, Seller shall be entitled to retain this Deposit as
liquidated damages. The parties hereto agree that the amount of damages caused
by Buyer's breach or failure to close would be very difficult to calculate
exactly and that the provision for liquidated damages herein is not a penalty
provision. Such right to liquidated damages shall be Seller's sole remedy
hereunder.
5. Access to Information. From and after the date of Seller's acceptance
---------------------
of this Agreement, Buyer shall be allowed, at its expense, to examine in
Seller's offices or such other place where pertinent records are maintained, all
land, tax, legal, contract, production, engineering, geological, geophysical,
accounting and revenue, and any other files or data, including computer retained
data, relating to the Properties, to verify title and economics. Buyer shall be
entitled to all original files relating to the Properties at Closing.
6. Title Review. Buyer shall have until February 1, 1997, or fifteen (15)
------------
days prior to closing (the "Title Review Period") within which to conduct title
due diligence with respect to the Properties (whether through the examination of
lease files, abstracts, landman's ownership reports or physical inspection of
the documents indexed against the Properties. If the records or materials
furnished to or examined by Buyer reflect the existence of any discrepancy in
working or net revenue interests or any material encumbrance, encroachment or
defect in title that renders title to all or any portion of the Properties, in
the opinion of Buyer or its attorneys, less than defensible, and which Buyer
does not waive (the "Title Defects"), written notice of such specific Title
Defects shall be given by Buyer to Seller on or before expiration of the Title
Review Period. No matter shall be construed as a Title Defect unless so
construed under generally accepted oil and gas industry title examination
standards for the State of Oklahoma, but Title Defects shall specifically
include any preferential right to purchase which is exercised or outstanding. If
Title Defects shall be timely asserted by Buyer, Seller may, but shall not be
obligated to, attempt to cure or remove all such Title Defects, at Seller's sole
expense, prior to Closing. With respect to any Title Defect which remains
uncured forty-eight (48) hours prior to Closing, then (i) Buyer shall propose an
adjustment to the Purchase Price (which shall not exceed the Allocated Value of
the affected Property) which Buyer believes represents the difference between
the Allocated Value and the true value given the existence of the unresolved
Title Defect, (ii) Seller may accept Buyer's proposed adjustment to the Purchase
Price or may negotiate with Buyer a lesser adjustment to the Purchase Price, and
(iii) if Seller and Buyer cannot agree upon a reduced Purchase Price, the
Property affected by the Title Defect shall not be sold to Buyer, but shall be
retained by Seller and the Purchase Price shall be reduced by the Allocated
Value assigned to such Property in Exhibit "A" hereto.
7. Environmental. Buyer shall have until February 1, 1997, or fifteen
-------------
(15) days prior to closing (the "Environmental Review Period"), within which to
conduct environmental due diligence with respect to the Properties. If
environmental defects shall be timely asserted by Buyer, Seller may, but shall
not be obligated to, attempt to cure or remedy such defects at Seller's sole
expense prior to Closing. With respect to any environmental defect which
remains uncured forty-eight (48) hours prior to Closing, then (i) Buyer shall
propose an adjustment to the Purchase Price (which shall not exceed the
allocated value of the affected property) which Buyer believes represents the
difference between the allocated value and the true value given the existence of
the unresolved environmental defect; (ii) Seller may accept Buyer's proposed
adjustment to the Purchase Price or may negotiate with Buyer at a lesser
adjustment to the Purchase Price; and (iii) if Seller and Buyer cannot agree
upon a reduced Purchase Price, the
<PAGE>
H.Huffman & Co.
December 13, 1996
Page 3
property affected by the environmental defect shall not be sold to Buyer, but
shall be retained by Seller and the Purchase Price shall be reduced by the
allocated value assigned to such property in Exhibit "A" hereto.
8. Representations of Seller. Seller represents and warrants as follows:
-------------------------
(a) Legal Power and Ownership. Seller has the full power and right to
-------------------------
sell and convey the Properties pursuant to the terms of this Agreement and
to perform Seller's other obligations under this Agreement.
(b) Compliance with Laws. To Seller's knowledge, the Properties have
--------------------
been operated in compliance, in all material respects, with all laws,
rules, regulations, ordinances, orders and permits relating to the
Properties, including all state and federal regulations, ordinances, orders
and permits relating to the Properties, including all state and federal
regulations for the protection of the environment and the protection of the
safety and health of persons and property pertaining to the Properties.
Seller is aware of no administrative order or investigative action of the
Environmental Protection Agency, the Oklahoma Corporation Commission or
other state agency relative to the Properties which would require that
remedial measures be taken for the clean-up, containment of hazardous
waste, or the curtailment of production.
(c) No Conflicts. Seller's execution of this Agreement and
------------
consummation of the transactions contemplated herein will not violate nor
be in conflict with any material provision of any agreement or instrument
to which Seller is a party or is bound, or any judgment, decree, order,
statute, rule or regulation applicable to Seller.
(d) Production Sales Contracts. Seller is not obligated by virtue
--------------------------
of any prepayment made under any production sales contract or any similar
arrangement to deliver oil or gas produced from and after the Effective
time with respect to any Property without receiving payment therefor in the
ordinary course of business. No proceeds of production from any Property
prior to the Effective Time are subject to any refund as a result of the
price paid therefor exceeding the applicable maximum lawful prices. No
purchaser of production from any Property has placed in suspense any funds
owing to Seller which are attributable to any period of time subsequent to
the Effective Time. Seller has not initiated, consummated or waived the
"Good Faith Negotiation Procedure" under FERC Order 451 with respect to any
Property and Seller is not obligated to make any refunds or other payments
after the Effective Time with respect to any take-or-pay settlements
affecting any Property.
(e) Litigation. There are no demands, claims, notices of violations,
----------
filings, governmental investigations, administrative proceedings, actions,
causes of action, suits or other legal proceedings pending or, to Seller's
knowledge, threatened against Seller with respect to any of the Properties.
(f) Leases. To Seller's knowledge, all rentals, royalties,
------
overriding royalty interests and other payments due under each oil and gas
lease comprising the Properties have been promptly and fully paid.
9. Representations of Buyer.
------------------------
(a) Legal Power and Authority. Buyer is a corporation duly organized
-------------------------
and validly existing under the laws of the State of Oklahoma and has all
requisite power and authority to carry on its business as presently
conducted, to enter into this Agreement and to perform its obligations
under this Agreement.
<PAGE>
H.Huffman & Co.
December 13, 1996
Page 4
(b) No Conflicts. Buyer's consummation of the transactions
------------
contemplated by this Agreement will not violate or be in conflict with any
material provision of any agreement or instrument to which Buyer is a party
or is bound, or any judgment, decree, order, statute, rule or regulation
applicable to Buyer.
(c) Confidentiality. Buyer shall exercise all due diligence in
---------------
safeguarding and maintaining confidential all engineering, geological,
geophysical, accounting and revenue data, reports and maps, and all other
confidential data in possession of Buyer, or made known to Buyer, relating
to the Properties until Closing or one year after the termination of this
Agreement, in the event Closing does not take place.
10. Buyer's Conditions of Closing. The obligations of Buyer to purchase
-----------------------------
the Properties pursuant to this Agreement are subject, at the option of Buyer,
to the fulfillment on or prior to Closing of each of the following conditions:
(a) Representations. The representations and warranties by Seller set
---------------
forth in Paragraph 8 above shall be true and correct in all material
respects as of the date when made and as of the date of Closing.
(b) Changes. There shall have been no material adverse change in the
-------
condition of the Properties, except (i) depletion through normal production
within authorized allowables and rates of production, (ii) depreciation of
equipment through ordinary wear and tear, and (ii) those material changes
approved in writing by Buyer between the date of this Agreement and
Closing.
(c) Performance. Seller shall have performed or complied with all
-----------
agreements or covenants required by this Agreement of which performance or
compliance is required prior to or at Closing, including, but not limited
to, the release of any preferential rights to purchase.
11. Seller's Conditions to Closing. The obligations of Seller to
------------------------------
consummate the transactions provided for herein are subject to, at the option of
Seller, the fulfillment on or prior to Closing, of each of the following
conditions:
(a) Representations. The representations and warranties by Buyer set
---------------
forth in Paragraph 9 above shall be true and correct in all material
respects as of the date when made and as of the date of Closing.
(b) Performance. Buyer shall have performed or complied with all
-----------
agreements or covenants required by this Agreement of which performance or
compliance is required prior to or at closing.
12. Closing and Adjustments to the Purchase Price.
---------------------------------------------
(a) Documents. At closing, Seller shall deliver to Buyer (i) a
---------
properly executed Assignment, Conveyance and Bill of Sale in the form
attached hereto as Exhibit B conveying the Properties to Buyer; which
Assignments shall be in recordable form and shall warrant Seller's title to
the Properties from and after the Effective Time against the claims of any
persons claiming by, through or under Seller, but not otherwise; and (ii) a
properly executed Assignment of General Partnership Interest, in the form
attached hereto as Exhibit C, assigning to Buyer Seller's general
partnership interest in Sycamore. Seller shall also deliver to Buyer fully
executed releases of all liens, security interests and other encumbrances
or preferential rights burdening the Properties, together a check
sufficient to cover the costs of recording such releases.
<PAGE>
H.Huffman & Co.
December 13, 1996
Page 5
(b) Purchase Price. Buyer shall deliver by cashier's check or wire
--------------
transfer to Seller's credit into the bank designated by Seller, in
immediately available funds, an amount equal to the Purchase Price, as
adjusted.
(c) Records. Seller shall deliver to Buyer all of the records
-------
relating to the Properties in Seller's possession. For a period of five
(5) years after the Closing, Buyer shall permit Seller reasonable access to
such files and records.
(d) Taxes. Ad valorem, property, production, severance, and similar
-----
taxes and assessments based upon or measured by ownership of property, or
the production of hydrocarbons or receipt of proceeds therefrom, on the
Properties shall be prorated between Buyer and Seller as of the Effective
Time. Buyer shall pay all sales taxes, if any, due with respect to the
Personalty.
(e) Adjustments. The Purchase Price shall be adjusted (the "Adjusted
-----------
Purchase Price"), upward or downward, by the following at the time of
Closing:
(i) Upward Adjustments:
------------------
(A) Any lease operating expenses or capital expenditures
approved by Buyer which have been incurred and paid by Seller and
are attributable to periods after the Effective Time.
(B) Any other amount required hereunder or otherwise agreed
upon by Buyer and Seller, including adjustments for gas
underproduction as provided for in Paragraph 15.
(ii) Downward Adjustments:
--------------------
(A) Deductions due to any Title Defects or Environmental
Defects disclosed and agreed to, but not cured by, Seller as of
Closing pursuant to Paragraph 7 above.
(B) The amount of proceeds of production received by Seller
or accrued with respect to the Properties after the Effective
Time.
(C) Any other amount required under the provisions hereof
or otherwise agreed upon by Seller and Buyer, including
adjustments for gas overproduction provided for in Paragraph 15.
(iii) Best Information. Should any information necessary to any
----------------
such adjustments not yet be available on or before the Closing, such
adjustments shall be made on the basis of the best available
information and shall be adjusted at Final Settlement (hereinafter
defined).
(f) Consent to Assign. Buyer's obligation to purchase the Sycamore
-----------------
Interest shall be conditioned upon Seller furnishing to Buyer at the
Closing the written consent of the Managing General Partner of Sycamore.
Seller shall immediately upon execution of this letter agreement request
permission from the Managing General Partner of Sycamore to approve the
sale of the Sycamore Interest as required under the terms of the General
Partnership Agreement. Seller shall notify Buyer immediately of the
Managing General Partner's consent or failure to consent to the purchase of
such interest. In the event permission is not
<PAGE>
H.Huffman & Co.
December 13, 1996
Page 6
obtained, the Purchase Price shall be reduced by the value allocated to the
interest in the General Partnership as allocated in Exhibit "A" to this
agreement.
13. Final Settlement. Not later than April 15, 1997, a final accounting
----------------
statement (the "Final Statement") will be prepared by Buyer, subject to
verification by Seller, based on the actual income and expenses between the
Effective Time and Closing. Within ten (10) days after the Final Statement has
been agreed upon by the parties, Buyer or Seller, as the case may be, shall pay
to the other such sums as may be found due in the Final Statement. If the
parties are unable to agree on the Final Statement on or before April 30, 1997
("Final Settlement"), the matter shall be submitted to binding arbitration to
such independent accountants as may be jointly selected by the parties (the fees
and expenses associated with such arbitration to be equally share by the
parties, unless the arbitrator's award otherwise specifies). The determination
of the Final Statement by such arbitration shall be binding upon the parties.
Within two (2) business days after the arbitrator's final determination, Buyer
or Seller, as the case may be, shall pay by wire transfer, bank check or
cashier's check to the other party, the amount, if any, determined as being due
to the other party.
14. Indemnities.
-----------
(a) Indemnity by Seller. Subject to the limitations contained herein
-------------------
and as set forth in subparagraph (c) below, Seller shall indemnify and hold
harmless Buyer, its affiliates, successors and assigns, from and against
any damage, liability, loss, cost, expense, attorney's fees, judgment, or
deficiency that Buyer shall pay or become obligated to pay arising out of
or resulting from, (i) an inaccuracy in any representation of the breach of
any warranty of Seller under this Agreement; or (ii) a failure of Seller to
duly perform or observe any term, provision, covenant, or agreement to be
performed or observed by Seller hereunder; however, in no event shall
Seller's indemnification obligation cover or extend to any matter relating
to title to or the environmental condition of the Properties.
(b) Indemnity by Buyer. Subject to the limitations contained herein
------------------
and as set forth in subparagraph (c) below, Buyer shall indemnify and hold
harmless Seller, their representatives and assigns, from and against any
damage, liability, loss, cost, expense, attorney's fees, judgment, or
deficiency that Seller shall pay or become obligated to pay arising out of
or resulting from (i) an inaccuracy in any representation or the breach of
any warranty of Buyer under this Agreement; (ii) a failure of Buyer to duly
perform or observe any term, provision, covenant, or agreement to be
performed or observed by Buyer hereunder; (iii) Buyer's ownership,
management or control of the Properties after Closing; or (iv) violations
by Buyer of any state or federal environmental laws; provided, however,
that in no event shall Buyer have any liability for any obligation with
respect to any tortious actions, breaches of contract or other wrongful
acts of Seller.
(c) Limitations on Indemnities. No claim or indemnity shall be made
--------------------------
hereunder until the amounts involved, per Property and per occurrence,
actual or alleged, exceed $20,000; and, any such claim for indemnity shall
then be limited to the amount by which such claim exceeds $20,000.
(d) Right to Contest and Defend. The indemnitor hereunder shall be
---------------------------
entitled, at its cost and expense, to contest and defend by all appropriate
legal proceedings, any claim with respect to which it is called upon to
indemnify the other party hereunder; provided, that notice of the intention
to so contest shall be delivered by the indemnitor to the indemnitee within
15 calendar days from the date indemnitor received notice of the
indemnitee's claim. Any such contest may be conducted in the name and on
behalf of the indemnitor or the indemnitee as may be appropriate. Such
contest shall be conducted by reputable counsel employed by the indemnitor,
but the indemnitee shall have the right to participate in such proceedings
and to be represented by counsel of its own choosing at its sole cost and
expense. If the indemnitee joins in any such contest, the
<PAGE>
H.Huffman & Co.
December 13, 1996
Page 7
indemnitor shall have full authority to determine all action to be taken
with respect thereto; provided, however, that the indemnitor shall not have
the authority to subject the indemnitee to any obligation whatsoever, other
than the performance of purely ministerial tasks (e.g., the execution of
settlement agreements and other documentation) or obligations not involving
significant expense. If the indemnitor does not elect to contest any such
claim, the indemnitor shall be bound by the result obtained with respect
thereto by the indemnitee.
15. Balancing. The Purchase Price specified herein is based, in part, upon
---------
the assumption there will not exist, at the Effective Time, a material net gas
imbalance with respect to the Properties. To the extent net gas overproduction
with respect to the Properties is discovered to be more or less than 1,000 Mcf,
the Purchase Price shall be adjusted at Closing downward by $1.50 (net of
royalties and taxes) for each Mcf by which Seller's interest in the Properties
is overproduced by more than 1,000 Mcf at the Effective Time. Any adjustments
not made at Closing due to gas imbalances shall be made by the appropriate party
not later than the Final Settlement.
16. Maintenance of Properties. Seller will use its reasonable best efforts
-------------------------
as a non-operator to cause the Properties to be maintained and operated, from
and after the date of this Agreement through Closing, in a good and workmanlike
manner; will pay or cause to be paid all bills and invoices for all costs and
expenses incurred in connection with the development, operation and maintenance
of the Properties before bills or invoices become delinquent; provided, however,
that Seller shall not (i) enter into any new commitment with respect to any of
the Properties which shall require a gross expenditure of $10,000 for any single
operation without the consent of Buyer, which consent shall not be unreasonably
withheld, or (ii) waive, compromise or settle any right or claim that would
adversely affect the ownership, operation or value of any of the Properties.
Seller will use its reasonable best efforts as a non-operator to support the
election of Buyer (or its designee) as operator under applicable joint operating
agreements and regulatory orders of all wells included within the Properties.
17. Transfer Orders. At Closing, Seller agrees to execute such transfer
---------------
orders, letters in lieu of transfer orders, or other documents as may be
necessary to effect payment of revenues to Buyer.
18. Miscellaneous.
--------------
(a) Seller and Buyer shall each pay their own expenses and costs
(including, without limitation, any and all broker's or finder's fees and
commissions and attorney's fees) in connection with this Agreement and the
transactions contemplated hereby, except as otherwise provided herein.
(b) This Agreement shall be construed in accordance with and shall be
governed by the substantive laws of the State of Oklahoma.
(c) Buyer, at its option, may assign all or any portion of its rights
under this Agreement to any third party, but shall remain liable for
Buyer's obligations hereunder unless specifically released by Seller. This
Agreement shall be binding upon the undersigned and their respective
successors and assigns.
(d) All representatives, warranties and covenants contained in this
Agreement shall be deemed to survive Closing.
(e) This Agreement may be executed in any number of counterparts and
each such signed counterpart shall constitute an original of this
Agreement.
<PAGE>
H.Huffman & Co.
December 13, 1996
Page 8
(f) All notices under this Agreement shall be in writing and shall be
deemed given (i) when received if delivered personally, (ii) when sent if
by facsimile transmission and a confirmation is received, (iii) one
business day after deposit with an express courier if carried on a
nationally recognized express courier, or (iv) two business days after
deposit with the United States Mail Service if mailed by registered or
certified mail (return receipt requested, postage prepaid). All notices to
the parties shall be at the following addresses (or at such other address
as either party shall hereinafter specify in writing):
Seller Buyer
------ -----
Huston Huffman, Jr. Gothic Energy Corporation
H. Huffman & Co. 5727 South Lewis, Suite 700
301 N.W. 63rd St., Suite 510 Tulsa, Oklahoma 74105
Oklahoma City, OK 73116
-and- -and-
C. David Stinson, Esq. Ira L. Edwards, Jr., Esq.
McAfee & Taft, Pray, Walker, Jackman,
A Professional Corporation Williamson & Marlar
10th Floor, Two Leadership Square 900 ONEOK Plaza
Oklahoma City, OK 73102 100 West 5th Street
(405) 235-0439 (Facsimile) Tulsa, Oklahoma 74103-4218
(918) 581-5599 (Facsimile)
Please indicate your acceptance of this offer by executing it in the spaces
designated below and returning one (1) executed counterpart to each of the
undersigned. Upon our receipt of a signed counterpart, this Agreement shall be
deemed to have been executed and binding on the parties as of the date provided
below.
GOTHIC ENERGY CORPORATION
/s/ Michael Paulk
-----------------------------------
Michael Paulk, President
AGREED and ACCEPTED this 13th day of December, 1996.
H. HUFFMAN & CO.
By: /s/ [ILLEGIBLE SIGNATURE]
-------------------------------------
Its General Partner
----------------------------------
<PAGE>
EXHIBIT 99.(IV)
March 4, 1997
Horizon Gas Partners, L.P., and
HSRTW, Inc.
Horizon Natural Resources
2512-C East 71st Street
Tulsa, Oklahoma 74136
Attention: Dale Rich, President
RE: Offer to Purchase Certain Oil and Gas Properties
------------------------------------------------
Dear Mr. Rich:
This letter when accepted shall confirm the agreement between Horizon Gas
Partners, L.P., and HSRTW, Inc. ("Seller"), and Gothic Energy Corporation, an
Oklahoma corporation ("Buyer"), with respect to Seller's sale to Buyer of those
oil and gas properties described below, including all undeveloped oil and gas
leasehold acreage corresponding to all such wells.
1. Sale and Purchase. For good and valuable consideration and subject to
-----------------
and in accordance with the terms and conditions of this Agreement, Seller hereby
agrees to sell and convey to Buyer and Buyer agrees to purchase and acquire from
Seller all of Seller's right, title and interest in and to the wells, lands and
leasehold interests described in Exhibit "A" hereto, including, without
limitation, mineral interests, overriding royalty interests, all undeveloped oil
and gas leasehold acreage, acreage comprising the spacing unit for such wells,
and well facilities and equipment used in conjunction with such wells to the
extent such interests are owned by or allocable to Seller, specifically
including all operating and other contract rights associated with such wells
(collectively the "Properties").
2. Effective Time. The effective time of the sale and purchase
--------------
contemplated by this Agreement shall be January 1, 1997, at 7:00 a.m. Central
Standard Time (the "Effective Time"). Unless otherwise provided in this
Agreement, Buyer shall be entitled to any amounts realized from and accruing to
the Properties which are attributable to periods of production on and after the
Effective Time and shall be responsible for all expenses for the development and
operation of the Properties attributable to periods on and after the Effective
Time. Seller shall be entitled to all amounts realized from and accruing to the
Properties which are attributable to periods of production prior to the
Effective Time and shall be responsible for all expenses for the development and
operation of the Properties attributable to periods prior to the Effective Time.
3. Closing. Unless extended by mutual written agreement of the parties,
-------
the closing of the sale and purchase contemplated by this agreement shall occur
on or before February 14, 1997 (the "Closing"), in the offices of Buyer, located
at 5727 South Lewis Avenue, Suite 700, Tulsa, Oklahoma, or at such other place
as may be agreed on by the parties.
4. Purchase Price. Subject to adjustments as provided in this Agreement,
--------------
the purchase price payable by Buyer for the Properties shall be $10,000,000 (the
"Purchase Price"), which sum shall be allocated among the Properties and the
well equipment and other personalty (the "Personalty") as set forth in Exhibit
"A" (the "Allocated Values") and shall be fully payable by Buyer at Closing.
5. Access to Information. From and after the date of Seller's acceptance
---------------------
of this Agreement, Buyer shall be allowed, at its expense, to examine in
Seller's offices or such other place where pertinent records are maintained, all
land, tax, legal, contract, production, engineering, geological, geophysical,
accounting and revenue, and any other files
<PAGE>
Horizon Gas Partners, L.P. and
HSRTW, Inc.
March 4, 1997
Page 2
or data, including computer retained data, relating to the Properties, to verify
title and economics. Buyer shall be entitled to all original files relating to
the Properties at Closing.
6. Title Review. Buyer shall have until February 1, 1997, or fifteen
------------
(15) days prior to closing (the "Title Review Period") within which to conduct
title due diligence with respect to the Properties whether through the
examination of lease files, abstracts, landman's ownership reports or physical
inspection of the documents indexed against the Properties. If the records or
materials furnished to or examined by Buyer reflect the existence of any
discrepancy in working or net revenue interests or any material encumbrance,
encroachment or defect in title that renders title to all or any portion of the
Properties, less than defensible, and which Buyer does not waive (the "Title
Defects"), written notice of such specific Title Defects shall be given by Buyer
to Seller on or before expiration of the Title Review Period. No matter shall be
construed as a Title Defect unless so construed under generally accepted oil and
gas industry title examination standards for the State of Oklahoma, but Title
Defects shall specifically include any preferential right to purchase which is
exercised or outstanding. If Title Defects shall be timely asserted by Buyer,
Seller may but shall not be obligated to make reasonable efforts to cure all
such title defects at Seller's sole expense prior to closing. With respect to
any Title Defect which remains uncured forty-eight (48) hours prior to Closing,
then (i) Buyer shall propose an adjustment to the Purchase Price (which shall
not exceed the Allocated Value of the affected Property) which Buyer believes
represents the difference between the Allocated Value and the true value given
the existence of the unresolved Title Defect, (ii) Seller may accept Buyer's
proposed adjustment to the Purchase Price or may negotiate with Buyer a lesser
adjustment to the Purchase Price, and (iii) if Seller and Buyer cannot agree
upon a reduced Purchase Price, the Property affected by the Title Defect shall
not be sold to Buyer, but shall be retained by Seller and the Purchase Price
shall be reduced by the Allocated Value assigned to such Property in Exhibit "A"
hereto. In the event that the Purchase Price shall be reduced by ten percent
(10%) in the aggregate, Seller may at its option terminate this agreement, and
each party hereto shall bear its own costs connected therewith.
7. Environmental. Buyer shall have until February 1, 1997, or fifteen
-------------
(15) days prior to closing (the "Environmental Review Period"), within which to
conduct environmental due diligence with respect to the Properties. If
environmental defects shall be timely asserted by Buyer, Seller may but shall
not be obligated to make reasonable efforts to cure all such environmental
defects at Seller's sole expense prior to closing. With respect to any
environmental defect which remains uncured forty-eight (48) hours prior to
Closing, then (i) Buyer shall propose an adjustment to the Purchase Price (which
shall not exceed the allocated value of the affected property) which Buyer
believes represents the difference between the allocated value and the true
value given the existence of the unresolved environmental defect; (ii) Seller
may accept Buyer's proposed adjustment to the Purchase Price or may negotiate
with Buyer at a lesser adjustment to the Purchase Price; and (iii) if Seller and
Buyer cannot agree upon a reduced Purchase Price, the property affected by the
environmental defect shall not be sold to Buyer, but shall be retained by Seller
and the Purchase Price shall be reduced by the allocated value assigned to such
property in Exhibit "A" hereto. In the event that the Purchase Price shall be
reduced by ten percent (10%) in the aggregate, Seller may at its option
terminate this agreement, and each party hereto shall bear its own costs
connected therewith.
8. Representations of Seller. Seller represents and warrants as follows:
-------------------------
(a) Legal Power and Ownership. Seller has the full power and right to
-------------------------
sell and convey the Properties pursuant to the terms of this Agreement and
to perform Seller's other obligations under this Agreement. The interests
as reflected on Exhibit "A" are not materially over or under produced.
(b) Compliance with Laws. The Properties have been operated in
--------------------
compliance, in all material respects, with all laws, rules, regulations,
ordinances, orders and permits relating to the Properties, including
<PAGE>
Horizon Gas Partners, L.P. and
HSRTW, Inc.
March 4, 1997
Page 3
all state and federal regulations, ordinances, orders and permits relating
to the Properties, including all state and federal regulations for the
protection of the environment and the protection of the safety and health
of persons and property pertaining to the Properties. Seller is aware of no
administrative order or investigative action of the Environmental
Protection Agency, the Oklahoma Corporation Commission or other state
agency relative to the Properties which would require that remedial
measures be taken for the clean-up, containment of hazardous waste, or the
curtailment of production.
(c) No Conflicts. Seller's execution of this Agreement and
------------
consummation of the transactions contemplated herein will not violate nor
be in conflict with any material provision of any agreement or instrument
to which Seller is a party or is bound, or any judgment, decree, order,
statute, rule or regulation applicable to Seller.
(d) Production Sales Contracts. Seller is not obligated by virtue
--------------------------
of any prepayment made under any production sales contract or any similar
arrangement to deliver oil or gas produced from and after the Effective
time with respect to any Property without receiving payment therefor in the
ordinary course of business. No proceeds of production from any Property
prior to the Effective Time are subject to any refund as a result of the
price paid therefor exceeding the applicable maximum lawful prices. No
purchaser of production from any Property has placed in suspense any funds
owing to Seller which are attributable to any period of time subsequent to
the Effective Time.
(e) Litigation. There are no materially adverse demands, claims,
----------
notices of violations, filings, governmental investigations, administrative
proceedings, other than increased density actions, actions, causes of
action, suits or other legal proceedings pending or, to Seller's knowledge,
threatened against Seller with respect to any of the Properties.
(f) Leases. All rentals, royalties, overriding royalty interests and
------
other payments due under each oil and gas lease comprising the Properties
have been promptly and fully paid.
9. Representations of Buyer.
------------------------
(a) Legal Power and Authority. Buyer is a corporation duly organized
-------------------------
and validly existing under the laws of the State of Oklahoma and has all
requisite power and authority to carry on its business as presently
conducted, to enter into this Agreement and to perform its obligations
under this Agreement.
(b) No Conflicts. Buyer's consummation of the transactions
------------
contemplated by this Agreement will not violate or be in conflict with any
material provision of any agreement or instrument to which Buyer is a party
or is bound, or any judgment, decree, order, statute, rule or regulation
applicable to Buyer.
(c) Confidentiality. Buyer shall exercise all due diligence in
---------------
safeguarding and maintaining confidential all engineering, geological,
geophysical, accounting and revenue data, reports and maps, and all other
confidential data in possession of Buyer, or made known to Buyer, relating
to the Properties until Closing or one year after the termination of this
Agreement, in the event Closing does not take place.
10. Buyer's Conditions of Closing. The obligations of Buyer to purchase
-----------------------------
the Properties pursuant to this Agreement are subject, at the option of Buyer,
to the fulfillment on or prior to Closing of each of the following conditions:
<PAGE>
Horizon Gas Partners, L.P. and
HSRTW, Inc.
March 4, 1997
Page 4
(a) Representations. The representations and warranties by Seller
---------------
set forth in Paragraph 8 above shall be true and correct in all material
respects as of the date when made and as of the date of Closing.
(b) Changes. There shall have been no material adverse change in the
-------
condition of the Properties, except (i) depletion through normal production
within authorized allowables and rates of production, (ii) depreciation of
equipment through ordinary wear and tear, and (ii) those material changes
approved in writing by Buyer between the date of this Agreement and
Closing.
(c) Performance. Seller shall have performed or complied with, in
-----------
all material respects, all agreements or covenants required by this
Agreement of which performance or compliance is required prior to or at
Closing, including, but not limited to, the release of any preferential
rights to purchase.
11. Seller's Conditions to Closing. The obligations of Seller to
------------------------------
consummate the transactions provided for herein are subject to, at the option of
Seller, the fulfillment on or prior to Closing, of each of the following
conditions:
(a) Representations. The representations and warranties by Buyer set
---------------
forth in Paragraph 9 above shall be true and correct in all material
respects as of the date when made and as of the date of Closing.
(b) Performance. Buyer shall have performed or complied with, in all
-----------
material respects, all agreements or covenants required by this Agreement
of which performance or compliance is required prior to or at closing.
12. Closing and Adjustments to the Purchase Price.
---------------------------------------------
(a) Documents. At closing, Seller shall deliver to Buyer a properly
---------
executed Assignment, Conveyance and Bill of Sale in the form attached
hereto as Exhibit B conveying the Properties to Buyer; which Assignments
shall be in recordable form and shall warrant Seller's title to the
Properties from and after the Effective Time against the claims of any
persons claiming by, through or under Seller, but not otherwise. Seller
shall also deliver to Buyer fully executed releases of all liens, security
interests and other encumbrances or preferential rights burdening the
Properties, together with a check sufficient to cover the costs of
recording such releases.
(b) Purchase Price. Buyer shall deliver by cashier's check or wire
--------------
transfer to Seller's credit into the bank designated by Seller, in
immediately available funds, an amount equal to the Purchase Price, as
adjusted.
(c) Records. Seller shall deliver to Buyer all of the records
-------
relating to the Properties in Seller's possession. For a period of five
(5) years after the Closing, Buyer shall permit Seller reasonable access to
such files and records.
(d) Taxes. Ad valorem, property, production, severance, and similar
-----
taxes and assessments based upon or measured by ownership of property, or
the production of hydrocarbons or receipt of proceeds therefrom, on the
Properties shall be prorated between Buyer and Seller as of the Effective
Time. Buyer shall pay all sales taxes, if any, due with respect to the
Personalty.
(e) Adjustments. The Purchase Price shall be adjusted (the "Adjusted
-----------
Purchase Price"), upward or downward, by the following at the time of
Closing:
<PAGE>
Horizon Gas Partners, L.P. and
HSRTW, Inc.
March 4, 1997
Page 5
(i) Upward Adjustments:
------------------
(A) Any lease operating expenses or capital expenditures
which have been incurred and paid by Seller and are attributable
to periods after the Effective Time.
(B) Any other amount required hereunder or otherwise
agreed upon by Buyer and Seller, including adjustments for
prepaid expenses and production in the tanks.
(ii) Downward Adjustments:
--------------------
(A) Deductions due to any Title Defects or Environmental
Defects disclosed and agreed to, but not cured by, Seller as of
Closing pursuant to Paragraph 7 above.
(B) The amount of proceeds of production received by
Seller or accrued with respect to the Properties after the
Effective Time.
(C) Any other amount required under the provisions hereof
or otherwise agreed upon by Seller and Buyer.
(iii) Best Information. Should any information necessary to any
----------------
such adjustments not yet be available on or before the Closing, such
adjustments shall be made on the basis of the best available
information and shall be adjusted at Final Settlement (hereinafter
defined).
(f) Buyer will provide operator bonds necessary to cause Seller's
bonds to be released by all applicable authorized authorities.
13. Final Settlement. Not later than April 15, 1997, a final accounting
----------------
statement (the "Final Statement") will be prepared by Buyer, subject to
verification by Seller, based on the actual income and expenses between the
Effective Time and Closing. Within ten (10) days after the Final Statement has
been agreed upon by the parties, Buyer or Seller, as the case may be, shall pay
to the other such sums as may be found due in the Final Statement. If the
parties are unable to agree on the Final Statement on or before April 30, 1997
("Final Settlement"), the matter shall be submitted to binding arbitration to
Coopers & Lybrand accountants (the fees and expenses associated with such
arbitration to be equally share by the parties, unless the arbitrator's award
otherwise specifies). The determination of the Final Statement by such
arbitration shall be binding upon the parties. Within two (2) business days
after the arbitrator's final determination, Buyer or Seller, as the case may be,
shall pay by wire transfer, bank check or cashier's check to the other party,
the amount, if any, determined as being due to the other party.
14. Indemnities.
-----------
(a) Indemnity by Seller. Subject to the limitations contained herein
-------------------
and as set forth in subparagraph (c) below, Seller shall indemnify and hold
harmless Buyer, its affiliates, successors and assigns, from and against
any damage, liability, loss, cost, expense, attorney's fees, judgment, or
deficiency that Buyer shall pay or become obligated to pay arising out of
or resulting from, (i) an inaccuracy in any representation of the breach of
any warranty of Seller under this Agreement; (ii) a failure of Seller to
duly perform or observe any term, provision, covenant, or agreement to be
performed or observed by Seller hereunder; (iii) Seller's ownership,
management or control of the Properties prior to Closing; or (iv) acts,
omissions or violations by
<PAGE>
Horizon Gas Partners, L.P. and
HSRTW, Inc.
March 4, 1997
Page 6
Seller of any state or federal environmental laws; provided, however, that
in no event shall Seller have any liability for any obligation with respect
to (A) any tortious actions, breaches of contract or other wrongful acts of
Buyer from and after the Effective Time, or (B) which Buyer's claim based
thereupon is not communicated in writing to Seller prior to the expiration
of 3 years following Closing.
(b) Indemnity by Buyer. Subject to the limitations contained herein
------------------
and as set forth in subparagraph (c) below, Buyer shall indemnify and hold
harmless Seller, their representatives and assigns, from and against any
damage, liability, loss, cost, expense, attorney's fees, judgment, or
deficiency that Seller shall pay or become obligated to pay arising out of
or resulting from (i) an inaccuracy in any representation or the breach of
any warranty of Buyer under this Agreement; (ii) a failure of Buyer to duly
perform or observe any term, provision, covenant, or agreement to be
performed or observed by Buyer hereunder; (iii) Buyer's ownership,
management or control of the Properties after Closing; or (iv) violations
by Buyer of any state or federal environmental laws; provided, however,
that in no event shall Buyer have any liability for any obligation with
respect to any tortious actions, breaches of contract or other wrongful
acts of Seller.
(c) Limitations on Indemnities. No claim or indemnity (which shall
--------------------------
not exceed the allocated value of the affected property) shall be made
hereunder until the amounts involved, per Property per defect and per
occurrence, actual or alleged, exceed $20,000; and, any such claim for
indemnity shall then be limited to the amount by which such claim exceeds
$20,000.
(d) Right to Contest and Defend. The indemnitor hereunder shall be
---------------------------
entitled, at its cost and expense, to contest and defend by all appropriate
legal proceedings, any claim with respect to which it is called upon to
indemnify the other party hereunder; provided, that notice of the intention
to so contest shall be delivered by the indemnitor to the indemnitee within
15 calendar days from the date indemnitor received notice of the
indemnitee's claim. Any such contest may be conducted in the name and on
behalf of the indemnitor or the indemnitee as may be appropriate. Such
contest shall be conducted by reputable counsel employed by the indemnitor,
but the indemnitee shall have the right to participate in such proceedings
and to be represented by counsel of its own choosing at its sole cost and
expense. If the indemnitee joins in any such contest, the indemnitor shall
have full authority to determine all action to be taken with respect
thereto; provided, however, that the indemnitor shall not have the
authority to subject the indemnitee to any obligation whatsoever, other
than the performance of purely ministerial tasks (e.g., the execution of
settlement agreements and other documentation) or obligations not involving
significant expense. If the indemnitor does not elect to contest any such
claim, the indemnitor shall be bound by any judicial result obtained with
respect thereto by the indemnitee. Indemnitor shall not be bound by any
settlement that it does not expressly approve.
15. Tax Free Exchange. Buyer and Seller hereby agree that Seller, in lieu
-----------------
of the sale of the Properties to Buyer for the cash consideration provided
herein, shall have the right at any time prior to Closing to assign all or a
portion of its rights under this Agreement to a qualified intermediary, in order
to accomplish the transaction in a manner that will comply, either in whole or
in part, with the requirements of a like kind exchange pursuant to (S) 1031 of
the Internal Revenue Code of 1986, as amended. In the event Seller does assign
its rights under this Agreement pursuant to this Section, Seller agrees to
notify Buyer in writing of such assignment not less than seven (7) days before
Closing. If Seller assigns its rights under this Agreement, Buyer agrees to (i)
consent to Seller's assignment of its rights in this Agreement, and (ii) deposit
the Purchase Price with the qualified escrow or qualified trust account at
Closing.
<PAGE>
Horizon Gas Partners, L.P. and
HSRTW, Inc.
March 4, 1997
Page 7
16. Maintenance of Properties. Seller will cause the Properties to be
-------------------------
maintained and operated, from and after the date of this Agreement through
Closing, in a good and workmanlike manner; will pay or cause to be paid all
bills and invoices for all costs and expenses incurred in connection with the
development, operation and maintenance of the Properties before bills or
invoices become delinquent; and will continue to operate the Properties in the
ordinary course of business; provided, however, that Seller shall not (i) enter
into any new commitment with respect to any of the Properties which shall
require a gross expenditure of $10,000 for any single operation without the
consent of Buyer, which consent shall not be unreasonably withheld, or (ii)
waive, compromise or settle any right or claim that would adversely affect the
ownership, operation or value of any of the Properties. Seller will use all
reasonable efforts after Closing to assist Buyer (or its designee) in being
designated operator under applicable joint operating agreements and regulatory
orders of all wells included within the Properties and Seller will allow Buyer,
or its designee, to take over operations of such wells as of 7:00 a.m., local
time, on the first day of the month following Closing. Promptly after Closing,
Seller will exercise reasonable efforts to assist Buyer in filing any necessary
forms or applications with the appropriate regulatory authority to amend any
records or orders under which Seller is acting as operator so as to substitute
Buyer, or its designee.
17. Transfer Orders. At Closing, Seller agrees to execute such transfer
---------------
orders, letters in lieu of transfer orders, or other documents as may be
necessary to effect payment of revenues to Buyer.
18. Miscellaneous.
--------------
(a) Seller and Buyer shall each pay their own expenses and costs
(including, without limitation, any and all broker's or finder's fees and
commissions and attorney's fees) in connection with this Agreement and the
transactions contemplated hereby, except as otherwise provided herein.
(b) This Agreement shall be construed in accordance with and shall be
governed by the substantive laws of the State of Oklahoma.
(c) Buyer, at its option after closing, may assign all or any portion
of its rights under this Agreement to any third party, but shall remain
liable for Buyer's obligations hereunder unless specifically released by
Seller. This Agreement shall be binding upon the undersigned and their
respective successors and assigns.
(d) All representatives, warranties and covenants contained in this
Agreement shall be deemed to survive Closing.
(e) This Agreement may be executed in any number of counterparts and
each such signed counterpart shall constitute an original of this
Agreement.
(f) All notices under this Agreement shall be in writing and shall be
deemed given (i) when received if delivered personally, (ii) when sent if
by facsimile transmission and a confirmation is received, (iii) one
business day after deposit with an express courier if carried on a
nationally recognized express courier, or (iv) two business days after
deposit with the United States Mail Service if mailed by registered or
certified mail (return receipt requested, postage prepaid). All notices to
the parties shall be at the following addresses (or at such other address
as either party shall hereinafter specify in writing):
<PAGE>
Horizon Gas Partners, L.P. and
HSRTW, Inc.
March 4, 1997
Page 8
Seller Buyer
------ -----
Horizon Gas Partners, L.P. Gothic Energy Corporation
c/o Dale Rich, President 5727 South Lewis, Suite 700
Horizon Natural Resources Tulsa, Oklahoma 74105
2512-C East 71st Street
Tulsa, OK 74136
-and- -and-
HSRTW, Inc. Ira L. Edwards, Jr., Esq.
c/o Kim Goss Pray, Walker, Jackman,
6666 South Sheridan, Suite 250 Williamson & Marlar
Tulsa, Oklahoma 74133 900 ONEOK Plaza
100 West 5th Street
Tulsa, Oklahoma 74103-4218
(918) 581-5599 (Facsimile)
Please indicate your acceptance of this offer by executing it in the spaces
designated below and returning one (1) executed counterpart to each of the
undersigned. Upon our receipt of a signed counterpart, this Agreement shall be
deemed to have been executed and binding on the parties as of the date provided
below.
GOTHIC ENERGY CORPORATION
/s/ MICHAEL PAULK
Michael Paulk, President
AGREED and ACCEPTED this 22nd day of January, 1997.
HORIZON GAS PARTNERS, L.P.
HORIZON NATURAL RESOURCES, INC., General Partner
By: /s/ DALE RICH
-----------------------------------------------
Dale Rich, President
HSRTW, INC.
By: /S/ GEORGE H. SOLICH
-----------------------------------------------
George H. Solich, Its Vice President
-------------------------
