\nARTICLE 6 – CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
\n 6.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
\n 6.2 Closing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23<\/p>\nARTICLE 7 – OBLIGATIONS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
\n 7.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
\n 7.2 Subsequent Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
\n 7.3 Filings and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
\n 7.4 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
\n 7.5 Sales and Use Taxes and Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
\n 7.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
\n 7.7 Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
\n 7.8 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
\n 7.9 Survival and Limitations of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
\n 7.10 Administration of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
\n 7.11 Information and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
\n 7.12 Company’s Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
\n 7.13 Section 4.1(h) Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34<\/p>\n
ARTICLE 8 – MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
\n 8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
\n 8.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
\n 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
\n 8.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
\n 8.5 Table of Contents\/Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
\n 8.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.9 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.11 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.12 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.13 Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n 8.14 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
\n<\/c><\/s><\/table>\n
Table of Contents – 2
\n 4
\n PURCHASE AND SALE AGREEMENT<\/p>\n
This Agreement is dated December 15, 1995 between Momentum Operating
\nCo., Inc. (“Seller”) and Harken Exploration Company (“Buyer”) and Harken Energy
\nCorporation (“Company”). For value received, Seller, Buyer and Company agree
\nas follows:<\/p>\n
ARTICLE 1<\/p>\n
PURCHASE AND SALE<\/p>\n
1.1 PURCHASE AND SALE. Subject to the terms of this Agreement,
\nSeller agrees to sell the Properties to Buyer and Buyer agrees to purchase the
\nProperties from Seller.<\/p>\n
1.2 PROPERTIES. The following, less the Excluded Properties, are
\nthe Properties:<\/p>\n
(a) all of Seller’s undivided right, title and interest
\nin the oil and gas leases described in Schedule 1.2(a) to this Agreement
\n(“Leases”);<\/p>\n
(b) all of Seller’s undivided interests in all wells,
\nsalt water disposal wells, equipment, fixtures, personal property and
\nimprovements which are located on and used in connection with the Leases,
\nincluding, without limitation, the wells and salt water disposal wells listed
\nin Schedule 1.2(b) to this Agreement (“Wells and Equipment”);<\/p>\n
(c) all of Seller’s interests in all agreements and other
\nrights of Seller relating to the other items among the Properties, including,
\nwithout limitation, those listed in Schedule 1.2(c) and all other division and
\ntransfer orders; production purchase or sale agreements; product processing,
\nbalancing, gathering, compression and transportation agreements; farmout, dry
\nhole, bottom hole, acreage contribution and operating agreements; area of
\nmutual interest agreements; salt water disposal agreements; unitization and
\npooling agreements; and claims arising to the benefit of Seller as operator of
\nthe Properties before the Effective Time which are associated with Seller’s
\nrepresentation in Section 3.1(i) if such claims are not disclosed in Schedule
\n3.1 to this Agreement (“Contracts”);<\/p>\n
(d) all of Seller’s interest in the natural gas gathering
\nsystems depicted in Schedule 1.2(d) to this Agreement, including, without
\nlimitation, compressors, engines, meters and related equipment, pipes,
\nfittings, valves, dehydrators, regulators, cathodic or electric protection
\nequipment, pumps, gates, tanks, launchers and receivers, supplies and
\nreplacement parts (“Gathering System”);<\/p>\n
5
\n (e) all of Seller’s interest in all rights-of-way,
\neasements, leases, permits, licenses and other surface use rights which are
\nheld or used in connection with the Leases and the Gathering System, including,
\nwithout limitation, those listed in Schedule 1.2(e) (“Surface Rights”);<\/p>\n
(f) all severed oil, gas, condensate, products, other
\nhydrocarbons and other minerals produced from the Leases and (i) as measured
\nand in storage or in pipelines at the Effective Time, or (ii) produced on or
\nafter the Effective Time (“Substances”);<\/p>\n
(g) copies of all of Seller’s data and information
\nrelating to the other items among the Properties, the transfer of which is not
\nprohibited, including, without limitation, geological, geophysical and
\nengineering data (excluding interpretations); production records; copies of
\nland, legal, title and contract files; copies of revenue records and lease
\nexpense invoices; and other items listed in Schedule 1.2(g) to this Agreement
\n(“Data”).<\/p>\n
(h) all of Seller’s right, title and interest in the
\nsurface only of the 161.192-acre tract described in Schedule 1.2(h) to this
\nAgreement.<\/p>\n
1.3 EXCLUDED PROPERTIES. The following items are not included
\namong the Properties:<\/p>\n
(a) all of Seller’s accounts, rights to payment, rights
\nof reimbursement, claims, insurance and condemnation proceeds, and causes of
\naction arising out of or related to the Properties and attributable to acts,
\nomissions or events which occurred before the Effective Time;<\/p>\n
(b) all of Seller’s equipment which is not located on and
\nused in connection with the Properties, including, without limitation,
\ncomputers and peripheral equipment, copiers, fax machines, radio and telephone
\nequipment, tools, vehicles, and all of Seller’s field equipment which is listed
\nin Schedule 1.3(b) to this Agreement; and<\/p>\n
(c) all of Seller’s geological, geophysical and
\nengineering interpretations, proprietary computer software and other
\nintellectual property;<\/p>\n
(d) all of Seller’s right, title and interest acquired in
\nbill of sale dated June 1, 1994, from Mustang Oil and Gas Corporation to
\nSeller, covering water well bores, equipment, fresh water pipelines and
\npersonal property located in Sections 37 and 38, Blk.<\/p>\n
2
\n 6
\n47, H. & T. C. RR. Co. Survey, Hutchinson County, Texas, a copy of which is
\nattached as Schedule 1.3(d) to this Agreement;<\/p>\n
(e) all of Seller’s right, title and interest in all
\nContracts insofar as they cover or affect Seller’s rights and interests which
\nare not among the Properties, including, without limitation, (i) electric
\nservice agreement dated May, 1991, between Southwestern Public Service Company
\nand Seller, and (ii) gas purchase contract dated August 11, 1995, between GPM
\nGas Corporation and Seller.<\/p>\n
1.4 EFFECTIVE TIME. Except as provided in Section 2.3(b)(1), the
\npurchase and sale of the Properties shall be effective for all purposes on July
\n1, 1995, at 7:00 a.m., local time (“Effective Time”).<\/p>\n
ARTICLE 2<\/p>\n
PURCHASE PRICE<\/p>\n
2.1 PURCHASE PRICE. The purchase price for the Properties is U.S.
\n$21,000,000.00, subject to adjustment as provided in this Agreement (“Purchase
\nPrice”).<\/p>\n
2.2 PURCHASE PRICE ALLOCATIONS. Attached to this Agreement as
\nSchedule 2.2 is an allocation of the Purchase Price among the Leases
\n(“Allocated Value”). The Allocated Value is solely to provide a means for
\nadjusting the Purchase Price as required by this Agreement. The Allocated
\nValue shall not be considered by Seller, Buyer or any third party as a
\nrepresentation or warranty as to actual value.<\/p>\n
2.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be
\nadjusted as provided in this Agreement and the resulting amount shall be
\nreferred to as the “Adjusted Purchase Price”. Buyer waives any right it may
\nhave, now or in the future, to offset the Purchase Price with amounts not
\ncontemplated by this Agreement.<\/p>\n
(a) The Purchase Price shall be increased by the
\nfollowing, without duplication:<\/p>\n
(1) an amount equal to Seller’s interest in the
\nquantity of Substances produced from the Leases as measured and in storage or
\npipelines at the Effective Time, multiplied by the contract price at the
\nEffective Time, net of all applicable taxes;<\/p>\n
3
\n 7
\n (2) the amount of all costs and expenses that are
\n(i) attributable to the Properties for the period from the Effective Time to
\nthe Closing Date and paid by or on behalf of Seller, and (ii) otherwise
\nincurred and paid by or on behalf of Seller in compliance with this Agreement;<\/p>\n
(3) an amount equal to $150.00 per day from the
\nEffective Time to the Closing Date (i) for Seller’s indirect overhead expenses,
\nand (ii) with respect to Properties owned entirely by Seller, for operating
\nexpenses that Seller would have paid under a standard operating agreement
\nemploying customary accounting principles;<\/p>\n
(4) an amount equal to the value of Upward
\nAdjustments under Section 5.9; and<\/p>\n
(5) the sum of $200,000.00 in addition to all
\nother adjustments in this Section 2.3(a).<\/p>\n
(b) The Purchase Price shall be decreased by the
\nfollowing, without duplication:<\/p>\n
(1) the amount by which (i) the amount of
\nproceeds received by Seller for the sale of Substances produced after the
\nEffective Time, net of applicable taxes not reimbursed to Seller by a purchaser
\nof the Substances, exceeds (ii) $500,000.00;<\/p>\n
(2) the amount of proceeds received by Seller for
\nthe disposition after the Effective Time of the Properties listed in Schedule
\n2.3(b)(2) to this Agreement, excluding amounts under Section 2.3(b)(1);<\/p>\n
(3) an amount equal to the value of Defects
\nadjustments determined under Article 5, subject to the limitation contained in
\nSection 7.9(b); and<\/p>\n
(4) the amount of all unpaid taxes and
\nassessments based on the ownership of property, the production of hydrocarbons
\nor the receipt of proceeds, excluding income taxes, accruing to the Properties
\nbefore the Effective Time. If possible, this adjustment shall be computed
\nusing the tax rate and values for the tax period in question. If this is not
\npossible, the adjustment shall be based on the taxes assessed against the
\nProperties for the immediately preceding tax period.<\/p>\n
2.4 PAYMENT OF ADJUSTED PURCHASE PRICE. The Adjusted Purchase
\nPrice shall be paid as follows:<\/p>\n
4
\n 8
\n (a) At Closing, Buyer shall pay Seller the sum of U.S.
\n$2,500,000.00 in cash (“Closing Cash Payment”).<\/p>\n
(b) Seller shall retain so much of the first U.S.
\n$500,000.00 of proceeds as is received by Seller for the sale of Substances
\nproduced after the Effective Time, net of applicable taxes not reimbursed to
\nSeller by a purchaser of the Substances (“Retained Proceeds”).<\/p>\n
(c) At Closing, Buyer shall deliver to Seller 2,500,000
\nshares of the Company’s common stock $.01 par value per share (“Purchase
\nShares”).<\/p>\n
(d) At Closing, Buyer shall execute and deliver to Seller
\nBuyer’s promissory note in the original principal amount of $13,000,000.00 in
\nthe form attached as Schedule 2.4(d) to this Agreement (“Note”). Adjustments
\nto the Purchase Price shall be made as provided in the Note and this Agreement.<\/p>\n
2.5 SECURITY. At Closing, Buyer shall execute and deliver to
\nSeller the deed of trust, security agreement, financing statement and
\nassignment of production attached to this Agreement as Schedule 2.5 (“Deed of
\nTrust”), together with any other financing statements deemed appropriate by
\nSeller. The Deed of Trust shall secure payment of the Note, as well as
\nperformance of Buyer’s and Company’s obligations under this Agreement and under
\nany other instrument executed in connection with this Agreement.<\/p>\n
ARTICLE 3<\/p>\n
REPRESENTATIONS AND DISCLAIMERS<\/p>\n
3.1 SELLER’S REPRESENTATIONS. Seller represents to Buyer that as
\nof Closing, except as disclosed in Schedule 3.1 to this Agreement:<\/p>\n
(a) Seller is a corporation duly organized, validly
\nexisting and in good standing under the laws of the State of Texas. Seller is
\nqualified to do business in the State of Texas. Seller is qualified under all
\napplicable laws, rules and regulations to own and operate the Properties.<\/p>\n
(b) Seller has the power and authority to carry on its
\nbusiness as presently conducted, to enter into this Agreement and to perform
\nits obligations under this Agreement.<\/p>\n
5
\n 9
\n (c) Execution and delivery of this Agreement,
\nconsummation of the transactions contemplated by this Agreement, and
\nperformance of all obligations under this Agreement have been authorized by all
\nnecessary action, corporate and otherwise, on the part of Seller. Execution
\nand delivery of this Agreement does not, and the consummation of the
\ntransactions contemplated by this Agreement will not, violate or be in conflict
\nwith any agreement, instrument, judgment, order, decree, law, rule or
\nregulation by which Seller or the Properties is bound.<\/p>\n
(d) Subject to laws and equitable principles affecting
\nthe rights of creditors generally, this Agreement is a binding obligation of
\nSeller enforceable according to its terms.<\/p>\n
(e) Other than proceedings affecting the oil and gas
\nindustry generally, no suit, claim, demand or investigation is pending or, to
\nSeller’s knowledge, is threatened, that would impair Seller’s title to the
\nProperties or impede their operation and development. There are no bankruptcy
\nor reorganization proceedings pending or, to Seller’s knowledge, threatened
\nagainst Seller. As used in this Agreement, the term “knowledge” means actual
\nawareness of relevant facts and actual awareness of facts which would cause a
\nperson exercising reasonable prudence to discover relevant facts.<\/p>\n
(f) Seller is not in breach of any Lease, Contract or
\nSurface Right which could, to Seller’s knowledge, materially and adversely
\naffect Buyer’s use, development and enjoyment of the Properties or give rise to
\nany claim for damages under any Lease, Contract or Surface Right.<\/p>\n
(g) Seller has properly made all payments which Seller
\nwas obligated to make in connection with the Properties, including, without
\nlimitation, delay rentals, royalties, shut-in royalties, surface damage claims,
\nand payments associated with Contracts and Surface Rights.<\/p>\n
(h) To its knowledge, Seller is not in material violation
\nof any governmental laws, rules or regulations affecting ownership of,
\noperations on or production from the Properties. There are no wells on the
\nProperties, other than those listed on Schedule 1.2(b), which have not been
\nproperly plugged.<\/p>\n
(i) Seller is not obligated, under any take-or-pay,
\ngas-balancing or similar arrangement, to deliver its share of hydrocarbons
\nproduced from the Leases at a future time without receiving payment in full at
\nthe applicable contract price within a reasonable time following delivery.<\/p>\n
6
\n 10
\n (j) All taxes related to the Properties which are based
\non or measured by ownership of property, production of hydrocarbons or receipt
\nof proceeds that have become due have been properly paid.<\/p>\n
(k) Seller is timely receiving payment for its share of
\nproceeds from the sale of hydrocarbons produced from the Leases. Neither
\nSeller nor the Properties is bound to any contract covering the sale of
\nhydrocarbons from the Properties which cannot be terminated on notice of 30
\ndays or less.<\/p>\n
(l) Seller has no knowledge of any physical change in the
\nProperties after the Effective Time which materially affects the operation of
\nthe Properties. This representation excludes changes arising out of operations
\nand production in the ordinary course of business, declines due to normal
\ndepletion, depreciation of equipment through ordinary wear and tear and any
\nother transaction permitted by this Agreement or approved by Buyer.<\/p>\n
(m) Seller has incurred no liability for brokers’ or
\nfinders’ fees related to the transactions contemplated by this Agreement for
\nwhich Buyer shall be liable.<\/p>\n
(n) Except for Permitted Encumbrances, Seller has allowed
\nno liens to be attached to or arise against any of the Properties. Seller has
\npaid all costs, charges and fees of third parties furnishing labor or materials
\nto any of the Properties, and no third party has the right to file a mechanics’
\nor materialmen’s lien against any of the Properties.<\/p>\n
(o) Seller has not received any notice from the
\nEnvironmental Protection Agency, the Railroad Commission of Texas or any other
\nfederal, state or local governmental agency claiming or asserting that any past
\nor current operations or activities of Seller or its predecessors in title to
\nthe Properties were or are being carried out or performed in material violation
\nof any law, rule or regulation. Seller is unaware of any event or activity
\nthat was carried out before Seller’s acquisition of the Properties, or, to
\nSeller’s knowledge, that has been or is being carried out on the Properties
\nfollowing Seller’s acquisition which was or is in material violation of any
\napplicable law, rule or regulation.<\/p>\n
(p) Seller has Defensible Title to the Properties as
\ndefined in Section 5.1.<\/p>\n
(q) To Seller’s knowledge, there are no valid and
\nenforceable operating agreements, farmout agreements, area of mutual interests
\nagreements, unitization agreements, production purchase agreements and salt
\nwater disposal agreements which affect the Properties except those listed in a
\nSchedule to this Agreement.<\/p>\n
7
\n 11
\n (r) No Well is producing hydrocarbons from, carrying on
\nany operations in, or is completed in a depth or formation not covered by one
\nof the Leases.<\/p>\n
(s) Following its original acquisitions of the
\nProperties, Seller conveyed all of its right, title and interest in the
\nProperties to MJP Investments, Inc. and Tidwell Investments, Inc. In four
\nassignments dated January 3, 1995, MJP Investments, Inc. and Tidwell
\nInvestments, Inc. collectively conveyed all of their right, title and interest
\nin the Properties to Westar Natural Gas, LLC, Westar Natural Gas, LLC, Elmer
\nTidwell, Inc. and Parvest Exploration, Inc., reserving certain rights and
\ninterests, including an overriding royalty equal to the difference between 20%
\nof 8\/8 of all production of oil, gas and other minerals from the Properties and
\nlease burdens (Volume 738, Pages 42, 59, 76 and 89, Official Property Records,
\nHutchinson County, Texas). Westar Natural Gas, LLC, Elmer Tidwell, Inc. and
\nParvest Exploration, Inc. subsequently executed conveyances of certain
\ninterests in the Properties to affiliated entities. MJP Investments, Inc.,
\nTidwell Investments, Inc., Westar Natural Gas, LLC, Elmer Tidwell, Inc.,
\nParvest Exploration, Inc. and the affiliated entities (collectively referred to
\nas the “Seller affiliates”) have reconveyed to Seller all of their right, title
\nand interest in the Properties, excluding, however, the overriding royalty
\nreserved by MJP Investments, Inc. and Tidwell Investments, Inc. which is
\nretained by those entities and is not among the Properties conveyed to Buyer.
\nThe conveyances described in this Section 3.1(s) are all of the conveyances of
\nthe Properties executed by Seller and the Seller affiliates. Except for the
\noverriding royalty retained by MJP Investments, Inc. and Tidwell Investments,
\nInc. and the rights and interests contemplated by this Agreement, neither
\nSeller, nor any Seller affiliate, will own an interest in the Properties after
\nClosing. As of the dates of all conveyances affecting the Properties from and
\namong Seller and the Seller affiliates, Seller represents that:<\/p>\n
(1) each Seller affiliate was duly organized,
\nvalidly existing and in good standing under the laws of the State of Texas.
\nEach Seller affiliate was qualified to do business in the State of Texas;<\/p>\n
(2) each Seller affiliate had the power and
\nauthority to carry on its business as then conducted and to execute all
\nconveyances affecting the Properties;<\/p>\n
(3) execution and delivery of all conveyances
\naffecting the Properties by the Seller affiliates was authorized by all
\nnecessary action, corporate and otherwise, on the part of each Seller
\naffiliate. Execution and delivery of the conveyances did not violate or
\nconflict with any agreement, instrument, judgment, order, decree, law or
\nregulation by which any of the Seller affiliates or the Properties was bound;<\/p>\n
8
\n 12
\n (4) subject to laws and equitable principles
\naffecting the rights of creditors generally, each conveyance by a Seller
\naffiliate is a binding obligation of the Seller affiliate, enforceable
\naccording to its terms; and<\/p>\n
(5) there are no bankruptcy or reorganization
\nproceedings pending or, to Seller’s knowledge, threatened against a Seller
\naffiliate.<\/p>\n
(t) To Seller’s knowledge, there is no Data which is
\nsubject to a prohibition on transfer;<\/p>\n
(u) With respect to the Purchase Shares and any shares of
\nstock which Seller may receive in payment of the Note (collectively referred to
\nas the “Stock”):<\/p>\n
(1) Seller is acquiring the Stock for its own
\naccount, and for the account of certain Seller affiliates, for investment only
\nand not with a view toward the public sale or distribution of the Stock in
\ncontravention of any laws, rules or regulations;<\/p>\n
(2) Seller is an “Accredited Investor” as that
\nterm is defined in Rule 501 of Regulation D by reason of Rule 501(a)(3) of the
\nSecurities Act of 1933, as amended (the “1933 Act”);<\/p>\n
(3) Seller has engaged its own advisors for
\nadvice and counsel concerning Seller’s acquisition of the Stock, so that it is
\ncapable of evaluating the merits and risks of its investment in the Company and
\nhas the capability to protect its own interests;<\/p>\n
(4) all subsequent offers and sales of the Stock
\nby Seller shall be made pursuant to registration of the Stock under the 1933
\nAct or pursuant to a valid exemption from registration;<\/p>\n
(5) Seller understands that the Stock is being
\noffered and sold to it in reliance on specific exemptions from the registration
\nrequirements of United States federal and state securities laws and that Buyer
\nand Company are relying upon the truth and accuracy of and Seller’s compliance
\nwith the representations, warranties, agreements, acknowledgements and
\nunderstandings of the Seller in this Section 3.1(u) in order to determine the
\navailability of such exemptions and the eligibility of Seller to acquire the
\nStock;<\/p>\n
9
\n 13
\n (6) Seller and\/or its advisors have been
\nfurnished with all materials relating to the business, management, finances and
\noperations of the Company and materials relating to the offer and sale of the
\nStock which have been requested by Seller. Seller and its advisors have been
\nafforded the opportunity to ask questions of the officers of the Company and
\nhave received satisfactory answers to any such inquiries. Without limiting the
\ngenerality of the foregoing, Seller has had the opportunity to obtain and to
\nreview the Company’s (i) Annual Report on Form 10-K for the year ended December
\n31, 1994, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
\nJune 30, and September 30, 1994, March 31, June 30, and September 30, 1995,
\n(iii) Proxy Statement dated April 26, 1995 for the Company’s 1995 Annual
\nMeeting, (iv) Current Reports on Form 8-K, dated November 4, 1994, as amended
\nJanuary 3, 1995, and dated April 27, 1995, May 16, 1995, June 2, 1995, amended
\non August 3, 1995, October 11, 1995 (two), October 16, 1995 (two), (v) Form S-3
\ndated October 4, 1995, in each case as filed with the Securities and Exchange
\nCommission, and (vi) Confidential Placement Memorandum dated October 25, 1995;<\/p>\n
(7) Seller understands that no United States
\nfederal or state agency or any other government or governmental agency has
\npassed on or made any recommendation or endorsement of the Stock; and<\/p>\n
(8) Seller acknowledges that the Stock must be
\nheld indefinitely unless subsequently registered under the 1933 Act or unless
\nan exemption from such registration is available. It is aware of the
\nprovisions of Rule 144 promulgated under the 1933 Act which permit limited
\nresale of shares purchased in a private placement subject to the satisfaction
\nof certain conditions, including, among other things, the existence of a public
\nmarket for the shares, the availability of certain current public information
\nabout the Company, the resale occurring not less than two years after a party
\nhas purchased and paid for the security to be sold, the sale being effected
\nthrough a “brokers transaction” or in transactions directly with a “market
\nmaker” and the number of shares being sold during any three- month period not
\nexceeding specified limitations.<\/p>\n
(v) None of Seller’s statements or representations in
\nthis Agreement contains any untrue statement of any material fact or omits to
\nstate any material fact necessary to be stated in order to make the statements
\nor representations made not misleading.<\/p>\n
3.2 BUYER’S REPRESENTATIONS. Buyer represents to Seller that, as
\nof Closing:<\/p>\n
(a) Buyer is a corporation duly organized, validly
\nexisting and in good standing under the laws of the State of Delaware. Buyer
\nis qualified to do business in the<\/p>\n
10
\n 14
\nState of Texas. Buyer is qualified under all applicable laws, rules and
\nregulations to own and operate the Properties.<\/p>\n
(b) Buyer has the power and authority to carry on its
\nbusiness as presently conducted, to enter into this Agreement and to perform
\nits obligations under this Agreement.<\/p>\n
(c) Execution and delivery of this Agreement,
\nconsummation of the transactions contemplated by this Agreement, and
\nperformance of all obligations under this Agreement have been authorized by all
\nnecessary action, corporate and otherwise, on the part of Buyer. Execution and
\ndelivery of this Agreement does not, and the consummation of the transactions
\ncontemplated by this Agreement will not, violate or be in conflict with any
\nagreement, instrument, judgment, order, decree, law, rule or regulation by
\nwhich Buyer is bound.<\/p>\n
(d) Subject to laws and equitable principles generally
\naffecting the rights of creditors, this Agreement is a binding obligation of
\nBuyer enforceable according to its terms.<\/p>\n
(e) Buyer has incurred no liability for brokers’ or
\nfinders’ fees related to the transactions contemplated by this Agreement for
\nwhich Seller shall be liable.<\/p>\n
(f) Buyer has filed with the Railroad Commission of Texas
\nthe organization report required by Section 91.142 of the Texas Natural
\nResources Code (“Code”) and the report has been approved by the Commission.
\nBuyer has either obtained a bond covering the wells included among the
\nProperties and the bond has been approved by the Commission, or Buyer is
\neligible for a non-refundable annual fee as provided in Sections 91.104(b)(1) –
\n(3) and Section 91.107 of the Code.<\/p>\n
(g) Buyer has knowledge and experience in financial and
\nbusiness matters that enable it to evaluate the merits and risks of the
\ntransaction contemplated by this Agreement and is not in a significantly
\ndisparate bargaining position. Buyer is represented by legal counsel in
\nseeking or acquiring the Properties and its legal counsel was not directly or
\nindirectly identified, suggested or selected by Seller or an agent of Seller.
\nBuyer is purchasing the Properties for its own account and not with the intent
\nto sell or distribute the Properties in violation of any applicable federal or
\nstate securities laws, rules or regulations.<\/p>\n
(h) None of Buyer’s statements or representations in this
\nAgreement contains any untrue statement of any material fact or omits to state
\nany material fact necessary to be stated in order to make the statements or
\nrepresentations made not misleading.<\/p>\n
11
\n 15
\n 3.3 COMPANY’S REPRESENTATIONS. Company represents to Buyer that,
\nas of Closing and as of the date of issuance of any Stock:<\/p>\n
(a) Company is a corporation duly organized, validly
\nexisting and in good standing under the laws of the State of Delaware. Company
\nis qualified to do business in the State of Texas. Company is qualified under
\nall applicable laws, rules and regulations to own and operate its properties.<\/p>\n
(b) Company has the power and authority to carry on its
\nbusiness as presently conducted, to enter into this Agreement and to perform
\nits obligations under this Agreement.<\/p>\n
(c) Execution and delivery of this Agreement,
\nconsummation of the transactions contemplated by this Agreement, and
\nperformance of all of its obligations under this Agreement have been authorized
\nby all necessary action, corporate and otherwise, on the part of Company.
\nExecution and delivery of this Agreement does not, and the consummation of the
\ntransactions contemplated for it by this Agreement will not, violate or be in
\nconflict with any agreement, instrument, judgment, order, decree, law or
\nregulation by which Company is bound.<\/p>\n
(d) Subject to laws and equitable principles generally
\naffecting the rights of creditors, this Agreement is a binding obligation of
\nCompany enforceable according to its terms.<\/p>\n
(e) All shares of capital stock of Company have been duly
\nand validly authorized and issued and are fully paid and nonassessable. The
\nStock when issued, sold and delivered in accordance with the terms of this
\nAgreement and the Note, if applicable, will be duly and validly issued, fully
\npaid and nonassessable. As of the Closing Date, the authorized capital stock
\nof Company is 100,000,000 shares of common stock, par value $.01, of which
\n74,472,936 shares are issued and outstanding and 10,000,000 shares of preferred
\nstock, par value $1.00, of which 186,760 shares are issued and outstanding.
\nExcept as disclosed in Schedule 3.3(e), (i) there are no outstanding
\nsubscriptions, warrants, options, calls or commitments of any character
\nrelating to or entitling any person to purchase or otherwise acquire from
\nCompany any capital stock of Company, (ii) there are no obligations or
\nsecurities convertible into or exchangeable for any shares of capital stock of
\nCompany or any commitments of any character relating to or entitling any person
\nto purchase or otherwise acquire any such obligations or securities, and (iii)
\nthere are no preemptive or similar rights to subscribe for or to purchase any
\ncapital stock of Company.<\/p>\n
12
\n 16
\n (f) The Company’s (i) unaudited consolidated balance
\nsheet as at September 30, 1995 and the related consolidated statement of
\nincome, cash flows and shareholders’ equity for the six months then ended and
\n(ii) audited consolidated balance sheet as at December 31, 1994 and the related
\naudited consolidated statement of income, cash flows and shareholders’ equity
\nfor the fiscal year then ended (including in all cases the notes thereto)
\n(collectively, the “Financial Statements”) have been prepared in accordance
\nwith generally accepted accounting principles consistently applied except as
\nnoted therein and except, in the case of unaudited interim financial
\nstatements, for normal year-end adjustments, and fairly present the
\nconsolidated financial position of Company and its consolidated subsidiaries as
\nof the respective dates set forth therein and the results of operations and
\ncash flows for Company and its consolidated subsidiaries for the respective
\nfiscal periods set forth therein.<\/p>\n
(g) Neither Company nor any of its subsidiaries has
\nsustained since the date of the September 30, 1995 Financial Statements any
\nadverse change in its businesses, financial condition or results of operations
\nthat would be material to the Company and its subsidiaries on a consolidated
\nbasis.<\/p>\n
(h) Assuming the accuracy of the representations of
\nSeller in Section 3.1(u), no consent, approval, authorization, order,
\nregistration or qualification of or with any court or governmental agency or
\nbody is required by or on behalf of Company which has not been obtained as of
\nClosing, for the valid execution and delivery of, or for the performance by
\nCompany of its obligations under, this Agreement.<\/p>\n
(i) There are no legal or governmental proceedings
\npending to which Company or any of its subsidiaries is a party or to which any
\nof its or their properties is subject, or which challenge the validity or
\nlegality of Company’s obligations under this Agreement or the transactions
\ncontemplated thereby which, individually or in the aggregate, would be
\nreasonably expected to have a material adverse effect on the business of
\nCompany and any of its subsidiaries taken as a whole; and, to the Company’s
\nknowledge, no such proceedings are threatened by any governmental authority or
\nby any other person.<\/p>\n
(j) Each of Company and its subsidiaries is in material
\ncompliance with all statutes, laws, ordinances, governmental rules or
\nregulations or any judgment, order or decree to which it is subject and
\npossesses such certificates, authorizations and permits issued by the
\nappropriate regulatory agencies or bodies necessary to conduct the business now
\noperated by it, except for such violations which, and except for such
\ncertificates, authorizations and permits which if not possessed, would not be
\nreasonably expected to have a material adverse effect on the business of
\nCompany and its subsidiaries taken as a whole; and neither Company nor any such
\nsubsidiary has received any notice of proceedings related to any such<\/p>\n
13
\n 17
\nviolation or the revocation or modification of any of the same which,
\nindividually or in the aggregate, if the subject of any unfavorable decision,
\nruling or finding, would be reasonably expected to have a material adverse
\neffect on the business of Company and its subsidiaries taken as a whole.<\/p>\n
(k) Except (i) as and to the extent disclosed or reserved
\nagainst in the Financial Statements, or (ii) for liabilities and obligations
\nincurred after September 30, 1995, 1995 that would not be reasonably expected
\nto have a material adverse effect on the business of Company and any of its
\nsubsidiaries taken as a whole, neither Company nor any of its subsidiaries has
\nany liabilities or obligations of any nature, whether due or to become due,
\nincluding, without limitation, liabilities or obligations on account of taxes
\nor other governmental charges or penalties, interest or funds thereon or in
\nrespect thereof and Company does not know of any basis for any assertion
\nagainst Company or any of its subsidiaries of any debt, liability or obligation
\nin any amount not reflected or reserved against in the Financial Statements
\nwhich would be required to be set forth therein in accordance with generally
\naccepted accounting principles.<\/p>\n
(l) Except as disclosed in Schedule 3.3(l), (i) neither
\nCompany nor any of its subsidiaries has received any written complaint, or
\nnotice of violation, alleged violation, investigation, advisory action,
\npotential liability or potential responsibility, regarding environmental
\nprotection matters or permit compliance with regard to any of its or their
\nproperties, nor does the Company have knowledge that any governmental authority
\nor third party is contemplating delivering to Company or any of its
\nsubsidiaries any such notice, (ii) there are no governmental, administrative or
\njudicial actions or proceedings pending under any Environmental Laws to which
\nCompany or any of its subsidiaries is or, to Company’s knowledge, is likely to
\nbe named as a party with respect to any of its or their properties, nor are
\nthere any consent decrees, other decrees, consent orders, administrative orders
\nor other orders, or other administrative or judicial requirements, outstanding
\nunder any Environmental Law with respect to any of such properties, and (iii)
\nneither the Company nor any of its subsidiaries is an owner or operator of any
\nfacility or operation which is in violation of any Environmental Law or at
\nwhich there has been or exists a release or threatened release of Hazardous
\nMaterials to the environment.<\/p>\n
(m) Company and each of its subsidiaries has caused to be
\nduly filed in a timely manner, including any applicable extensions, with the
\nappropriate governmental authorities all returns, statements and reports with
\nrespect to any taxes that are required to be filed by or with respect to it.
\nExcept for tax liens securing the payment of taxes not yet due and payable,
\nthere are no tax liens upon any assets of Company or any of its subsidiaries
\nand no claim for assessment or collection of any material taxes has been
\nasserted against<\/p>\n
14
\n 18
\nCompany or any of its subsidiaries, except for claims being challenged by the
\nCompany in good faith which are listed in Schedule 3.3(m) to this Agreement.<\/p>\n
(n) Each Material Contract is valid and binding on the
\nparties thereto and in full force and effect and neither Company nor any of its
\nsubsidiaries is in breach of a Material Contract, which breach would reasonably
\nbe expected to have a material adverse effect on Company or any of its
\nsubsidiaries. To Company’s knowledge, no other party to any Material Contract
\nis in material breach thereof. For the purposes of this Section, Material
\nContract shall mean: (i) all contracts requiring payment, or being reasonably
\nlikely to result in payment, by any party thereto of more than $50,000.00
\nannually; (ii) all material contracts with any governmental authority; (iii)
\nall contracts not made in the ordinary course of business, which are material
\nto Company or any of its subsidiaries; and (iv) all contracts relating to
\nindebtedness of Company or any of its subsidiaries of a principal amount in
\nexcess of $250,000.00.<\/p>\n
(o) Company has furnished Buyer a portion of the Purchase
\nPrice in the amount of $2,500,000.00 and Buyer has granted Company certain
\nliens, security interests and other encumbrances covering Buyer’s interests in
\nthe Properties as provided in the deed of trust and note attached to this
\nAgreement as Schedule 3.3(o) (“HEC Mortgage”).<\/p>\n
(p) Seller has furnished Company with all materials
\nrelating to the business, management, finances and operations of the Seller and
\nmaterials relating to the offer and sale of the Stock which have been requested
\nby Company in connection with its audit and other reviews of Seller. Company
\nand its advisors have been afforded the opportunity to ask questions of the
\nofficers of the Seller and have received satisfactory answers to all such
\ninquiries.<\/p>\n
(q) None of Company’s statements or representations in
\nthis Agreement contains any untrue statement of any material fact or omits to
\nstate any material fact necessary to be stated in order to make the statements
\nor representations made not misleading.<\/p>\n
3.4 DISCLAIMERS AND WAIVER OF CONSUMER RIGHTS. BUYER AND COMPANY
\nSTIPULATE THAT THE FOLLOWING DISCLAIMERS AND WAIVERS ARE CONSPICUOUS.<\/p>\n
(a) EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO
\nREPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, CONCERNING THE
\nPROPERTIES, INCLUDING, WITHOUT LIMITATION, NO<\/p>\n
15
\n 19
\nREPRESENTATIONS OR WARRANTIES OF (i) MERCHANTABILITY, (ii) FITNESS FOR A
\nPARTICULAR PURPOSE, (iii) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, OR (iv)
\nCONDITION. EXCEPT AS STATED IN THIS AGREEMENT, ALL PROPERTIES WILL BE CONVEYED
\nAS IS, WHERE IS, WITH ALL FAULTS AND IN THEIR PRESENT CONDITION AND STATE OF
\nREPAIR.<\/p>\n
(b) BEFORE EXECUTION OF THIS AGREEMENT, BUYER AND COMPANY
\nHAVE HAD THE OPPORTUNITY TO CONDUCT INVESTIGATIONS CONCERNING THE PROPERTIES.
\nSELLER DISCLAIMS ANY REPRESENTATION OR WARRANTY THAT RESERVE ESTIMATES, DECLINE
\nRATES, RECOMPLETION OR DEVELOPMENT POSSIBILITIES, PROJECTED PRICES, COSTS,
\nTAXES AND ANY OTHER CHARACTERISTIC OF THE PROPERTIES AS REFLECTED IN MATERIALS
\nMADE AVAILABLE TO BUYER AND COMPANY, BEFORE OR AFTER EXECUTION OF THIS
\nAGREEMENT, ARE COMPLETE, ACCURATE OR FREE FROM CONTRARY INTERPRETATION.<\/p>\n
(c) BUYER AND COMPANY ACKNOWLEDGE THAT THE PROPERTIES
\nHAVE BEEN USED FOR EXPLORATION, DEVELOPMENT AND PRODUCTION OF OIL, GAS,
\nASSOCIATED HYDROCARBONS AND OTHER MINERALS. BUYER AND COMPANY ACKNOWLEDGE THAT
\nTHERE MAY HAVE BEEN SPILLS OF CRUDE OIL, PRODUCED WATER OR OTHER MATERIALS IN
\nTHE PAST. BUYER AND COMPANY ALSO ACKNOWLEDGE THAT SOME WELLS AND EQUIPMENT MAY
\nCONTAIN ASBESTOS AND\/OR NATURALLY OCCURRING RADIOACTIVE MATERIALS (“NORM”).
\nBUYER AND COMPANY UNDERSTAND THAT NORM MAY ATTACH ITSELF TO THE INSIDE OF
\nWELLS, MATERIALS AND EQUIPMENT AS SCALE OR IN OTHER FORMS, THAT WELLS,
\nMATERIALS AND EQUIPMENT AMONG THE PROPERTIES MAY CONTAIN NORM AND THAT THE NORM
\nCONTAINING MATERIALS MAY BE BURIED OR OTHERWISE DISPOSED OF ON THE PROPERTIES.
\nBUYER AND COMPANY ACKNOWLEDGE THAT SPECIAL PROCEDURES MAY BE REQUIRED TO REMOVE
\nAND DISPOSE OF ASBESTOS AND NORM.<\/p>\n
(d) SELLER, BUYER AND COMPANY WAIVE ALL RIGHTS UNDER THE
\nDECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., TEXAS
\nBUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
\nPROTECTIONS. AFTER CONSULTATION WITH ATTORNEYS OF THEIR OWN SELECTION, SELLER,
\nBUYER AND COMPANY VOLUNTARILY CONSENT TO THIS WAIVER.<\/p>\n
16
\n 20
\n ARTICLE 4<\/p>\n
COVENANTS<\/p>\n
4.1 SELLER’S COVENANTS. Seller agrees with Buyer that before
\nClosing:<\/p>\n
(a) Seller made available to Buyer all Data in Seller’s
\npossession which is not subject to prohibitions on disclosure. Seller
\npermitted Buyer to inspect and copy the materials at Seller’s place(s) of
\nbusiness during Seller’s normal business hours. Seller also allowed Buyer
\naccess to Leases operated by Seller. Seller cooperated with Buyer, to the
\nextent of Seller’s available resources, in furnishing materials and
\ninformation, answering questions and otherwise facilitating Buyer’s review.
\nAll actions taken by Buyer under this Section 4.1(a) were at Buyer’s sole risk
\nand expense. Seller shall not be obligated to update title materials or incur
\nany other costs associated with Buyer’s inspections and review.<\/p>\n
(b) From the Effective Time until Closing, and except as
\nreflected in Schedule 4.1(b) to this Agreement, Seller has:<\/p>\n
(1) operated the Properties in a good and
\nworkmanlike manner and in substantially the same manner as it previously
\noperated the Properties; however, it shall have no liability to Buyer for
\nlosses sustained or liabilities incurred in connection with operations, except
\nthose arising out of Seller’s gross negligence or willful misconduct;<\/p>\n
(2) maintained insurance now in force with
\nrespect to the Properties which is listed in Schedule 4.1(b)(2) to this
\nAgreement;<\/p>\n
(3) not received notice of any claim or demand
\nwhich might materially adversely affect title to or operation of the
\nProperties;<\/p>\n
(4) paid costs and expenses which Seller was
\nobligated to pay in connection with the Properties as they became due, except
\nfor costs and expenses Seller is contesting in good faith;<\/p>\n
(c) From the Effective Time until Closing, and except as
\nreflected in Schedule 4.1(c) to this Agreement, Seller has not done any of the
\nfollowing :<\/p>\n
(1) abandoned any well;<\/p>\n
(2) released all or a portion of a Lease,
\nContract or Surface Right;<\/p>\n
17
\n 21
\n (3) commenced or consented to an operation if
\nthe estimated cost of the operation exceeds $5,000.00 net to Seller’s interest;<\/p>\n
(4) created a lien, security interest or other
\nencumbrance on a Property (except for Permitted Encumbrances);<\/p>\n
(5) sold or disposed of a Property unless (i) the
\nProperty sold or disposed of was personal property, and (ii) was replaced by
\nequivalent property whose cost did not exceed the value of the Property sold or
\ndisposed of by more than $5,000.00, or (iii) was consumed or produced in the
\nnormal course of operations;<\/p>\n
(6) amended a Lease, Contract or Surface Right or
\nentered into new contracts affecting a Property;<\/p>\n
(7) waived, compromised or settled any claim that
\nwould adversely affect title to or operation of the Properties.<\/p>\n
4.2 BUYER’S COVENANTS. Buyer shall indemnify and hold Seller
\nharmless from and against all claims, demands, losses, damages (but not
\nconsequential or punitive damages), costs (including reasonable attorney’s
\nfees), liabilities and causes of action arising out of Buyer’s access to,
\nreview and inspection of the Properties and materials related to the Properties
\nfor any purpose contemplated by this Agreement.<\/p>\n
ARTICLE 5<\/p>\n
TITLE, ENVIRONMENTAL AND OPERATIONS DEFECTS<\/p>\n
5.1 DEFENSIBLE TITLE.<\/p>\n
(a) “Defensible Title” means such right, title or
\ninterest held by Seller that (i) will entitle Buyer, as Seller’s assignee, to
\nreceive from its aggregate ownership interest(s) not less than the net revenue
\ninterest shown in Schedule 1.2(a) of all oil, gas, condensate and related
\nhydrocarbons produced under the terms of a particular Lease or Leases; (ii)
\nobligates Buyer, as Seller’s assignee, to bear an aggregate percentage of costs
\nand expenses related to the maintenance, operation and development of a
\nparticular Lease or Leases not greater than the working interest shown in
\nSchedule 1.2(a), unless the circumstance causing the working interest to be
\ngreater will cause the corresponding net revenue interest to increase in the
\nsame proportion; and (iii) is free of all liens, security interests,
\nencumbrances and defects, except<\/p>\n
18
\n 22
\nfor Permitted Encumbrances, which would materially interfere with the
\nownership, operation or value of a Property.<\/p>\n
(b) “Permitted Encumbrances” are:<\/p>\n
(1) royalties, overriding royalties, production
\npayments, net profits interests, reversionary interests and similar burdens
\nthat will not reduce Buyer’s net revenue interest, as Seller’s assignee, below
\nthe net revenue interest shown in Schedule 1.2(a) or increase Buyer’s working
\ninterest, as Seller’s assignee, above the working interest shown in Schedule
\n1.2(a) (unless the circumstance causing the working interest to increase will
\ncause the corresponding net revenue interest to increase in the same
\nproportion);<\/p>\n
(2) the terms of Leases, Contracts and Surface
\nRights listed in this Agreement;<\/p>\n
(3) preferential rights to purchase and third
\nparty consents with respect to which (i) waivers or consents are obtained by
\nSeller from the appropriate parties, or (ii) the time for asserting such rights
\nhas expired without exercise;<\/p>\n
(4) mechanics’, materialmen’s, operators’, tax
\nand similar liens or charges arising in the ordinary course of business related
\nto a Property (i) if they have not been filed pursuant to law, (ii) if filed,
\nthey are not due or payment is being withheld as provided by law, or (iii) if
\ntheir validity is being contested in good faith;<\/p>\n
(5) all consents from, notices to, approvals by
\nor other actions by private persons or governmental authority in connection
\nwith sale or transfer of assets such as the Properties if such action is
\ncustomarily obtained after the sale or transfer;<\/p>\n
(6) rights of reassignment arising out of an
\nowner’s election to surrender or abandon all or any portion of a Property;<\/p>\n
(7) liens, security interests and other
\nencumbrances released at Closing;<\/p>\n
(8) rights of a governmental entity to control or
\nregulate any of the Properties in any manner, together with all applicable
\nlaws, rules and regulations; and<\/p>\n
(9) any matter which would otherwise be a Title
\nDefect but which is disclosed in this Agreement.<\/p>\n
19
\n 23
\n 5.2 TITLE DEFECTS. “Title Defect” means any encumbrance,
\nencroachment, irregularity or defect in Seller’s title, excluding Permitted
\nEncumbrances, that causes Seller’s title to be less than Defensible Title. In
\ndetermining whether a Title Defect exists, consideration shall be given to,
\namong other factors, (i) whether a person engaged in the ownership, development
\nand operation of oil and gas properties with knowledge of all relevant
\ncircumstances and appreciation of their legal significance would be willing to
\naccept and pay for the affected Property notwithstanding the defect, (ii) the
\nlength of time a Property has been producing and whether a material issue has
\never arisen concerning the defect, and (iii) whether the defect would cause a
\nreasonably prudent purchaser of production to suspend payment of proceeds.
\nSeller and Buyer stipulate that certain defects are customarily acceptable to
\npersons engaged in the oil and gas business, including, without limitation,
\ndefects that have been cured by possession; defects in the chain of title such
\nas failure to recite marital status, omission of heirship or probate
\nproceedings; lack of survey; and absence of releases of interests that have
\nexpired according to their terms or that are barred by limitations.<\/p>\n
5.3 CASUALTY LOSS. If, between the Effective Time and Closing,
\nall or any portion of a Property was destroyed, damaged or taken under the
\nright of eminent domain (“Casualty Loss”), there shall be no reduction of the
\nPurchase Price but Seller shall, at Closing, pay to Buyer all sums paid to
\nSeller to the extent attributable to the actual value of the Casualty Loss and
\nshall assign to Buyer all of Seller’s interest in any unpaid payments,
\ninsurance proceeds, including any deductible to be paid or borne by Seller, or
\ncauses of action to the extent attributable to the actual value of the Casualty
\nLoss. Seller shall not voluntarily compromise or settle a Casualty Loss
\nwithout Buyer’s consent. A Casualty Loss shall not be considered a Title,
\nEnvironmental or Operations Defect.<\/p>\n
5.4 ENVIRONMENTAL DEFECTS. After Closing, Buyer shall have the
\nright, at its own risk and expense, to confirm that, as of the Closing Date,
\nthere were no failures to comply with Environmental Laws and to confirm the
\nabsence, as of the Closing Date, of a Release or threat of a Release of
\nHazardous Materials (“Environmental Defects”). Environmental Laws means all
\nfederal, state and local laws, rules, regulations, orders, ordinances and
\ncommon law, relating to the protection of public health, welfare and the
\nenvironment. “Hazardous Material” means “hazardous substance”, “pollutant or
\ncontaminant”, and “petroleum and natural gas liquids”, as those terms are
\ndefined or used in Section 101 of the Comprehensive Environmental Response,
\nCompensation and Liability Act, 42 U.S.C. Section 9601 et seq. “Release” means
\ndepositing, spilling, leaking, pumping, pouring, emitting, emptying,
\ndischarging, injecting, escaping, leaching, dumping or otherwise disposing.
\nImmediately upon its availability, Buyer shall furnish Seller a copy of all
\nreports<\/p>\n
20
\n 24
\nit prepares or receives in connection with this Section 5.4, which reports
\nSeller shall treat with strict confidentiality.<\/p>\n
5.5 OPERATIONS DEFECTS. After Closing, Buyer shall have the
\nright, at its own risk and expense, to confirm that there were no Operations
\nDefects present as of the Closing Date. Operations Defects are (i) material
\ndeficiencies in the surface or subsurface Equipment on a Well listed in
\nSchedule 5.5 which make the Well less than mechanically adequate for the
\nproduction of hydrocarbons as of the Closing Date, and (ii) material
\nnon-compliance with any applicable law, rule or regulation which, as of the
\nClosing Date, causes or is likely to cause there to be a legal restriction or
\nprohibition on production of hydrocarbons from a Well listed in Schedule 5.5.
\nDefects associated with Properties which are not listed in Schedule 5.5 shall
\nnot be considered Operations Defects. In determining whether an Operations
\nDefect exists, consideration shall be given to, among other factors, whether a
\nperson engaged in the ownership, development and operation of oil and gas
\nproperties with knowledge of all relevant circumstances and appreciation of
\ntheir significance would be willing to accept and pay for the affected Well
\nnotwithstanding the defect.<\/p>\n
5.6 NOTICE OF DEFECTS. Title Defects, Environmental Defects and
\nOperations Defects are collectively referred to as Defects. No later than 180
\ndays after the Closing Date, Buyer shall notify Seller in writing of all
\nDefects. To be effective, Buyer’s notice must include (i) a description of the
\nProperty affected by the Defect, (ii) a thorough explanation of the basis for
\nthe Defect, and (iii) the amount, not to exceed its Allocated Value, by which
\nBuyer believes the value of the affected Property is reduced by the Defect.
\nBuyer’s failure to give notice of a Defect within the time and in the manner
\nrequired by this Section 5.6 shall be a waiver by Buyer of all recourse arising
\nunder this Agreement or otherwise in connection with the Defect.<\/p>\n
5.7 REMEDIES FOR DEFECTS. Upon proper notice of a Defect, Seller
\nshall have the right to either (i) remedy or agree to remedy the defect within
\n61 days, or (ii) agree with Buyer on an adjustment to the Purchase Price to
\nreflect the value of the Defect or Buyer’s cost to remedy the defect.<\/p>\n
5.8 ADJUSTMENTS FOR DEFECTS. If Seller is unable or elects not to
\nremedy or agree to remedy a Defect, the following shall occur, subject to the
\nlimitations contained in Section 7.9:<\/p>\n
(a) If the Title Defect is a preferential right to
\npurchase or similar right which was not exercised before Closing, the Purchase
\nPrice shall not be reduced and Buyer<\/p>\n
21
\n 25
\nshall comply with all obligations associated with the right. If the right is
\nexercised, Buyer shall be entitled to all consideration paid by the holder of
\nthe right.<\/p>\n
(b) With respect to all other Defects, the Purchase Price
\nshall be reduced by the amount by which the value of all uncured Defects
\nexceeds $480,000.00. If the value of all uncured Defects is less than
\n$480,000.00, no adjustment to the Purchase Price shall be made. If the value
\nof all uncured Defects exceeds $1,280,000.00, no adjustment to the Purchase
\nPrice shall be made for the value in excess of $1,280,000.00. The value of a
\nDefect shall be determined as follows:<\/p>\n
(1) if Seller agrees with the value stated in
\nBuyer’s notice, that value shall control;<\/p>\n
(2) if the Defect is undisputed and liquidated,
\nthe value shall be the amount necessary to be paid to the obligee to remove the
\nDefect;<\/p>\n
(3) if the Defect is disputed and\/or unliquidated
\nand the parties cannot agree on value, Seller and Buyer shall negotiate in good
\nfaith in an attempt to agree on value. Relevant factors affecting value
\ninclude, without limitation, the portion of the Property materially affected by
\nthe Defect, the legal and economic effect of the Defect over the likely
\nproductive life of the Property and the relative values placed on the Defect by
\nthe parties. If Seller and Buyer cannot agree on the value of Defects within
\n210 days after the Closing Date, the matter shall be submitted to arbitration
\nunder Section 5.8(b)(4).<\/p>\n
(4) Seller and Buyer shall each select a mutually
\nacceptable person as an arbitrator and the two arbitrators so chosen shall
\nmutually select a third arbitrator. The group of three arbitrators shall
\ndecide the following matters if the parties are unable to agree: (i) whether a
\nDefect exists, (ii) whether a Defect has been cured, (iii) the value of a
\nparticular uncured Defect or Upward Adjustment, (iv) the value of an adjustment
\nto the Purchase Price, (v) the validity of an adjustment to the Purchase Price,
\nand (vi) disputes concerning adjustments to principal as provided in the Note.
\nIf the two arbitrators selected by Seller and Buyer cannot agree on an
\narbitrator, or successor arbitrator if necessary, the parties shall request the
\nAmerican Arbitration Association to appoint the third arbitrator or successor
\narbitrator. All arbitration hearings shall be held in Abilene, Texas and shall
\nbegin within thirty days after delivery of written notice from one party to the
\nother party and the arbitrators stating the grounds for submitting an issue to
\narbitration. The arbitrators shall arbitrate the dispute in accordance with
\nthe terms of this Agreement, the Texas General Arbitration Act, and the Rules
\nof the American Arbitration Association to the extent such rules are not in
\nconflict with the terms of this Agreement or the Act. The arbitrators shall<\/p>\n
22
\n 26
\nissue a written decision which shall be final and binding on Seller and Buyer
\nand may be enforced in any court having jurisdiction. Seller and Buyer shall
\nbear their own legal fees and other costs incurred in connection with
\npresenting their respective cases. The costs and expenses of the arbitrators
\nshall be shared equally by Seller and Buyer. In fulfilling his duties, the
\narbitrators shall be bound by the terms of this Agreement and may consider
\nother matters which, in the opinion of the arbitrators, are necessary or
\nhelpful to make a proper decision.<\/p>\n
5.9 UPWARD ADJUSTMENTS. If, within 180 days after the Closing
\nDate, either party discovers any title inaccuracy in Schedule 1.2(a) that
\nresults in an increase in value of Seller’s interest in a Property, the party
\ndiscovering the inaccuracy shall immediately notify the other party in writing.
\nThe parties shall negotiate in good faith in an attempt to agree on the
\nincrease in value attributable to the inaccuracy (“Upward Adjustment”). If the
\nparties are unable to agree, the issue shall be submitted to arbitration under
\nSection 5.8(b)(4).<\/p>\n
ARTICLE 6<\/p>\n
CLOSING<\/p>\n
6.1 CLOSING DATE. The consummation of all transactions
\ncontemplated by this Agreement (“Closing”), occurred as of December 20, 1995
\n(“Closing Date”).<\/p>\n
6.2 CLOSING OBLIGATIONS. At Closing, the following occurred, each
\nbeing a condition precedent to the others and each being deemed to have
\noccurred simultaneously, although the parties expect that some actions to be
\ntaken at Closing may not actually occur simultaneously:<\/p>\n
(a) Seller executed and delivered to Buyer the Assignment
\nconveying the Properties to Buyer in the form attached to this Agreement as
\nSchedule 6.2(a) (“Assignment”).<\/p>\n
(b) Buyer delivered the Closing Cash Payment to Seller by
\ncertified check, cashier’s check or wire transfer, as directed by Seller.<\/p>\n
(c) Buyer delivered to Seller a certificate for the
\nPurchase Shares, registered in Seller’s name.<\/p>\n
23
\n 27
\n (d) Buyer and Company executed and delivered to Seller
\nthe Note and Buyer executed and delivered to Seller the Deed of Trust.<\/p>\n
(e) Seller and Buyer executed the Gas Transportation
\nAgreement attached to this Agreement as Schedule 6.2(e).<\/p>\n
(f) Seller and Company executed the Registration Rights
\nAgreement attached to this Agreement as Schedule 6.2(f).<\/p>\n
(g) Seller and Buyer executed the Joint Operating
\nAgreement attached to this Agreement as Schedule 6.2(g).<\/p>\n
(h) Seller delivered to Buyer, at Buyer’s expense, a
\nreserve report covering the Properties prepared by Ryder Scott Company. The
\nreserve report shall be a year-end proven SEC case showing future net income
\nattributable to the Properties to have a present value discounted at 10% of at
\nleast $35,000,000.00.<\/p>\n
(i) Seller and Buyer executed a closing statement
\nprepared in accordance with generally accepted accounting principles used in
\nthe oil and gas industry. The closing statement reflects adjustments to the
\nPurchase Price which were known as of Closing.<\/p>\n
(j) Seller delivered to Buyer exclusive possession of the
\nProperties, the receipt of which Buyer acknowledges.<\/p>\n
(k) Seller executed transfer orders or letters-in-lieu on
\nforms prepared by Buyer and reasonably satisfactory to Seller directing
\npurchasers of production to make payment to Buyer as contemplated by this
\nAgreement.<\/p>\n
(l) Seller delivered releases of all liens, security
\ninterests and encumbrances to be released at Closing.<\/p>\n
(m) Seller and Buyer executed Form P-4’s, and any other
\nforms required by the Railroad Commission of Texas associated with the transfer
\nof operations, specifically identifying all wells among the Properties for
\nwhich Buyer assumes sole responsibility for operations, including plugging.<\/p>\n
(n) Seller delivered and Buyer accepted custody of
\nsuspended funds listed in Schedule 6.2(n) which are held by Seller and
\nattributable to the Properties;<\/p>\n
24
\n 28
\n (o) Seller and Buyer delivered to each other, and Company
\ndelivered to Seller, opinions of their respective counsel, Loren Williams for
\nSeller and Larry Cummings for Buyer and Company, to the effect that:<\/p>\n
(1) the party is duly organized, validly existing
\nand in good standing under the laws of the state of its formation;<\/p>\n
(2) the party has the power and authority to
\ncarry on its business as presently conducted, to enter into this Agreement and
\nto perform its obligations under this Agreement;<\/p>\n
(3) execution and delivery of this Agreement,
\nconsummation of the transactions contemplated by this Agreement, and
\nperformance of all obligations under this Agreement have been authorized by all
\nnecessary action, corporate and otherwise, on the part of the party;<\/p>\n
(4) execution and delivery of this Agreement,
\nconsummation of the transactions contemplated by this Agreement, and
\nperformance of all obligations under this Agreement will not violate or be in
\nconflict with any provision of the party’s charter, bylaws or other governing
\ndocuments, or, to counsel’s knowledge, any agreement, instrument, judgment,
\norder, decree, law, rule or regulation by which a party is bound; and<\/p>\n
(5) in the case of Company only, the Purchase
\nShares, are duly and validly issued, fully paid and nonassessable.<\/p>\n
ARTICLE 7<\/p>\n
OBLIGATIONS AFTER CLOSING<\/p>\n
7.1 ADJUSTMENTS. Within 180 days after the Closing Date, Seller
\nand Buyer shall jointly prepare a statement containing adjustments to the
\nPurchase Price contemplated by Section 2.3 (“Final Settlement Statement”). The
\nparties shall negotiate in good-faith to agree on the actual Adjusted Purchase
\nPrice within 210 days after the Closing Date. If Buyer and Seller are unable
\nto agree on the Final Settlement Statement within 210 days after the Closing
\nDate, the matter shall be submitted to arbitration on the terms contained in
\nSection 5.8(b)(4). Appropriate adjustment to the principal amount of the Note
\nshall be made within five days after the parties reach agreement or the
\narbitrators render a decision (“Final Settlement Date”).<\/p>\n
25
\n 29
\n 7.2 SUBSEQUENT ADJUSTMENTS. Seller and Buyer recognize that
\neither party may receive funds or pay expenses after the Final Settlement Date
\nwhich are properly the property or obligation of the other party. Upon
\naccumulation of net proceeds or net expenses due to or payable by the other
\nparty in the amount of $5,000.00, such party shall submit a statement showing
\nthe items of income and expense. Payment by the appropriate party shall be
\nmade within 30 days of receipt of the statement.<\/p>\n
7.3 FILINGS AND COMPLIANCE. Immediately after Closing, Buyer
\nshall file with the Railroad Commission of Texas all forms signed at closing
\nand shall take all steps required to obtain Railroad Commission approval of
\nBuyer as operator of those Properties for which it assumes operations. Buyer
\nshall maintain all wells among the Properties in compliance with Railroad
\nCommission rules. After Closing, Buyer shall own, operate and use the
\nProperties in a good and workmanlike manner and shall comply with all federal,
\nstate and local laws, rules, regulations, orders and decrees.<\/p>\n
7.4 FILES AND RECORDS. Immediately after Closing, Seller shall
\npermit Buyer to take possession, at Buyer’s sole risk and expense, of all Data
\nin Seller’s possession relating to the Properties. From time to time as
\nrequested by Seller, Buyer shall make the Data available to Seller for
\ninspection and copying during normal business hours.<\/p>\n
7.5 SALES AND USE TAXES AND RECORDING. It is the parties’
\nunderstanding that the sale of the Properties is exempt from all transfer,
\nsales and use taxes imposed by Chapter 151 of the Texas Tax Code and the rules
\nand regulations of the Texas Comptroller of Public Accounts. If it is
\ndetermined that the transaction is not exempt, Seller shall pay all applicable
\ntransfer, sales and use taxes occasioned by the sale of the Properties.
\nImmediately after Closing, Seller, at Buyer’s expense, shall file the
\nAssignment and Deed of Trust for record in the real property records of
\nHutchinson County, Texas. Buyer shall pay all documentary, filing and
\nrecording fees required in connection with the filing and recording of all
\ninstruments contemplated by this Agreement.<\/p>\n
7.6 FURTHER ASSURANCES. Seller and Buyer agree to execute and
\ndeliver such instruments and take other action as may be necessary or advisable
\nto carry out their obligations under this Agreement.<\/p>\n
7.7 ASSUMPTION. Buyer assumes and agrees to discharge:<\/p>\n
(a) all obligations and liabilities to plug, abandon,
\nremove and dispose of all wells, pipelines, equipment and improvements located
\non the Properties at or after the<\/p>\n
26
\n 30
\nClosing Date, and all obligations and liabilities to restore the surface and
\nsubsurface in accordance with the terms of all Leases, Contracts and Surface
\nRights;<\/p>\n
(b) all obligations and liabilities arising before or
\nafter the Effective Time under Environmental Laws, including, without
\nlimitation, all obligations and liabilities to dispose of or properly handle
\nNORM, Hazardous Materials and wastes located on the Properties at or after the
\nClosing Date;<\/p>\n
(c) all of Seller’s obligations and liabilities related
\nto any production, pipeline, storage, processing or other production-related
\nimbalance existing at or after the Effective Time;<\/p>\n
(d) all obligations and liabilities related to the
\nProperties which arise or accrue at or after the Effective Time, including,
\nwithout limitation, the obligation to pay all taxes which become due after the
\nEffective Time, subject to reimbursement for taxes which apply to a time period
\nbefore the Effective Time, without duplication of any adjustment to the
\nPurchase Price;<\/p>\n
(e) all obligations and liabilities related to the
\ncustody, administration and disbursement of suspended funds attributable to the
\nProperties which were transferred to Buyer at Closing;<\/p>\n
(f) all obligations and liabilities related to the
\nProperties which arise under any law, rule, regulation, order or decree of any
\ngovernmental authority with jurisdiction which affect the Properties at or
\nafter the Closing Date; and<\/p>\n
(g) all obligations and liabilities arising under
\npreferential rights to purchase or similar rights which affect the Properties
\nand which were not exercised before Closing.<\/p>\n
Buyer agrees to execute any specific assumption agreements related to matters
\nassumed under this Section 7.7 which may be required by third parties or
\ngovernmental authorities.<\/p>\n
7.8 INDEMNITIES.<\/p>\n
(a) To the extent permitted by law, Buyer shall indemnify
\nand hold Seller, its affiliated companies, directors, officers, stockholders,
\npartners, employees, agents, successors and assigns, harmless from and against
\nall claims, demands, losses, damages, (but not consequential and punitive
\ndamages), costs (including reasonable attorney’s fees), liabilities and causes
\nof action, caused by or arising out of (i) any act, omission or condition<\/p>\n
27
\n 31
\nrelated to ownership, operation or use of the Properties after the Closing
\nDate, (ii) matters assumed by Buyer under Section 7.7, (iii) the breach of any
\nrepresentation, covenant or obligation of Buyer or Company in this Agreement;
\nand (iv) arrangements between Buyer and brokers or finders which are related to
\nthe transactions contemplated by this Agreement.<\/p>\n
(b) IN ADDITION TO THE INDEMNITY IN SECTION 7.8(a) AND TO
\nTHE EXTENT PERMITTED BY LAW, BUYER AND COMPANY SHALL INDEMNIFY AND HOLD SELLER,
\nITS AFFILIATED COMPANIES, DIRECTORS, OFFICERS, STOCKHOLDERS, PARTNERS,
\nEMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, HARMLESS FROM AND AGAINST ALL
\nCLAIMS, DEMANDS, LOSSES, DAMAGES, (EXCLUDING CONSEQUENTIAL DAMAGES), COSTS
\n(INCLUDING REASONABLE ATTORNEY’S FEES), LIABILITIES, CAUSES OF ACTION,
\nPROCEEDINGS, LIENS, FINES, PENALTIES, ORDERS, REMEDIATION REQUIREMENTS, AND
\nENFORCEMENT ACTIONS OF ANY KIND, CAUSED BY OR ARISING OUT OF ANY VIOLATION OF
\nENVIRONMENTAL LAWS OR THE RELEASE OR THREATENED RELEASE OF ANY HAZARDOUS
\nMATERIAL, ARISING AFTER THE CLOSING DATE, AND WHETHER CAUSED BY OR ATTRIBUTABLE
\nTO THE SOLE OR CONCURRENT NEGLIGENCE OF ANY INDEMNITEE. THE PARTIES STIPULATE
\nTHAT THIS SECTION COMPLIES WITH THE EXPRESS NEGLIGENCE RULE.<\/p>\n
(c) To the extent permitted by law, and except with
\nrespect to (i) Defects under Article 5, (ii) matters assumed by Buyer under
\nSection 7.7, and (iii) matters within the scope of Section 7.8(b), Seller shall
\nindemnify and hold Buyer, its affiliated companies, directors, officers,
\nstockholders, partners, employees, agents, successors and assigns, harmless
\nfrom and against all claims, demands, losses, damages, (but not consequential
\nand punitive damages), costs (including reasonable attorney’s fees),
\nliabilities and causes of action of third parties and governmental agencies,
\ncaused by or arising out of (i) Seller’s operation, ownership or use of the
\nProperties before the Closing Date, (ii) the breach of any representation,
\ncovenant or obligation of Seller in this Agreement; and (iii) arrangements
\nbetween Seller and brokers or finders which are related to the transactions
\ncontemplated by this Agreement.<\/p>\n
(d) To the extent permitted by law, Company shall
\nindemnify and hold Seller, its affiliated companies, directors, officers,
\nstockholders, partners, employees, agents, successors and assigns, harmless
\nfrom and against all claims, demands, losses, damages, (but not consequential
\nand punitive damages), costs (including reasonable attorney’s fees),
\nliabilities and causes of action, caused by or arising out of the breach of any
\nrepresentation, covenant or obligation of Company in this Agreement.<\/p>\n
28
\n 32
\n 7.9 SURVIVAL AND LIMITATIONS OF LIABILITY. All terms of this
\nAgreement shall survive Closing. Claims associated with (i) the breach or
\ninaccuracy of a representation contained in Section 3.1, (ii) the breach of a
\ncovenant contained in Section 4.1, and (iii) the indemnity contained in Section
\n7.8(c), shall be remedied only by payment of actual money damages (but not
\nconsequential and punitive damages) and shall be limited as provided in this
\nSection 7.9. Buyer waives all legal and equitable remedies, other than those
\ncontained in this Section 7.9, for claims associated with the items listed in
\nthe preceding sentence.<\/p>\n
(a) Seller shall have no obligation or liability to
\nBuyer arising out of Sections 3.1, 4.1 and 7.8(c) unless (i) written notice of
\npotential obligation or liability is given to Seller on or before 180 days
\nafter the Closing Date, and (ii) Buyer was without knowledge of the basis for
\nobligation or liability at or before Closing. To be effective, the notice must
\ninclude an adequate explanation of the basis for liability. If the preceding
\nconditions are satisfied, Seller shall have liability to Buyer only for the
\namount by which the value of all obligations or liabilities arising under
\nSections 3.1, 4.1 and 7.8(c) exceed $480,000.00 but are less than
\n$1,280,000.00. Seller shall have no obligation or liability to Buyer arising
\nout of Sections 3.1, 4.1 and 7.8(c) if the value of all obligations or
\nliabilities asserted is less than $480,000.00, nor shall Seller have any
\nobligation or liability to Buyer for any amount by which the asserted
\nobligations or liabilities exceed $1,280,000.00.<\/p>\n
(b) Notwithstanding any other provision in this
\nAgreement, the sum of (i) all actual downward adjustments in the Purchase Price
\nassociated with Defects under Article 5, plus (ii) the amount of all of
\nSeller’s out- of-pocket liabilities under Sections 3.1, 4.1, 7.8(c) and 7.9(a),
\nshall not exceed $800,000.00, without duplication.<\/p>\n
7.10 ADMINISTRATION OF INDEMNITIES. All claims for
\nindemnification under this Agreement shall be asserted and resolved under this
\nSection 7.10.<\/p>\n
(a) Any person claiming indemnification is referred to as
\nthe “Indemnified Party” and any person against whom indemnification is sought
\nis referred to as the “Indemnifying Party”. Upon discovery of an indemnifiable
\nclaim, the Indemnified Party shall immediately give the Indemnifying Party
\nwritten notice of the claim specifying in reasonable detail (to the extent
\nknown at the time) the nature of the claim and the estimated amount of such
\nclaim (“Claim Notice”). The Indemnifying Party shall not be obligated to
\nindemnify the Indemnified Party with respect to any such claim if the
\nIndemnified Party fails to properly notify the Indemnifying Party.<\/p>\n
(b) The Indemnifying Party shall have 30 days from the
\nreceipt of the Claim Notice (the “Notice Period”) to notify the Indemnified
\nParty (i) if the Indemnifying Party<\/p>\n
29
\n 33
\naccepts or disputes the liability of the Indemnifying Party to the Indemnified
\nParty and\/or (ii) if the Indemnifying Party desires, at its sole cost and
\nexpense, to contest the claim in the name of and on behalf of the Indemnified
\nParty or the Indemnifying Party, as appropriate. During the Notice Period, the
\nIndemnified Party may file any motion, answer or other pleading that it deems
\nnecessary or appropriate to protect its interests or those of the Indemnifying
\nParty and shall give notice of the filing to the Indemnifying Party. If the
\nIndemnifying Party fails to notify the Indemnified Party of its election within
\nthe Notice Period, the Indemnifying Party shall be deemed to have accepted
\nliability for indemnification. If the Indemnifying Party notifies the
\nIndemnified Party within the Notice Period that it desires to contest the
\nclaim, the Indemnifying Party shall have the right to contest all appropriate
\nproceedings, using competent counsel of its own choosing, which proceedings
\nshall be diligently settled or prosecuted to a conclusion. The Indemnifying
\nParty shall give the Indemnified Party and its counsel the opportunity to
\nparticipate in, but not control, all matters relating to the claim at the
\nIndemnified Party’s sole cost and expense; provided, however, that any
\nsettlement involving consideration other than the payment of cash by the
\nIndemnifying Party must have the prior written approval of the Indemnified
\nParty. If requested by the Indemnifying Party, the Indemnified Party agrees,
\nat the cost and expense of the Indemnifying Party, to cooperate with the
\nIndemnifying Party and its counsel in contesting any claim that the
\nIndemnifying Party elects to contest or, if appropriate, in making any
\ncounterclaim or cross-complaint. If the Indemnifying Party is not disputing
\nits liability to the Indemnified Party with respect to a claim, the claim shall
\nnot be settled or otherwise compromised without the prior written consent of
\nthe Indemnifying Party.<\/p>\n
(c) Before taking action against the Indemnifying Party
\n(other than to give the written notices required by this Agreement), the
\nIndemnified Party shall use its best efforts to claim under any relevant
\ninsurance policy and to pursue any claims related to the event giving rise to
\nthe relevant damages or rights it may have against any third party which would
\nreduce the amount of the relevant damages otherwise incurred by the Indemnified
\nParty. If the Indemnifying Party pays to the Indemnified Party any damages
\nunder this Article 7 and the Indemnified Party subsequently recovers from some
\nother person any sum in respect to any matter giving rise to the relevant
\nclaim, the Indemnified Party shall repay to the Indemnifying Party the lesser
\nof (i) the amount paid by the Indemnifying Party to the Indemnified Party, or
\n(ii) the sum recovered from such other person.<\/p>\n
(d) If the Indemnifying Party fails to fully perform its
\nobligations under this Agreement, the Indemnified Party may perform those
\nobligations at its sole discretion and control, at the cost and expense of the
\nIndemnifying Party, without relieving the Indemnifying Party of its
\nobligations.<\/p>\n
30
\n 34
\n 7.11 INFORMATION AND ACCESS.<\/p>\n
(a) Seller and Buyer each grant to the other a right of
\naccess to Information which may be obtained by the other party, or its
\naffiliates, from the other party’s, or its affiliate’s, operations carried out
\non the Property or on other lands located in Hutchinson County, Texas (“Area”).
\nInformation means any seismic data, drilling reports, well logs, mud logs, well
\ntests, core analyses, and other test results of wells drilled in the Area.
\nInformation does not include analyses, interpretations or work product, nor
\ndoes it include data, reports or other information that may be acquired from an
\nunaffiliated third party which is subject to a prohibition on disclosure. Each
\nparty shall notify the other party following the completion or plugging and
\nabandoning of any new well drilled in the Area. Upon request by the party
\nreceiving such notice, the party who drilled the well will provide copies of
\nthe Information which is available to the other party. The party requesting the
\ncopies shall bear or reimburse the reasonable costs of copying the Information.
\nEach party agrees to maintain in strict confidence any and all Information it
\nacquires from the other party under this Section 7.11. This confidentiality
\nprovision shall not apply to data and information (i) which is publicly
\navailable (other than by a breach of this Section 7.11), or (ii) which a party
\nobtains independently. All Information which is subject to confidentiality
\nshall remain the property of the party which furnished it and the receiving
\nparty shall only have rights to use the Information through its own employees,
\nagents and consultants for its own operations and purposes and may not disclose
\nany or all of the Information to any third party at any time or for any purpose
\nwithout the prior express written consent of the party owning the Information.
\nNeither party shall in any way guarantee the accuracy or validity of any
\nInformation and the party receiving the Information shall use the Information
\nat their sole and absolute risk. This obligation to provide access to
\nInformation may not be transferred nor assigned by either party to an
\nunaffiliated person. This obligation shall extend for the shorter of (i) the
\nterm of Buyer’s or an affiliate’s ownership of the Property, or (ii) five years
\nfrom the Closing Date.<\/p>\n
(b) To the extent permitted by the Leases and Surface
\nRights, Seller shall have the concurrent right of access on and across lands
\ncovered by the Leases and Surface Rights in connection with Seller’s operations
\non lands in the vicinity of the lands described in the Leases and Surface
\nRights. Seller shall indemnify and hold harmless Buyer from any cost,
\nobligation, loss, damage or other liability caused by Seller’s exercise of its
\nrights under this Section 7.11(b).<\/p>\n
(c) Seller will furnish to Buyer from time to time copies
\nof all trade confirmations, receipts, account reports and other documentation
\nrelating to any and all sales of Stock made at any time by Seller, up to and
\nincluding the date of Maturity II. Seller will<\/p>\n
31
\n 35
\nfurnish all such copies and information to Buyer as soon as reasonably possible
\nafter Seller’s own receipt of same. Seller shall allow Buyer the right, at
\nBuyer’s expense, to audit Seller’s records regarding sales of Stock by Seller.<\/p>\n
7.12 COMPANY’S COVENANTS.<\/p>\n
(a) Company will do or cause to be done all things
\nnecessary to preserve and keep in full force and effect its existence and all
\nconsents, approvals, authorizations, registrations and qualifications of
\ngovernmental or regulatory agencies necessary for the operation of its
\nbusiness; provided, however, that Company will not be required to preserve any
\nsuch consent, approval, authorization, registration or qualification if, in the
\ngood faith judgment of Company, the failure to preserve such consent, approval,
\nauthorization, registration or qualification would not have a material adverse
\neffect on Company and its subsidiaries taken as a whole.<\/p>\n
(b) Company will cause all material properties used or
\nuseful in the conduct of its business or the business of any of its
\nsubsidiaries to be maintained and kept in good condition, repair and working
\norder and supplied with all necessary equipment and will cause to be made all
\nnecessary repairs, renewals, replacements and improvements thereof, all as in
\nthe judgment of Company may be necessary so that the business carried on in
\nconnection therewith may be properly and advantageously conducted at all times;
\nprovided, however, that nothing in this Section 7.12 shall prevent Company from
\ndiscontinuing the operation or maintenance of any of such properties if such
\ndiscontinuance is, in the good faith judgment of Company, desirable in the
\nconduct of its business or the business of any of its subsidiaries and would
\nnot have a material adverse effect on the Company or its subsidiaries.<\/p>\n
(c) Company will pay or discharge, or cause to be paid or
\ndischarged, before the same shall become delinquent, (1) all material taxes,
\nassessments and governmental charges levied or imposed upon Company or upon the
\nincome, profits or property of Company, and (2) all lawful material claims for
\nlabor, materials and supplies which, if unpaid, might by law become a lien upon
\nthe property of Company; provided, however, that Company shall not be required
\nto pay or discharge or cause to be paid or discharged any such tax, assessment,
\ncharge or claim which amount, applicability or validity is being contested in
\ngood faith by appropriate proceedings if adequate reserves therefor have been
\nestablished in accordance with generally accepted accounting principles.<\/p>\n
(d) Company will not (whether in a transaction or a
\nseries of transactions) consolidate with or merge into any other person or
\nconvey, transfer or lease its properties and<\/p>\n
32
\n 36
\nassets substantially as an entirety to any person, and Company shall not permit
\nany person to consolidate with or merge into Company, unless:<\/p>\n
(1) in case Company shall consolidate with or
\nmerge into another person or convey, transfer or lease its properties and
\nassets substantially as an entirety to any person, the person formed by such
\nconsolidation or into which Company is merged or the person which acquires by
\nconveyance or transfer, or which leases, the properties and assets of Company
\nsubstantially as an entirety shall be a corporation, shall be organized and
\nvalidly existing under the laws of any State of the United States of America
\nand shall expressly assume the obligations of Company hereunder;<\/p>\n
(2) immediately after giving effect to such
\ntransaction and treating any indebtedness which becomes an obligation of
\nCompany as a result of such transaction as having been incurred by Company at
\nthe time of such transaction, no default or event of default under any
\nmortgage, deed, indenture or other instrument of indebtedness or any other
\nmaterial agreement of Company shall have happened and be continuing; and<\/p>\n
(3) immediately after giving effect to such
\ntransaction, the consolidated net worth (as determined on the basis of
\ngenerally accepted accounting principles) of the person surviving such merger
\nor to which such conveyance, transfer or lease is made is equal to or greater
\nthan the consolidated net worth (as determined in accordance with generally
\naccepted accounting principles) of Company and its subsidiaries immediately
\nprior to such transaction.<\/p>\n
(e) Company will deliver to Seller copies of all
\ndocuments filed by Company with the Securities and Exchange Commission promptly
\nafter such filings have been made.<\/p>\n
(f) With respect to the HEC Mortgage, Company agrees
\nthat:<\/p>\n
(i) it shall immediately provide Seller with
\ncopies of all notices, demands, claims and other communications related to or
\narising out of the HEC Mortgage which are sent or received by Company;<\/p>\n
(ii) at no time shall the principal amount secured
\nby the HEC Mortgage exceed $2,500,000.00;<\/p>\n
(iii) the HEC Mortgage is superior to the Deed of
\nTrust to the extent provided in the HEC Mortgage and the Deed of Trust;<\/p>\n
33
\n 37<\/p>\n
(iv) as a condition to exercising its rights
\nfollowing an Event of Default under the HEC Mortgage, Company shall give Seller
\nwritten notice of its intention to do so at least thirty (30) days before
\nexercising such rights and shall afford Seller the opportunity, exercisable at
\nSeller’s sole option, to pay or discharge the indebtedness secured by the HEC
\nMortgage to the extent of its priority over the Deed of Trust and become
\nsubrogated to Company’s rights under the HEC Mortgage;<\/p>\n
(v) without Seller’s prior written consent,
\nCompany shall not amend, modify or otherwise alter the terms of the HEC
\nMortgage from those contained in the instrument attached to this Agreement as
\nSchedule 3.3(o);<\/p>\n
(vi) in addition to its rights under 7.12(f)(iv)
\nabove, Seller shall have the right, exercisable at Seller’s sole option at any
\ntime after the earlier of (i) the end of a Cure Period defined in the Note if
\nBuyer has failed to cure the Event, as defined in the Note, which is associated
\nwith the Cure Period, or (ii) Default under the Deed of Trust, and from time to
\ntime, to pay or discharge the indebtedness secured by the HEC Mortgage to the
\nextent of its priority over the Deed of Trust and become subrogated to
\nCompany’s rights under the HEC Mortgage.<\/p>\n
7.13 SECTION 4.1(H) REFUND. If Buyer has paid Seller the amounts
\ncontemplated by Section 4.1(h) of the Deed of Trust to prevent Default caused
\nby the Third Registration Statement not being declared effective, Seller shall
\nimmediately refund to Buyer all such amounts paid to Seller if the Third
\nRegistration Statement is declared effective on or before the end of the
\nsix-month period during which Buyer can prevent Default associated with the
\nThird Registration Statement. If the Third Registration Statement has not been
\ndeclared effective on or before the end of the six-month period, Seller shall
\nretain such amounts in addition to all other remedies provided in the Deed of
\nTrust.<\/p>\n
ARTICLE 8<\/p>\n
MISCELLANEOUS<\/p>\n
8.1 NOTICES. All notices required or permitted under this
\nAgreement shall be effective upon receipt if personally delivered, if mailed by
\nregistered or certified mail, postage prepaid, or if delivered by telegram, fax
\nor telecopy if directed to the parties as follows:<\/p>\n
34
\n 38
\n To Seller:<\/p>\n
Momentum Operating Co., Inc.
\n 232 South Main
\n P.O. Box 578
\n Albany, Texas 76430
\n Attn: Michael J. Parsons, President<\/p>\n
To Buyer or Company:<\/p>\n
Harken Exploration Company
\n Harken Energy Corporation
\n 5605 N. MacArthur Blvd., Suite 400
\n Irving, Texas 75038
\n Attn: Richard H. Schroeder, President
\n Copy to: Larry E. Cummings, General Counsel<\/p>\n
Any party may give written notice of a change in the address or individual to
\nwhich delivery shall be made.<\/p>\n
8.2 EXPENSES. Except as otherwise provided in this Agreement, all
\nfees, costs and expenses incurred by the parties in negotiating this Agreement
\nand in consummating the transactions contemplated by this Agreement shall be
\npaid by the party which incurred them.<\/p>\n
8.3 AMENDMENT. The provisions of this Agreement may be altered,
\namended or waived only by a written agreement executed by the party to be
\ncharged. No waiver of any provision of this Agreement shall be construed as a
\ncontinuing waiver of the provision.<\/p>\n
8.4 ASSIGNMENT. Neither Buyer nor Company may assign all or any
\nportion of its rights or delegate all or any portion of its duties under this
\nAgreement without Seller’s prior written consent. To the extent permitted by
\nlaw, Seller shall have the right to assign all or any portion of its rights
\nunder this Agreement to any Seller affiliate at any time after 180 days
\nfollowing the Closing Date.<\/p>\n
8.5 TABLE OF CONTENTS\/HEADINGS. The table of contents and
\nheadings are for convenience only and do not limit or otherwise affect the
\nprovisions of this Agreement.<\/p>\n
35
\n 39
\n 8.6 COUNTERPARTS. This Agreement may be executed in counterparts,
\neach of which shall be an original and which, taken together, shall constitute
\nthe same agreement.<\/p>\n
8.7 REFERENCES. References, including use of a pronoun, shall
\ninclude, where applicable, masculine, feminine, singular or plural individuals
\nor legal entities.<\/p>\n
8.8 GOVERNING LAW. This Agreement and the transactions
\ncontemplated by this Agreement shall be governed and construed under the laws
\nof the State of Texas without giving effect to any rules of law which might
\nrequire application of the law of another jurisdiction. Venue of any action
\narising under this Agreement shall be in Abilene, Texas.<\/p>\n
8.9 ANNOUNCEMENTS. Neither Seller, Buyer nor Company shall
\nannounce or otherwise publicize this Agreement or the transactions contemplated
\nby this Agreement without the prior written consent of the other party.<\/p>\n
8.10 ENTIRE AGREEMENT. This Agreement is the entire understanding
\nbetween Seller, Buyer and Company concerning the subject matter of this
\nAgreement. This Agreement supersedes all negotiations, discussions,
\nrepresentations, prior agreements and understandings, whether oral or written,
\nincluding, without limitation, all letters or expressions of intent between the
\nparties.<\/p>\n
8.11 PARTIES IN INTEREST. This Agreement is binding upon and shall
\ninure to the benefit of Seller, Buyer and Company and, except where prohibited,
\ntheir successors, representatives and assigns. Unless expressly stated to the
\ncontrary, no other person is intended to have any benefits, rights or remedies
\nunder this Agreement.<\/p>\n
8.12 SCHEDULES. All schedules attached to this Agreement are
\nincorporated into this Agreement for all purposes. Reference to the
\n“Agreement” includes all agreements and instruments attached as schedules to
\nthis Agreement and\/or executed in connection with the transactions contemplated
\nby this Agreement.<\/p>\n
8.13 SEVERANCE. If any provision of this Agreement is found to be
\nillegal or unenforceable, the other terms of this Agreement shall remain in
\neffect and this Agreement shall be construed as if the illegal or unenforceable
\nprovision had not been included.<\/p>\n
8.14 TIME OF THE ESSENCE. Time is of the essence of this
\nAgreement.<\/p>\n
36
\n 40
\n SELLER<\/p>\n
MOMENTUM OPERATING CO., INC. <\/p>\n
By: \/s\/ Michael J. Parsons
\n ——————————–
\n Name: Michael J. Parsons
\n ——————————–
\n Title: President
\n ——————————–<\/p>\n
BUYER <\/p>\n
HARKEN EXPLORATION COMPANY <\/p>\n
By: \/s\/ Richard H. Schroeder
\n ——————————–
\n Name: Richard H. Schroeder
\n ——————————–
\n Title: President
\n ——————————–<\/p>\n
COMPANY <\/p>\n
HARKEN ENERGY CORPORATION <\/p>\n
By: \/s\/ Richard H. Schroeder
\n ——————————–
\n Name: Richard H. Schroeder
\n ——————————–
\n Title: President
\n ——————————–<\/p>\n
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