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CHANCELLOR
GROUP, INC.
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(Exact
Name of Registrant as Specified in
Charter)
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Nevada
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000-30219
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87-0438647
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(State
or Other Jurisdiction
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(Commission
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(
I.R.S. Employer
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of
Incorporation)
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File
Number)
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Identification
No.)
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216
South Price Road, Pampa, TX
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79065
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant's
telephone number, including area code:
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(806)
688-9697
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Former
name or former address, if changed since last report
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a
-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d -2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e -4(c))
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| ITEM 1.01. |
Entry
into a Material Definitive
Agreement.
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Item
1.03.
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Bankruptcy
or Receivership.
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Item
9.01.
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Financial
Statements and Exhibits.
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(d)
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Exhibits.
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Exhibit
No.
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Description
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2.2
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Order
dated August 15, 2008, of United States Bankruptcy Court, Northern
District of Texas, Dismissing the Company’s and its Subsidiaries’ Chapter
11 Cases.
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10.18
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Purchase
and Sale Agreement, effective as of June 1, 2008, by and among the
Company, Gryphon Production Company, LLC and Gryphon Field Services,
LLC,
collectively acting as sellers, and Legacy Reserves Operating LP,
acting
as buyer, and Capwest Resources, Inc. and Western National Bank,
collectively acting as sellers’
lenders.
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| CHANCELLOR GROUP, INC. | ||
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| By: | /s/ Thomas Grantham | |
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Thomas Grantham, President |
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| Date: August 19, 2008 | ||
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EXHIBIT
INDEX
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Exhibit
No.
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Description
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|
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2.2
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Order
dated August 15, 2008, of United States Bankruptcy Court, Northern
District of Texas, Dismissing the Company’s and its Subsidiaries’ Chapter
11 Cases.
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10.18
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Purchase
and Sale Agreement, effective as of June 1, 2008, by and among the
Company, Gryphon Production Company, LLC and Gryphon Field Services,
LLC,
collectively acting as sellers, and Legacy Reserves Operating LP,
acting
as buyer, and Capwest Resources, Inc. and Western National Bank,
collectively acting as sellers’
lenders.
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| Signed August 15, 2008 | /s/ Robert L. Tom | |
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United State Bankruptcy Judge |
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IN
RE:
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§
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||
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§
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|||
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CHANCELLOR
GROUP, INC.,
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§
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NO.
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07-20512-11
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§
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|||
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GRYPHON
FIELD SERVICES, LLC, and
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§
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NO.
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07-20511-11
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§
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|||
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GRYPHON
PRODUCTION CO.,
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§
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NO.
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07-20510-11
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LLC,
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§
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§
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Debtors.
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§
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APPROVED
AS TO FORM:
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/s/
Bill Kinkead
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Bill
Kinkead, Attorney for Chancellor Group, Inc.,
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Gryphon
Field Services, LLC and Gryphon
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Production
Company, LLC
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/s/
Don D. Sunderland
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Don
D. Sunderland, Attorney for Western National
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Bank
and CapWest Resources, Inc.
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/s/
David Jones
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David
Jones, Attorney for Supporting
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Shareholders
Group
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/s/
Robert A. Simon
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Henry
W. Simon, Jr. / Robert A. Simon, Attorneys for
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New
Concept Energy, Inc.
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/s/
William S. Parkinson
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William
S. Parkinson, Attorney for
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United
States Trustee
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PREPARED
BY:
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Bill
Kinkead, TSBN: 11477400
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Attorney
for Debtors
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6937
S. Bell, Suite G
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Amarillo,
TX 79109
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Tel
(806) 353-2129
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Fax
(806) 353-4370
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| PAGE | ||
| 1. |
SALE
AND PURCHASE OF THE ASSETS.
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1
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1.1
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Acquired
Assets
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1
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1.2
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Proceeds
Interest
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3
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1.3
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Axis
Overriding Royalty
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3
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1.4
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CapWest
Overriding Royalty
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3
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1.5
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CapWestWarrants
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4
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1.6
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Assumed
Liabilities
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4
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| 2. | BUYER'S PURCHASE PRICE |
4
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2.1
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Amount
of Buyer's Purchase Price
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4
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2.2
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Deposit
and Escrow
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4
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2.3
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Adjustments
to the Base Purchase Price
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6
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2.4
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Allocation
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7
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| 3. | LENDER'S CONSIDERATION |
7
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3.1
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Lender's
Consideration for Release of Liens
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7
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3.2
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CapWest's
Consideration for Conveyance of Ownership
Interests
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7
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| 4. | CLOSING. |
8
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4.1
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Closing
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9
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4.2
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Deliveries
by Seller to Buyer
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9
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4.3
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Deliveries
by Buyer to Seller
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9
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4.4
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Delivery
of Payoff by Seller to Lender
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10
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4.5
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Delivery
of CapWest Consideration to CapWest
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10
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4.6
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Delivery
of Release by Lender
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10
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4.7
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Delivery
of Proceeds Interest, CapWest Overriding Royalty, and
CapWest Warrantsto
Seller
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10
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4.8
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Delivery
of Axis Overriding Royalty and CapWest Overriding
Royalty
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10
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4.9
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Further
Cooperation
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10
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5
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ACCOUNTING
ADJUSTMENTS.
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10
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5.1
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Closing
Adjustments.
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10
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5.2
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Strapping
and Gauging
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11
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5.3
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Taxes
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11
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5.4
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Post-Closing
Adjustments.
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12
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5.5
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Suspended
Funds
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12
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5.6
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Audit
Adjustments.
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13
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5.7
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Cooperation
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13
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| 6. |
DUE
DILIGENCE: TITLE MATTERS.
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13
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6.1
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General
Access
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13
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6.2
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Defensible
Title
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13
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6.3
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Defect
Letters.
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15
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6.4
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Effect
of Title Defect
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17
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6.5
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Preferential
Rights and consents.
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18
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| 7. |
ENVIRONMENTAL
ASSESSMENT.
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19
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7.1
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Physical
Condition of the Assets
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20
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7.2
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Inspection
and Testing.
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20
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7.3
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Notice
of Adverse Environmental Conditions
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21
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7.4
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Rights
and Remedies for Adverse Environmental
Conditions
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22
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7.5
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Remediation
by Seller
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23
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| 8. | REPRESENTATIONS AND WARRANTIES OF SELLER. |
24
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8.1
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Seller’s
Representations and Warranties
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24
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8.2
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Scope
of Representations of Seller’s
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26
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| 9. |
REPRESENTATIONS
AND WARRANTIES OF BUYER.
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27
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9.1
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Buyer’s
Representations and Warranties
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27
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10.
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DISCLAIMER
OF REPRESENTATIONS AND WARRANITES BY LENDER
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28
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11.
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28
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11.1
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Maintenance
of Assets
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28
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11.2
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|
29
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11.3
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30
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| 12. | CERTAIN AGREEMENTS OF BUYER |
30
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12.1
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Plugging
Obligation
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30
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12.2
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30
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12.3
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31
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13.
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CONDITIONS
PRECEDENT TO OBLIGATIONS OF BUYER
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31
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13.1
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No
Litigation
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31
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13.2
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31
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14.
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CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER |
31
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14.1
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No
Litigation
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31
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14.2
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31
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15.
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TERMINATION. |
31
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15.1
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Causes
of Termination
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32
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15.2
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33
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16.
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INDEMNIFICATION. |
33
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16.1
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Indemnification
by Seller
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35
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16.2
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35
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16.3
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35
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16.4
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36
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16.5
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38
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16.6
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||
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17.
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MISCELLANEOUS. |
40
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17.1
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Casualty
Loss.
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40
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17.2
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|
40
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17.3
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41
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17.4
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42
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17.5
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42
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17.6
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42
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17.7
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42
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17.8
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42
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17.9
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43
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17.10
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43
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17.11
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43
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17.12
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43
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17.13
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43
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17.14
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43
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17.15
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Operations
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43
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|
A
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Oil
and Gas Leases and Land
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|
B
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Allocation
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C
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Description
of Equipment
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D
|
Form
of Assignment and Bill of Sale
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2.2
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Escrow
Agreement
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8.1(E)
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AFE’s
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8.1(G)
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Pending
Litigation
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8.1(K)
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Material
Agreements
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8.1(L)
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Consents
and Preferential Purchase Rights
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|
A.
|
Seller
desires to sell to Buyer certain oil, gas and mineral properties
and other
assets on the terms and conditions set forth in this
Agreement.
|
|
B.
|
Seller
is currently subject to three separate, but related bankruptcy
proceedings
now pending under Chapter 11 of the United States Bankruptcy Code,
in the
United States Bankruptcy Court, Northern District of Texas, Amarillo
Division, Case Nos. 07-20512-RLJ-11, 07-20511-RLJ-11, 07-20510-RLJ-11
(collectively, the “Bankruptcy Cases”). Lender is the Seller’s primary
secured creditor in the Bankruptcy Cases.
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C.
|
Buyer
desires to purchase from Seller such oil, gas and mineral properties
and
other assets on the terms and conditions set forth in this Agreement,
free
and clear of any and all liens and encumbrances, including those
now held
against such properties by the Lender. Seller has agreed to convey
the
designated properties to Buyer, subject to the fulfillment of the
terms
and conditions of this Agreement. Moreover, Lender has agreed to
release
its liens against all of Seller’s properties, including those to be sold
to Buyer, in order to facilitate the sale of those properties by
Seller to
Buyer and for the consideration stated below, and CapWest has further
agreed to convey to Seller certain ownership interests that it
holds in
not only the designated properties, but all of Seller’s properties, all to
be subject to the fulfillment of the terms and conditions of this
Agreement that relate to Lender.
|
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(A)
|
The
Base Purchase Price shall be adjusted upward
by:
|
|
(i)
|
any
amount determined to be due Seller pursuant to Section
5.4;
|
|
(ii)
|
Property
Taxes and Severance Taxes related to the Assets paid by Seller
for the
period following the Effective Time as determined pursuant to Section
5.3;
|
|
(iii)
|
an
amount equal to the costs, expenses and other expenditures (whether
capitalized or expensed) paid by Seller in accordance with this
Agreement
that are attributable to the Assets for the period from and after
the
Effective Time;
|
|
(iv)
|
an
amount equal to the amount of proceeds derived from the sale of
Oil and
Gas, net of royalties and severance taxes paid by Buyer, actually
received
by Buyer and directly attributable to the Wells which are, in accordance
with generally accepted accounting procedures, attributable to
the period
of time prior to the Effective Time;
|
|
(v)
|
any
other amount agreed upon in writing by Seller and
Buyer.
|
|
(B)
|
The
Base Purchase Price shall be adjusted downward by:
|
|
(i)
|
an
amount equal to the amount of proceeds derived from the sale of
Oil and
Gas, net of royalties and severance taxes paid by Seller, actually
received by Seller and directly attributable to the Wells which
are, in
accordance with generally accepted accounting procedures, attributable
to
the period of time from and after the Effective
Time;
|
|
(ii)
|
an
amount equal to all expenditures, liabilities and costs relating
to the
Assets (other than Taxes related to the Assets) that are unpaid
as of the
Closing Date and assessed for or attributable to periods of time
or the
ownership of production prior to the Effective Time regardless
how such
expenditures, liabilities and costs are calculated provided that
to the
extent the actual amounts cannot be determined prior to the agreement
of
Buyer and Seller with respect to the Closing Adjustment Statement,
a
reasonable estimate of such expenditures, liabilities and costs
shall be
used;
|
|
(iii)
|
all
amounts related to Title Defects as determined pursuant to Section
6.4,
consents and preferential rights as determined pursuant to Section
6.5,
Adverse Environmental Conditions as determined pursuant to Section
7.4,
Exclusion Adjustments as determined pursuant to Sections 6.5 or
7.4, and
Casualty Losses as determined pursuant to Section 17.1;
and
|
|
(iv)
|
Property
Taxes and Severance Taxes related to the Assets to be paid by Seller
for
the period prior to the Effective Time as determined pursuant to
Section
4.3.
|
|
(v)
|
the
amount of the Deposit; and
|
|
(vi)
|
and
other amount agreed upon in writing by Seller and
Buyer.
|
|
(C)
|
Seller
shall have the right to collect any receivable, refund or other
amounts
associated with periods prior to the Effective Time. To the extent
Buyer
collects any such receivable, refund or other amounts, then Buyer
shall
promptly remit any such amounts to
Seller.
|
|
3.
|
LENDER’S
CONSIDERATION.
|
|
(A)
|
That
certain Loan Agreement dated April 13, 2007, by and among Seller,
as
Borrower, and WNB, as Lender (the “WNB Loan Agreement”), pursuant to which
Borrower, as Maker, executed and delivered the following promissory
notes:
|
|
(i)
|
That
certain Multiple Advance Term Promissory Note, dated April 13,
2007, in
the original principal amount of FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00)(the “First WNB Note”), the outstanding principal balance
under which is $1,962,557.49, as of the date of this Agreement,
and under
which interest accrues at a per diem rate of $729.29 per
day;
|
|
(ii)
|
That
certain Term Promissory Note, dated as of June 19, 2007, in the
original
principal amount of SIXTY-SEVEN THOUSAND AND NO/100 DOLLARS
($67,000.00)(the “Second WNB Note”), the outstanding principal balance
under which is $56,570.30, as of the date of this Agreement, and
under
which interest accrues at a per diem rate of $16.28 per
day;
|
|
(B)
|
That
certain Loan Agreement dated April 13, 2007, by and among Seller,
as
Borrower, and CapWest, as Lender (the “CapWest Loan Agreement”), pursuant
to which Borrower, as Maker, executed and delivered that certain
Advancing
Line of Credit/Term Note, dated April 13, 2007, in the original
principal
amount of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00)(the “CapWest
Note”), the outstanding principal balance under which is $3,797,345.29,
as
of the date of this Agreement, and under which interest accrues
at a per
diem rate of $1,371.26 per day. The CapWest Loan Agreement, the
CapWest
Note, all instruments executed pursuant thereto or simultaneously
therewith, and any and all instruments referred to in that certain
Proof
of Claim dated _________, and filed by CapWest in the Bankruptcy
Cases are
collectively referred to herein as the “CapWest Loan Documents”. The WNB
Loan Documents and the CapWest Loan Documents are collectively
referred to
herein as the “Loan Documents”.
|
|
(A)
|
As
consideration for the Proceeds Interest and the CapWest Warrants,
Seller
agrees to pay to CapWest total consideration of EIGHT HUNDRED AND
FIFTY
THOUSAND AND NO/100 DOLLARS ($850,000.00)(the “Proceeds
Consideration”).
|
|
(B)
|
As
consideration for the CapWest Overriding Royalty, Seller agrees
to pay to
CapWest total consideration of SEVEN HUNDRED THOUSAND AND NO/100
DOLLARS
($700,000.00)(the “Overriding Royalty Consideration”).
|
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4.
|
CLOSING.
|
|
4.2
|
Deliveries
by Seller to Buyer.
At Closing, Seller shall deliver to
Buyer:
|
|
(A)
|
A
separate Assignment and Bill of Sale executed by Seller for each
jurisdiction where the Assets are located, substantially in the
form
attached hereto as Exhibit
D,
effecting the sale, transfer, conveyance and assignment of the
Assets,
with (i) a special warranty of the real property title by, through
and under Seller but not otherwise, and (ii) with all personal
property and fixtures conveyed “AS IS, WHERE IS,” with no warranties
whatsoever, express, implied or
statutory;
|
|
(B)
|
Any
governmental forms required to effect transfer in accordance with
applicable regulations, duly executed by Seller;
|
|
(C)
|
Executed
letters in lieu of transfer orders instructing purchasers of production
to
pay to Buyer the proceeds of sales of Oil and Gas from the
Assets;
|
|
(D)
|
Executed
change of operator forms as required by applicable governmental
regulation;
|
|
(E)
|
Executed
releases of any mortgages or financing statements in favor of
Lender or
any third party that may be currently encumbering the Assets;
|
|
(F)
|
An
executed Closing Adjustment
Statement;
|
|
(G)
|
An
executed Non-Foreign Affidavit of Seller;
|
|
(H)
|
Possession
of the Records and all other Assets;
|
|
(I)
|
The
suspended funds pursuant to Section
5.5;
|
|
(J)
|
Partner
or shareholder resolutions, as applicable, of Seller, certified
by the
secretary or other appropriate officer of Seller or of its general
partner, authorizing the execution and performance of this Agreement
and
the transactions contemplated
hereby.
|
|
5
|
ACCOUNTING
ADJUSTMENTS.
|
|
5.3
|
Taxes.
|
|
(A)
|
Property
Taxes.
All ad valorem taxes, real property taxes, personal property taxes
and
similar obligations assessed on the Assets (“Property Taxes”) shall be
apportioned as of the Effective Time between Buyer and Seller.
Buyer shall
file or cause to be filed all required reports and returns incident
to
Property Taxes which are due on or after the Closing, and shall
pay or
cause to be paid to the taxing authorities all such taxes reflected
on
such reports and returns. The Post-Closing Adjustment Statement
shall
settle all liability for Property Taxes, using estimates based
on previous
assessments to the extent current assessments are not
known.
|
|
(B)
|
Sales
Taxes, Filing Fees, Etc.
The Base Purchase Price is net of any sales taxes or other transfer
taxes.
Buyer shall be liable for any sales tax or other transfer tax as
well as
any applicable conveyance, transfer and recording fees, and real
estate
transfer stamp or taxes imposed upon the sale pursuant to this
Agreement.
If Seller is required by applicable state law to report and pay
these
taxes or fees, Buyer shall promptly reimburse Seller in full payment
of
the invoice.
|
|
(C)
|
Severance
Taxes.
All production, severance or excise taxes, conservation fees and
other
similar such taxes or fees (other than income taxes) payable on
a current
basis with respect to Oil and Gas produced and sold from the Assets
(“Severance Taxes”) shall be borne by Seller to the extent the production
on which such taxes are based occurs during Seller’s ownership prior to
the Effective Time and shall be borne by Buyer to the extent such
production occurs after the Effective Time.
|
|
5.4
|
Post-Closing
Adjustments
|
|
(A)
|
A
post-closing adjustment statement (the “Post-Closing Adjustment
Statement”) based on the actual income and expenses shall be prepared and
delivered by Seller to Buyer within ninety (90) days after the
Closing,
proposing further adjustments to the calculation of the Purchase
Price
based on the information then available. Seller or Buyer, as the
case may
be, shall be given access to and shall be entitled to review and
audit the
other Party’s records pertaining to the computation of amounts claimed in
such Post-Closing Adjustment
Statement.
|
|
(B)
|
Within
thirty (30) days after receipt of the Post-Closing Adjustment Statement,
Buyer shall deliver to Seller a written statement describing in
reasonable
detail its objections (if any) to any amounts or items set forth
on the
Post-Closing Adjustment Statement. If Buyer does not raise objections
within such period, then the Post-Closing Adjustment Statement
shall
become final and binding upon the Seller and Buyer at the end of
such
period.
|
|
(C)
|
If
Buyer raises objections, the Seller and Buyer shall negotiate in
good
faith to resolve any such objections. If the Seller and Buyer are
unable
to resolve any disputed item within thirty (30) days after Buyer’s receipt
of the Post-Closing Adjustment Statement, any disputed accounting
item
shall be submitted to a nationally recognized independent accounting
firm
mutually agreeable to the Seller and Buyer who shall be instructed
to
resolve such disputed item within thirty (30) days. The resolution
of
disputes by the accounting firm so selected shall be set forth
in writing
and shall be conclusive, binding and non-appealable upon the Seller
and
Buyer with respect to the accounting matters submitted and the
Post-Closing Adjustment Statement shall become final and binding
upon the
Seller and Buyer on the date of such resolution. The fees and expenses
of
such accounting firm shall be paid one-half by Buyer and one-half
by
Seller.
|
|
(D)
|
After
the Post-Closing Adjustment Statement has become final and binding
on the
Seller and Buyer, Seller or Buyer, as the case may be, shall pay
to the
other such sums as are due to settle accounts between the Seller
and Buyer
due to differences between the estimated Purchase Price paid pursuant
to
the Closing Adjustment Statement and the actual Purchase Price
set forth
on the Post-Closing Adjustment
Statement.
|
|
6.
|
DUE
DILIGENCE: TITLE MATTERS.
|
|
6.1
|
General
Access.
|
|
(A)
|
During
reasonable business hours, Seller agrees to grant Buyer physical
access to
the Leases and Wells to allow Buyer to conduct, at Buyer’s sole risk and
expense, on-site inspections and environmental assessments of the
Leases
and Wells. Buyer agrees not to enter onto the Leases or contact
field
employees without Seller’s prior knowledge. In connection with any such
on-site inspections, Buyer agrees not to interfere with the normal
operation of the Leases and Wells and agrees to comply with all
requirements of the operators of the Wells. If Buyer or its agents
prepares an environmental assessment of any Lease or Well, Buyer
agrees to
keep such assessment confidential and to furnish copies thereof
to Seller.
In connection with granting such access, Buyer represents that
it is
adequately insured and waives, releases and agrees to indemnify
the Seller
against all claims for injury to, or death of, persons or for damage
to
operations or property arising in any way from the access afforded
to
Buyer hereunder or the activities of Buyer. This waiver, release
and
indemnity by Buyer shall survive termination of this
Agreement.
|
|
(B)
|
Upon
the execution of this Agreement, Seller shall give Buyer and its
representatives, employees, consultants, independent contractors,
attorneys and other advisors reasonable access to the Records during
regular office hours for any and all inspections and
copying.
|
|
6.2
|
Defensible
Title.
As used herein the term Defensible Title shall
mean:
|
|
(A)
|
As
to the Assets, that title or operating rights of Seller
which:
|
|
(i)
|
entitles
Seller to receive not less than the interests shown in Exhibit
B
as
the “Net Revenue Interest” of all Oil and Gas produced, saved and marketed
from or allocated to the formations in the associated Wells which
are
producing as of the date of this Agreement or which have otherwise
been
given Allocated Value, all without reduction, suspension or termination
except as stated in such Exhibit;
and
|
|
(ii)
|
obligates
Seller to bear a percentage of the costs and expenses relating
to the
maintenance and development of, and operations relating to, the
producing
formations in each associated Well not greater than the “Working Interest”
shown in Exhibit
B
(without a proportionate increase in the Net Revenue Interest),
all
without increase except as stated in such Exhibit;
and
|
|
(B)
|
That
title of Seller to the Assets is free and clear of liens, encumbrances
and
defects that materially and adversely affect the ownership, operation
or
use of the Assets, except for Permitted
Encumbrances.
|
|
(C)
|
As
used herein, the term “Permitted Encumbrances” shall mean any one or more
of the following:
|
|
(i)
|
The
provisions of the Leases and any lessor’s royalties, overriding royalties,
net profits interests, carried interests, production payments,
reversionary interests and similar burdens reflected in the public
records
or in the Records, if the net cumulative effect of the burdens
does not
operate to reduce the Net Revenue Interest of Seller below the
interests
described in Exhibit
B;
|
|
(ii)
|
Any
increase in lessor’s royalty occasioned by the repeal or suspension of any
governmental regulation providing for the reduction of royalty
for wells
producing below defined threshold
amounts;
|
|
(iii)
|
Division
orders and production sales contracts terminable without penalty
upon no
more than ninety (90) days notice to the
purchaser;
|
|
(iv)
|
Preferential
Rights and required third party consents to assignment and similar
agreements with respect to which waivers or consents are obtained
from the
appropriate parties, or the appropriate time period for asserting
any such
right has expired without an exercise of the
right;
|
|
(v)
|
Materialman’s,
mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other
similar liens or charges arising in the ordinary course of business
for
obligations that are not delinquent and that will be paid and discharged
in the ordinary course of business, or if delinquent, that are
being
contested in good faith by appropriate action of which Buyer is
notified
in writing before Closing;
|
|
(vi)
|
All
rights to consent by, required notices to, filings with, or other
actions
by governmental entities in connection with the sale or conveyance
of oil
and gas leases or interests therein if they are routinely obtained
subsequent to the sale or
conveyance;
|
|
(vii)
|
Easements,
rights-of-way, servitudes, permits, surface leases and other rights
in
respect of surface operations that do not materially interfere
with the
oil and gas operations to be conducted on any Well or
Lease;
|
|
(viii)
|
All
operating agreements, unit agreements, unit operating agreements,
pooling
agreements and pooling designations affecting the Assets that are
either
(i) of record in Seller’s chain of title or (ii) reflected or
referenced in the Records or (iii) included as Material Agreements on
Exhibit 8.1(K), to the extent the same do not decrease Seller’s Net
Revenue Interests below the interests set forth on Exhibit
B
or
increase Seller’s Working Interests above the interests set forth on
Exhibit
B;
|
|
(ix)
|
Conventional
rights of reassignment prior to release or surrender requiring
notice to
the holders of the rights;
|
|
(x)
|
All
rights reserved to or vested in any governmental, statutory or
public
authority to control or regulate any of the Assets in any manner,
and all
applicable laws, rules and orders of governmental
authority;
|
|
(xi)
|
Defects
that are defensible by possession under applicable statutes of
limitation
for adverse possession or for
prescription;
|
|
(xii)
|
Defects
that a reasonable operator in the oil and gas industry would
normally
accept and that cannot reasonably be expected to prevent Buyer
from
receiving proceeds of production from the affected Assets;
and
|
|
(xiii)
|
All
other liens, charges, encumbrances, contracts, agreements,
instruments,
obligations, defects and irregularities affecting the Assets
that
individually or in the aggregate are not such as to materially
interfere
with or affect the operation, value or use of any of the
Assets and have
not prevented, and cannot reasonably be expected to prevent,
Buyer from
receiving the proceeds of production from the affected Assets;
and
|
|
(xiv)
|
All
Assumed Liabilities of Buyer as set forth
herein
|
|
6.3
|
Defect
Letters.
|
|
(A)
|
Buyer
may from time to time and no later than July 25, 2008, notify Seller
in
writing (a “Notice”) of any matter which would cause title to all or part
of the Assets not to be Defensible Title (“Title Defect”). There shall be
no adjustment to the Base Purchase Price unless the aggregate Title
Defect
Values of all Title Defects satisfying the condition in clause
(i) exceed one percent (1%) of the Base Purchase Price (the “Title
Defect Threshold”) (such amount being a threshold, not a deductible). In
order to provide Seller a reasonable opportunity to cure any Title
Defects
prior to Closing, Buyer shall use reasonable efforts to provide
the Notice
as soon as reasonably possible after becoming aware of or making
its
determination of the Title Defect.
|
|
(B)
|
In
the Notice, Buyer must describe with reasonable detail each alleged
Title
Defect it has discovered and the steps required to cure each Title
Defect,
include Buyer’s reasonable estimate of the Title Defect Value attributable
to each, and include all data and information in Buyer’s possession or
control bearing thereon. Subject to the special warranty in the
Assignment
and Bill of Sale delivered at Closing, Buyer shall be deemed to
have
conclusively waived all Title Defects not disclosed to Seller in
a Notice
on or before July 25, 2008.
|
|
(C)
|
Upon
timely delivery of a Notice by
Buyer:
|
|
(i)
|
within
three (3) business days after Seller’s receipt of the Title Defects
Notice, Seller shall notify Buyer whether Seller agrees with Buyer’s
claimed Title Defects and/or the proposed Title Defect Values therefor
(“Seller’s Response”). If Seller does not agree with any claimed Title
Defect and/or the proposed Title Defect Value therefor, then the
Seller
and Buyer shall enter into good faith negotiations and shall attempt
to
agree on such matters;
|
|
(ii)
|
within
one (1) business day after Seller’s notice of its cure of a Title Defect,
Buyer shall notify Seller whether Buyer agrees with Seller’s proposed cure
of a Title Defect (“Buyer’s Response”). If Buyer does not agree with any
such cure, then the Seller and Buyer shall enter into good faith
negotiations and shall attempt to agree on such
matters;
|
|
(iii)
|
if
the Seller and Buyer cannot reach agreement concerning either the
existence of a Title Defect, Seller’s proposed cure of a Title Defect, or
a Title Defect Value within ten (10) days after Buyer’s receipt of
Seller’s Response or Seller’s receipt of Buyer’s Response, as applicable,
upon either Party’s request, the Seller and Buyer shall mutually agree on
and employ an attorney experienced in title examination in the
state where
the Assets are located (“Title Consultant”) to resolve all points of
disagreement relating to Title Defects and Title Defect Values;
provided
that Seller or Buyer may elect not to proceed to Closing with regard
to
such Assets and adjust the Base Purchase Price in the amount of
the
Allocated Value and not submit such matter to
arbitration;
|
|
(iv)
|
if
at any time any Title Consultant so chosen fails or refuses to
perform
hereunder, a new Title Consultant shall be chosen by the Seller
and Buyer.
The cost of any such Title Consultant shall be borne fifty percent
(50%)
by Seller and fifty percent (50%) by Buyer. Each Party shall present
a
written statement of its position on the Title Defect and/or Title
Defect
Value in question to the Title Consultant within five (5) days
after the
Title Consultant is selected, and the Title Consultant shall make
a
determination of all points of disagreement in accordance with
the terms
and conditions of this Agreement within ten (10) business days
of receipt
of such position statements. The determination by the Title Consultant
shall be conclusive and binding on the Seller and Buyer, and shall
be
enforceable against any Party in any court of competent jurisdiction.
If
necessary, the Closing Date shall be deferred only as to those
Assets
affected by any unresolved disputes regarding the existence of
a Title
Defect and/or the Title Defect Value until the Title Consultant
has made a
determination of the disputed issues with respect thereto and all
subsequent dates and required activities with respect to any such
Assets
having reference to the Closing Date shall be correspondingly deferred;
provided, however, that, unless Seller and Buyer mutually agree
to the
contrary, the Closing Date shall not be deferred in any event for
more
than thirty (30) days beyond the scheduled Closing Date in Section
4.1.
Once the Title Consultant’s determination has been expressed to both
Seller and Buyer, if applicable, Seller shall have five (5) days
in which
to advise Buyer in writing which of the options available to Seller
under
Section 6.4 that Seller elects regarding each of the Assets as
to which
the Title Consultant has made a determination. In evaluating whether
a
Title Defect exists, due consideration shall be given to the length
of
time that the particular Asset has been producing Oil and Gas and
whether
such fact, circumstance or condition is of the type expected to
be
encountered in the area involved and is usual and customarily acceptable
to reasonable and prudent operators, working interest owners and/or
purchasers engaged in the business of the exploration, development,
and
operation of oil and gas
properties.
|
|
6.4
|
Effect
of Title Defect
|
|
(A)
|
In
the event Buyer provides Seller with a timely Notice and the Title
Defects
are valid and exceed the Title Defect Threshold, for those Title
Defects
not cured by Closing, Seller may, at its sole
discretion:
|
|
(i)
|
adjust
the Base Purchase Price in the amount of the Title Defect Value
of the
Asset to which such Title Defect relates and proceed to Closing
on all
Assets; or
|
|
(ii)
|
proceed
with (a) Closing on those Assets not affected by the valid Title
Defects
and such Assets to which a Title Defect relates but for which Seller
has
elected to proceed to Closing with an adjustment of the Base Purchase
Price in the amount of the Title Defect Value of such Assets and
(b) defer Closing on those other Assets to which a Title Defect
relates and for which Seller has elected to attempt to cure such
Title
Defect and to not proceed to Closing, for which Buyer shall place
into
escrow an amount equal to the Allocated Values of the Assets affected
by
the valid Title Defects, which withheld amount shall be paid to
Seller
when the Asset affected by any valid Title Defect is cured or the
Title
Defect is waived by Buyer and the affected Asset is conveyed from
Seller
to Buyer. If neither of the above occurs and if Seller later determines
it
will not cure a Title Defect on or before six (6) months from the
Closing
Date, the amount in the escrow account attributable to such Title
Defect
will be returned to Buyer and Seller shall retain such Asset affected
by
such Title Defect.
|
|
(B)
|
The
diminution in value of an Asset attributable to a valid Title Defect
(the
“Title Defect Value”) notified in a Notice shall be determined by the
following:
|
|
(i)
|
if
the valid Title Defect asserted is that the actual Net Revenue
Interest
attributable to the producing or valued formation in any Asset
is less
than that stated in the applicable Exhibit, then the Title Defect
Value is
the product of the Allocated Value attributed to the affected formation(s)
in such Asset, multiplied by a fraction, the numerator of which
is the
difference between the Net Revenue Interest set forth in the applicable
Exhibit and the actual Net Revenue Interest, and the denominator
of which
is the Net Revenue Interest stated in the applicable Exhibit;
or
|
|
(ii)
|
if
the valid Title Defect represents an obligation, encumbrance, burden
or
charge upon the affected Asset (including any increase in Working
Interest
for which there is not a proportionate increase in Net Revenue
Interest),
the amount of the Title Defect Value is to be determined by taking
into
account the Allocated Value of such Asset, the portion of the Asset
affected by the Title Defect, the legal effect of the Title Defect,
the
potential economic effect of the Title Defect over the life of
the
affected Asset, and the Title Defect Values placed upon the Title
Defect
by Buyer and Seller.
|
|
(iii)
|
Notwithstanding
the above, in no event shall the total of the Title Defect Values
related
to a particular Asset exceed the Allocated Value of such
Asset.
|
|
(C)
|
If
the aggregate value of (i) the Base Purchase Price adjustment for
Title Defect Values plus (ii) the Allocated Value of Assets which are
retained in lieu of cure or adjustment equals or exceeds ten percent
(10%)
of the Base Purchase Price, then by notice delivered prior to the
Closing
either Party may terminate this Agreement and neither Party shall
have any
further obligation to conclude the transfer of the Assets under
this
Agreement.
|
|
(A)
|
Consents.
Except
for consents and approvals which are customarily obtained post-Closing,
if
a necessary consent to assign any Lease has not been obtained
as of the
Closing, then (i) the portion of the Assets for which such consent
has not been obtained shall not be conveyed at the Closing, (ii) the
Allocated Value for that Asset shall not be paid to Seller, and
(iii) Seller shall use best efforts to obtain such consent as
promptly as possible following Closing. If such consent has been
obtained
as of the date on which the Post-Closing Adjustment Statement
becomes
final, Seller shall convey the affected Asset to Buyer effective
as of the
Effective Time and Buyer shall pay Seller the Allocated Value
of the
affected Asset, less any proceeds from the affected Asset received
by
Seller attributable to the period of time after the Effective
Time
(calculated in accordance with Section 2.3). If such consent
has not been
obtained or has not been waived by Buyer as of the date on which
the
Post-Closing Adjustment Statement becomes final, Seller shall
elect either
to (i) challenge in court the enforceability of such consent right,
in which event Seller shall retain the affected Asset until such
legal
challenge is finally resolved by settlement or non-appealable
court order,
after which either Seller shall convey the affected Asset to
Buyer under
the terms of this Agreement and Buyer shall pay the Allocated
Value of the
Purchase Price for such Asset, less any proceeds received by
Seller
attributable to such Asset for the period from and after the
Effective
Time (calculated in accordance with Section 2.3) or (ii) retain the
affected Asset and the Purchase Price shall be reduced by an
amount equal
to the Allocated Value of the retained Asset (with such adjustment
being
an “Exclusion Adjustment”). Buyer shall reasonably cooperate with Seller
in obtaining any required consent including providing assurances
of
reasonable financial conditions, but Buyer shall not be required
to expend
funds or make any other type of financial commitments a condition
of
obtaining such
consent.
|
|
(B)
|
Preferential
Purchase Rights.
|
|
(i)
|
If
any preferential right to purchase any portion of the Assets is
exercised
prior to the Closing Date, or if the time frame for the exercise
of such
preferential purchase rights has not expired and Seller has not
received
notice of an intent not to exercise or waiver of the preferential
purchase
right, that portion of the Assets affected by such preferential
purchase
right shall be excluded from the Assets and the Purchase Price
shall be
adjusted downward by an amount equal to the Allocated Value of
such
affected Assets without the requirement for Buyer to give notice
(with
such adjustment being an “Exclusion Adjustment”). Notwithstanding any
other provision in this Agreement, if a preferential purchase right
subject to this Agreement is exercised, Buyer has the right, at
its sole
discretion, to terminate this Agreement, provided that the Allocated
Value
of all preferential rights exercised is equal to or exceeds ten
percent
(10%) of the Base Purchase Price.
|
|
(ii)
|
If
a third party exercises its preferential right to purchase, but
fails to
consummate the purchase prior to the Closing, Seller shall retain
the
affected Assets and the Purchase Price shall be adjusted downward
by an
amount equal to the Allocated Value of such affected Assets (with
such
adjustment being an “Exclusion
Adjustment”).
|
|
(iii)
|
If
a third party exercises its preferential right to purchase, but
does not
consummate the purchase within the time frame specified in the
preferential purchase right, Seller agrees to convey the affected
Asset to
Buyer effective as of the Effective Time, and Buyer agrees to pay
Seller
the Allocated Value of the Affected
Asset.
|
|
(iv)
|
If
a preferential purchase right is not discovered prior to Closing,
and the
affected Asset is conveyed to Buyer at Closing, and the preferential
purchase right is exercised and subsequently consummated after
Closing,
Buyer agrees to convey such affected Assets to the party exercising
such
right on the same terms and conditions under which Seller conveyed
such
Assets to Buyer and retain all amounts paid by the party exercising
such
preferential right to purchase. In the event of such exercise,
Buyer shall
prepare, execute and deliver a form of conveyance of such Asset
to such
exercising party, such conveyance to be in form and substance
as provided
in this Agreement, and Seller agrees to hold harmless and indemnify
Buyer
from any and all liabilities and obligations associated with
such conveyed
Asset, and to reimburse Buyer for reasonable expenses incurred
by Buyer
relating to the conveyed
Asset.
|
|
(C)
|
Exclusive
Remedy.
The
remedies set forth in this Section 6.5 are the exclusive remedies
under
this Agreement for exercised preferential purchase rights and required
consents to assign the
Assets.
|
|
7.
|
ENVIRONMENTAL
ASSESSMENT.
|
|
7.1
|
Physical
Condition of the Assets.
|
|
(A)
|
Buyer
acknowledges that the Assets have been used for oil and gas drilling
and
production operations and possibly for the storage and disposal
of waste
materials or hazardous substances related to standard oil field
operations. Physical changes in or under the Assets or adjacent
lands may
have occurred as a result of such uses. The Assets also may contain
previously plugged and abandoned wells, buried pipelines, storage
tanks
and other equipment, whether or not of a similar nature, the locations
of
which may not now be known by Seller or be readily apparent by
a physical
inspection of the Assets. Buyer understands that Seller does not
have the
requisite information with which to determine the exact nature
or
condition of the Assets nor the effect any such use has had on
the
physical condition of the Assets. Pursuant to the Safe Water Drinking
and
Toxic Enforcement Act of 1986, Buyer is hereby notified and assumes
the
risk that detectable amounts of chemicals known to cause cancer,
birth
defects and other reproductive harm may be found in, on or around
the
Assets. Upon consummation of the Closing Buyer shall be deemed
to have
assumed the risk of expense, claim, damage or liability arising
from any
such matter referred to in this section, including without limitation
the
risk that the Assets may contain waste or contaminants and that
adverse
physical conditions, including the presence of waste or contaminants,
may
not have been revealed by Buyer’s investigation. Consummation of the
Closing shall transfer all responsibility and liability related
to
disposal, spills, waste or contamination on or below the Assets
from
Seller to Buyer.
|
|
(B)
|
In
addition, Buyer acknowledges that some oil field production equipment
located on the Assets may contain asbestos and/or naturally-occurring
radioactive material (“NORM”). In this regard, Buyer expressly understands
that NORM may affix or attach itself to inside of wells, materials
and
equipment as scale or in other forms, and that wells, materials
and
equipment located on the Assets described herein may contain NORM
and that
NORM-containing materials may be buried or have been otherwise
disposed of
on the Assets. Buyer also expressly understands that special procedures
may be required for the removal and disposal of asbestos and NORM
from the
Assets where it may be found, and that upon consummation of the
Closing
Buyer shall be deemed to have assumed all liability when such activities
are performed.
|
|
7.2
|
Inspection
and Testing.
|
|
(A)
|
Prior
to Closing, Buyer shall have the right, at its sole cost and risk,
to
review Seller’s Phase I environmental assessments of the Assets, if any
exist, and to conduct any further environmental assessment of the
Assets
it deems appropriate, to the extent that Seller has the authority
to grant
such right to Buyer. Buyer shall immediately provide to Seller
any data
obtained from such assessments, including any reports and conclusions.
Seller and Buyer shall keep all information relating to such assessments
strictly confidential whether or not Closing occurs, except as
may be
required pursuant to any Environmental
Laws.
|
|
(B)
|
Buyer
waives and releases all claims against Seller, its affiliates,
and each of
their respective directors, officers, employees, agents, and other
representatives and their successors and assigns (collectively,
the
“Seller’s Group”), for injury to or death of persons, or damage to
property, arising in any way from the exercise of rights granted
to Buyer
hereby or the activities of Buyer or its employees, agents or contractors
on the Assets. BUYER SHALL INDEMNIFY THE SELLER’S GROUP AGAINST AND HOLD
THE MEMBERS OF THE SELLER’S GROUP HARMLESS FROM ANY AND ALL LOSS, COST,
DAMAGE, EXPENSE OR LIABILITY, INCLUDING REASONABLE ATTORNEY’S FEES,
WHATSOEVER ARISING OUT OF (I) ANY AND ALL STATUTORY OR COMMON LAW
LIENS OR
OTHER ENCUMBRANCES FOR LABOR OR MATERIALS FURNISHED IN CONNECTION
WITH
SUCH TESTS, SAMPLINGS, STUDIES OR SURVEYS AS BUYER MAY CONDUCT
WITH
RESPECT TO THE ASSETS; AND (II) ANY INJURY TO OR DEATH OF PERSONS OR
DAMAGE TO PROPERTY OCCURRING IN, ON OR ABOUT THE ASSETS AS A RESULT
OF
SUCH EXERCISE OR ACTIVITIES.
|
|
(C)
|
“Environmental
Laws” means all applicable local, state, and federal laws, rules,
regulations, and orders regulating or otherwise pertaining to:
(i) the use, generation, migration, storage, removal, treatment,
remedy, discharge, release, transportation, disposal, or cleanup
of
pollutants, contamination, hazardous wastes, hazardous substances,
hazardous materials, toxic substances or toxic pollutants;
(ii) surface waters, ground waters, ambient air and any other
environmental medium on or off any Lease; or (iii) the environment,
habitat protection or health and safety-related matters; including
the
following as from time to time amended and all others whether similar
or
dissimilar: the Comprehensive Environmental Response, Compensation,
and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and Recovery
Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid
Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984, the Hazardous Materials Transportation Act,
the Toxic
Substance Control Act, the Clean Air Act, the Clean Water Act,
the Safe
Drinking Water Act, the National Environmental Policy Act, the
Endangered
Species Act, the Oil Pollution Act of 1990, and all regulations
promulgated pursuant thereto.
|
|
7.3
|
Notice
of Adverse Environmental Conditions.
No later than July 25, 2008, Buyer shall notify Seller in writing
of any
Adverse Environmental Condition with respect to the Assets. Such
notice
shall describe in reasonable detail the Adverse Environmental Condition
and include the estimated Environmental Defect Value attributable
thereto
(the “Environmental Defect Notice”) based on a verifiable estimate of the
cost to Remediate the Adverse Environmental Condition. There shall
be no
adjustment to the Base Purchase Price unless the aggregate Environmental
Defect Values of all Adverse Environmental Conditions satisfying
the
condition in clause (i) exceeds one percent (1%) of the Base Purchase
Price (the “Environmental Defect Threshold”) (such amount being a
threshold, not a deductible). The “Environmental Defect Value”
attributable to any Adverse Environmental Condition shall be the
estimated
amount (net to Seller’s interest) of all reasonable costs and claims
necessary to Remediate the Adverse Environmental Conditions, as
reasonably
determined and estimated by Buyer. The term “Adverse Environmental
Condition” means (i) the failure of the Assets to be in material
compliance with all applicable Environmental Laws; (ii) the Assets
being subject to any agreements, consent orders, decrees or judgments
currently in existence based on any Environmental Laws that negatively
and
materially impact the future use of any portion of the Assets or
that
require any material change in the present conditions of any of
the
Assets; or (iii) the Assets being subject to any material uncured
notices of violations of or non-compliance with any applicable
Environmental Laws or any claim of material violation of any Environmental
Laws to the extent not disclosed to Buyer prior to execution of
this
Agreement. Buyer shall be deemed to have conclusively waived (i) all
Adverse Environmental Conditions not contained in an Environmental
Defect
Notice delivered to Seller on or before three (3) business days
prior to
Closing and (ii) any remedy against Seller for Adverse Environmental
Conditions that do not exceed the Environmental Defect Threshold.
|
|
7.4
|
Rights
and Remedies for Adverse Environmental Conditions.
|
|
(A)
|
With
respect to any Adverse Environmental Conditions affecting one or
more of
the Assets which exceed the Environmental Defect Threshold, Seller
may on
an Asset-by-Asset basis (i) Remediate the Adverse Environmental
Conditions prior to Closing, but Seller shall have no obligation
to do so,
and proceed to Closing with no adjustment of the Base Purchase
Price;
(ii) proceed to Closing and adjust the Base Purchase Price in an
amount equal to the applicable Environmental Defect Value; or
(iii) retain the affected Asset and reduce the Base Purchase Price by
the Allocated Value of the affected Asset (“Exclusion
Adjustment”).
|
|
(B)
|
Buyer
waives any Adverse Environmental Condition for which Buyer has
received an
adjustment to the Base Purchase Price in accordance with Section
7.4(A).
|
|
(C)
|
If
Buyer delivers a valid Environmental Defect Notice to Seller and
if the
aggregate of the Environmental Defects claimed is less than or
equals the
Environmental Defect Threshold, Buyer will be deemed to have accepted
the
Assets “where-is, as-is” with respect to all Adverse Environmental
Conditions in, on or under the Assets and the Adverse Environmental
Condition(s) in, on and under the Assets will be deemed to be part
of the
Assumed Liabilities. The Environmental Defect Threshold is a threshold
and
not a deductible. The Environmental Defect Threshold and the Title
Defect
Threshold are separate and distinct and operate
independently.
|
|
(D)
|
If
the aggregate value of (i) the Base Purchase Price adjustment for
Adverse Environmental Conditions plus (ii) any Exclusion Adjustments
in lieu of Remediating any Adverse Environmental Conditions equals
or
exceeds ten percent (10%) of the Base Purchase Price, either Party
may
terminate this Agreement and neither Party shall have any further
obligation to conclude the transfer of the Assets under this
Agreement.
|
|
(E)
|
The
term “Remediate” or “Remediation” means, with respect to any valid Adverse
Environmental Condition, the undertaking and completion of those
actions
and activities necessary to eliminate or correct such Adverse
Environmental Condition to the degree sufficient that such Adverse
Environmental Condition no longer constitutes an Adverse Environmental
Condition as defined above. Seller shall promptly notify Buyer
at such
time as it believes that it has Remediated an Adverse Environmental
Condition. Buyer shall promptly notify Seller whether it agrees
such
condition is Remediated. If Buyer fails to notify Seller of its
determination with respect to such Remediation within ten (10)
business
days following Seller’s notice, such Adverse Environmental Condition shall
be deemed Remediated.
|
|
(F)
|
If
Seller and Buyer are unable to agree on the amount of the Environmental
Defect Value within ten (10) business days after Seller’s receipt of the
Environmental Defect Notice or that an Adverse Environmental Condition
exists, has been Remediated or is required to be Remediated, then
the
dispute will be submitted to a mutually acceptable company with
recognized
expertise in the oil and gas environmental remediation and regulation
field (the “Environmental Consultant”) whose determination shall be final
and binding upon the Seller and Buyer. Seller and Buyer shall each
bear
their respective costs and expenses incurred in connection with
any such
dispute, and one-half (1/2) of the fees, costs and expenses charged
by the
Environmental Consultant. Each Party shall present a written statement
of
its position on the Adverse Environmental Condition and/or the
Environmental Defect Value in question to the Environmental Consultant
within five (5) business days after the Environmental Consultant
is
selected, and the Environmental Consultant shall make a determination
of
all points of disagreement in accordance with the terms and conditions
of
this Agreement within ten (10) business days of receipt of such
position
statements. If necessary, the Closing Date shall be deferred only
as to
those Assets affected by any unresolved disputes regarding the
existence
of an Adverse Environmental Condition and/or the Environmental
Defect
Value until the Environmental Consultant has made a determination
of the
disputed issues with respect thereto and all subsequent dates and
required
activities with respect to any such Assets having reference to
the Closing
Date shall be correspondingly deferred; provided, however, that,
unless
Seller and Buyer mutually agree to the contrary, the Closing Date
shall
not be deferred in any event for more than thirty (30) days beyond
the
scheduled Closing Date in Section 4.1. All Assets as to which no
such
dispute(s) exist shall be conveyed to Buyer subject to the terms
of this
Agreement at Closing. Once the Environmental Consultant’s determination
has been expressed to both Seller and Buyer, if applicable, Seller
shall
have five (5) business days in which to advise Buyer in writing
which of
the options available to Seller under Section 7.4(A) Seller elects
regarding each of the Assets as to which the Environmental Consultant
has
made a determination.
|
|
7.5
|
Remediation
by Seller.
If Seller elects to Remediate an Adverse Environmental Condition
or is
required by a governmental or regulatory agency to Remediate
an Adverse
Environmental Condition, the following will govern the
Remediation:
|
|
(A)
|
Seller
shall be responsible for all negotiations and contacts with federal,
state, and local agencies and authorities. Buyer may not make any
independent contacts with any agency, authority, or other third
party with
respect to the Adverse Environmental Condition or Remediation and
shall
keep all information regarding the Adverse Environmental Condition
and
Remediation confidential, except in each instance to the extent
required
by applicable law.
|
|
(B)
|
Seller
shall Remediate the Adverse Environmental Condition to the level
agreed
upon by Seller and Buyer (or failing such agreement to the level
determined by the Environmental Consultant), but in no event shall
Seller
be required to Remediate the Adverse Environmental Condition beyond
the
level required by the Environmental Laws in effect at the Effective
Time.
|
|
(C)
|
Buyer
shall grant and warrant access and entry to the Assets after
Closing to
Seller and third parties conducting assessments or Remediation,
to the
extent and as long as necessary to conduct and complete the assessment
or
Remediation work, to remove equipment and facilities, and to
perform any
other activities reasonably necessary in connection with assessment
or
Remediation.
|
|
(D)
|
Buyer
shall facilitate Seller’s ingress and egress or assessment or Remediation
activities after the Closing. Seller shall make reasonable efforts
to
perform the work so as to minimize disruption to Buyer’s business
activities.
|
|
(E)
|
Seller
shall continue Remediation of the Adverse Environmental Condition
until
the first of the following occurs:
|
|
(i)
|
the
appropriate governmental authorities provide notice to Seller or
Buyer
that no further Remediation of the Adverse Environmental Condition
is
required; or
|
|
(ii)
|
the
Adverse Environmental Condition has been Remediated to the level
required
by the Environmental Laws or as agreed by the
Parties.
|
|
(F)
|
Until
Seller completes Remediation of an Adverse Environmental Condition,
Seller
and Buyer shall each notify the other of any pending or threatened
claim,
action, or proceeding by any authority or private party that relates
to or
would affect the environmental condition, the assessment, or the
Remediation of the Assets.
|
|
8.
|
REPRESENTATIONS
AND WARRANTIES OF SELLER.
|
|
8.1
|
Seller’s
Representations and Warranties.
Seller represents and warrants to Buyer the following as of the
date of
execution of this Agreement and the
Closing:
|
|
(A)
|
Status.
CGI is a corporation duly organized, legally existing and in good
standing
under the laws of the State of Nevada, and authorized to do business
in
the state of Texas. Gryphon is a limited liability company duly
organized,
legally existing and in good standing under the laws of the state
of
Texas. GFS is a limited liability company duly organized, legally
existing
and in good standing under the laws of the state of Texas.
|
|
(B)
|
Authority.
Seller owns the Assets and has the requisite power and authority
to enter
into this Agreement, to carry out the transactions contemplated
hereby, to
transfer the Assets in the manner contemplated by this Agreement,
and to
undertake all of the obligations of Seller set forth in this
Agreement.
|
|
(C)
|
Validity
of Obligations.
The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly and validly authorized
by
all requisite action on the part of Seller as required under its
formation
documents. This Agreement and any documents or instruments delivered
by
Seller at the Closing shall constitute legal, valid and binding
obligations of Seller enforceable in accordance with their terms
subject,
however, to the effects of bankruptcy, insolvency, reorganization,
moratorium and other laws for the protection of creditors, as well
as to
general principles of equity, regardless of whether such enforceability
is
considered in a proceeding in equity or at
law.
|
|
(D)
|
No
Violation.
The execution and delivery of this Agreement does not, and the
fulfillment
of and compliance with the terms and conditions hereof will not,
as of
Closing, violate, or be in conflict with, any provision of Seller’s
governing documents, or any statute, rule or regulation applicable
to
Seller or any agreement or instrument to which Seller is a party
or by
which it is bound, or, to Seller’s knowledge, violate, or be in conflict
with any judgment, decree or order applicable to Seller or require
the
approval or consent of any third party (subject to governmental
consents
and approvals customarily obtained after the
Closing).
|
|
(E)
|
AFE’s.
With respect to the joint, unit or other operating agreements relating
to
the Assets, except as set forth in Exhibit
8.1(E),
there are no material outstanding calls or payments under authorities
for
expenditures for payments relating to the Assets which are due
or which
Seller has committed to make which have not been
made.
|
|
(F)
|
Contractual
Restrictions.
Seller has not entered into any contracts for or received prepayments,
take-or-pay arrangements, buydowns, buyouts for Oil and Gas, or
storage of
the same relating to the Assets which Buyer shall be obligated
to honor
and make deliveries of Oil and Gas or pay refunds of amounts previously
paid under such contracts or
arrangements.
|
|
(G)
|
Litigation.
Except as set forth in Exhibit
8.1(G),
there is no suit, action or proceeding pending or, to Seller’s knowledge,
threatened against Seller or the Assets that would have a material
adverse
affect upon the ownership, operation or value of any of the
Assets.
|
|
(H)
|
Permits
and Consents.
With respect to Assets for which Seller is the operator, Seller
has
(i) acquired all material permits, licenses, approvals and consents
from appropriate governmental bodies, authorities and agencies
to conduct
operations on the Assets in compliance with applicable laws, rules,
regulations, ordinances and orders; and (ii) is in material
compliance with all such permits, licenses, approvals and
consents.
|
|
(I)
|
Broker’s
Fees.
Seller has engaged the services of a broker in respect of the matters
provided for in this Agreement, however Seller agrees to be responsible
for all fees associated with such broker and Buyer shall have no
responsibility for the payment of such
fees.
|
|
(J)
|
Taxes.
(i) Seller has filed (with respect to the Assets) all material
returns for Property Taxes and Severance Taxes that are due, (ii) all
payments (with respect to the Assets) shown to be due on such returns
have
been paid, and (iii) there is no material dispute or claim concerning
any Property Tax or Severance Tax liability of the Seller (with
respect to
the Assets) claimed or raised by any tax authority in
writing.
|
|
(K)
|
Material
Agreements.
To the best of Seller’s knowledge, all agreements material to the
ownership, operation or value of the Assets are listed in Exhibit
8.1(K)
(“Material Agreements”).
|
|
(L)
|
Consents
and Preferential Purchase Rights.
To the best of Seller’s knowledge, Exhibit
8.1(L)
lists all consents and preferential purchase rights contained in
the
Leases or Material Agreements.
|
|
(M)
|
Gas
Imbalances.
To the best of Seller’s knowledge, there are no gas imbalances with
respect to the Assets as of the Effective
Time.
|
|
(N)
|
Royalties.
To Seller’s knowledge, all rentals, royalties and other payments due under
the Leases have been paid, except those amounts properly being
held in
suspense.
|
|
(O)
|
Production
Sales Contracts.
There are no production sales contracts pertaining to the Assets
that
provide for a fixed price and that cannot be cancelled at any time
upon
ninety (90) days (or less) prior
notice.
|
|
(P)
|
Calls
on Production.
There are no calls on production pertaining to the Assets that
provide for
payment at less than applicable current market
prices.
|
|
8.2
|
Scope
of Representations of Seller.
|
|
(A)
|
Information
About the Assets.
Except as expressly set forth in this Agreement or in the Assignment
and
Bill of Sale, Seller disclaims all liability and responsibility
for any
representation, warranty, statements or communications (orally
or in
writing) to Buyer, including any information contained in any opinion,
information or advice that may have been provided to Buyer by any
employee, officer, director, agent, consultant, engineer or engineering
firm, representative, partner, member, beneficiary, owner or contractor
of
Seller wherever and however made, including those made in any data
room or
internet site and any supplements or amendments thereto or during
any
negotiations with respect to this Agreement or any confidentiality
agreement previously executed by the Seller and Buyer with respect
to the
Asset. EXCEPT AS SET FORTH IN ARTICLE 8 OF THIS AGREEMENT, SELLER
MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY OR IMPLIED, AS TO
(i) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY DATA,
INFORMATION OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE
ASSETS OR
OTHERWISE CONSTITUTING A PORTION OF THE ASSETS; (ii) THE PRESENCE,
QUALITY
AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE
ASSETS,
INCLUDING WITHOUT LIMITATION SEISMIC DATA AND SELLER’S INTERPRETATION AND
OTHER ANALYSIS THEREOF; (iii) THE ABILITY OF THE ASSETS TO PRODUCE
HYDROCARBONS, INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE
RATES
AND RECOMPLETION OPPORTUNITIES; (iv) IMBALANCE OR PAYOUT ACCOUNT
INFORMATION, ALLOWABLES, OR OTHER REGULATORY MATTERS; (v) THE PRESENT
OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS OR PROFITS, IF
ANY, TO BE
DERIVED FROM THE ASSETS; (vi) THE ENVIRONMENTAL CONDITION OF THE
ASSETS; (vii) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT
OCCUR; (viii) THE TAX ATTRIBUTES OF ANY ASSET; (ix) ANY OTHER
MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL
FURNISHED
TO BUYER BY SELLER OR OTHERWISE CONSTITUTING A PORTION OF THE ASSETS;
AND,
(x) THE COMPLETENESS OR ACCURACY OF THE INFORMATION CONTAINED IN
ANY
EXHIBIT HERETO. ANY DATA, INFORMATION OR OTHER RECORDS FURNISHED
BY SELLER
ARE PROVIDED TO BUYER AS A CONVENIENCE AND BUYER’S RELIANCE ON OR USE OF
THE SAME IS AT BUYER’S SOLE RISK.
|
|
(B)
|
Independent
Investigation.
Buyer agrees that it has, or by Closing will have, made its own
independent investigation, analysis and evaluation of the Assets
and the
transaction contemplated by this Agreement (including Buyer’s own estimate
and appraisal of the extent and value of Seller’s Oil and Gas reserves
attributable to the Assets and an independent assessment and appraisal
of
the environmental risks and liabilities associated with the acquisition
of
the Assets). Buyer agrees that it has had, or will have prior to
Closing,
access to all information necessary to perform its investigation
and has
not relied and will not rely on any representations by Seller other
than
those expressly set forth in this
Agreement
|
|
9.
|
REPRESENTATIONS
AND WARRANTIES OF BUYER.
|
|
9.1
|
Buyer’s
Representations and Warranties. Buyer represents and warrants to
Seller as follows as of the date hereof and the
Closing:
|
|
(A)
|
Status.
Buyer
is a limited partnership duly organized, validly existing and in
good
standing under the laws of the State of
Delaware.
|
|
(B)
|
Authority.
Buyer
has the power and authority to enter into this Agreement, to carry
out the
transactions contemplated hereby and to undertake all of the obligations
of Buyer set out in this
Agreement.
|
|
(C)
|
Validity
of Obligations.
The consummation of the transactions contemplated by this Agreement
will
not in any respect violate, nor be in conflict with, any provision
of
Buyer’s charter, by-laws or other governing documents, or any agreement
or
instrument to which Buyer is a party or is bound, or any judgment,
decree,
order, statute, rule or regulation applicable to Buyer (subject
to
governmental consents and approvals customarily obtained after
the
Closing). This Agreement and the documents executed and delivered
by Buyer
in connection with the Closing shall constitute legal, valid and
binding
obligations of Buyer, enforceable in accordance with their terms,
subject,
however, to the effects of bankruptcy, insolvency, reorganization,
moratorium and other laws for the protection of creditors, as well
as to
general principles of equity, regardless of whether such enforceability
is
considered in a proceeding in equity or at
law.
|
|
(D)
|
Qualification
and Bonding.
Buyer is, or will be on the Closing Date, in compliance with the
bonding
and liability insurance requirements of all applicable state or
federal
laws or regulations that could affect Buyer’s ability or authority to own
and operate the Assets and is qualified to own any federal, Indian
or
state oil and gas leases that constitute part of the
Assets.
|
|
(E)
|
Non-Security
Acquisition.
Buyer intends to acquire the Assets for its own benefit and account
and is
not acquiring the Assets with the intent of distributing fractional
undivided interests thereof such as would be subject to regulation
by
federal or state securities laws, and if, in the future, it should
sell,
transfer or otherwise dispose of the Assets or fractional undivided
interests therein, it will do so in compliance with any applicable
federal
and state securities laws.
|
|
(F)
|
Evaluation.
By reason of Buyer’s knowledge and experience in the evaluation,
acquisition and operation of oil and gas properties, Buyer has
evaluated
the merits and risks of purchasing the Assets from Seller and has
formed
an opinion based solely upon Buyer’s knowledge and experience and not upon
any representations or warranties by
Seller.
|
|
(G)
|
Financing.
Buyer has sufficient cash, available lines of credit or other sources
of
immediately available funds to enable it to pay the Purchase Price
to
Seller at the Closing.
|
|
(H)
|
Broker’s
Fees.
Buyer has incurred no obligation or liability, contingent or otherwise,
for brokers’ or finders’ fees in respect of the matters provided for in
this Agreement for which Seller shall have any
responsibility.
|
|
(I)
|
No
Knowledge of Seller’s Breach.
As of the date of execution of this Agreement, Buyer has no knowledge
of
any breach by Seller of any representation or warranty of Seller,
or of
any other fact, event, condition or circumstance that would excuse
Buyer
from the timely performance of its obligations
hereunder.
|
|
11.
|
CERTAIN
AGREEMENTS OF SELLER. Seller agrees and covenants that, unless Buyer
shall have otherwise agreed in writing, the following provisions
shall
apply:
|
|
11.1
|
Maintenance
of Assets. From the Effective Time until Closing, Seller agrees that
it shall:
|
|
(A)
|
Administer
and operate the operated Assets in accordance with the applicable
operating agreements.
|
|
(B)
|
Not
introduce any new methods of management, operation or accounting
with
respect to any or all of the
Assets.
|
|
(C)
|
Use
commercially reasonable efforts to maintain and keep the Assets
in full
force and effect; and fulfill all contractual or other covenants,
obligations and conditions imposed upon Seller with respect to
the Assets,
including, but not limited to, payment of royalties, delay rentals,
shut-in gas royalties and any and all other required
payments.
|
|
(D)
|
Except
to the extent necessary or advisable to avoid forfeiture or penalties,
not
enter into agreements to drill new wells or to rework, plug back,
deepen,
plug or abandon any Well, nor commence any drilling, reworking
or
completing or other operations on the Leases which requires estimated
expenditures exceeding Ten Thousand Dollars ($10,000.00), net to
the
working interest of Seller, for each operation (except for emergency
operations and operations required under presently existing contractual
obligations) without obtaining the prior written consent of Buyer
(which
consent shall not be unreasonably withheld, delayed or conditioned);
provided that the terms of this paragraph (D) shall not apply to
any
expenditures of Seller which will not be charged to
Buyer.
|
|
(E)
|
Not
voluntarily relinquish its position as operator to anyone other
than Buyer
with respect to any of the operated Assets or voluntarily abandon
any of
the Wells other than as required pursuant to the terms of a Lease
or by
regulation.
|
|
(F)
|
Not,
without the prior written consent of Buyer (which consent shall
not be
unreasonably withheld, delayed or conditioned), (i) enter into any
agreement or arrangement (other than one constituting a Permitted
Encumbrance) transferring, selling or encumbering any of the Assets
(other
than in the ordinary course of business, including ordinary course
sales
of production, inventory or salvage); (ii) grant any preferential or
other right to purchase or agree to require the consent of any
party not
otherwise required to consent to the transfer and assignment of
the Assets
to Buyer; (iii) enter into any new sales contracts or supply
contracts which cannot be cancelled upon thirty (30) days or less
prior
notice; or (iv) incur or agree to incur any contractual obligation
(absolute or contingent) with respect to the Assets except as otherwise
provided herein (including ordinary course sales of production,
inventory
or salvage or pursuant to any disclosed AFEs covering the
Assets).
|
|
(G)
|
To
the extent known to Seller, provide Buyer with written notice of
(i) any claims, demands, suits or actions made against Seller which
materially affect the Assets; or (ii) any proposal from a third party
to engage in any material transaction (e.g., a farmout) with respect
to
the Assets.
|
|
15.
|
TERMINATION.
|
|
15.1
|
Causes
of Termination.
This Agreement and the transactions contemplated herein may be
terminated:
|
|
(A)
|
At
any time by mutual consent of the Seller and
Buyer.
|
|
(B)
|
By
either Party as provided in Sections 6.4(C), 6.5(B) or 7.4(D) pertaining
to Title Defects, preferential rights or Adverse Environmental
Conditions,
respectively.
|
|
(C)
|
By
Buyer if, on the Closing Date, any of the conditions set forth
in Article
11 hereof shall not have been satisfied or waived.
|
|
(D)
|
By
Seller if, on the Closing Date, any of the conditions set forth
in Article
12 hereof shall not have been satisfied or waived.
|
|
(E)
|
By
Seller or Buyer if Closing has not occurred on or before August
31,
2008.
|
|
(F)
|
Notwithstanding
anything contained herein, a Party shall not have the right to
terminate
this Agreement pursuant to clause (C), (D) or (E) above if such
Party is
at such time in material breach of any provision of this
Agreement.
|
|
15.2
|
Effect
of Termination.
|
|
(A)
|
Buyer’s
Breach.
If
Closing does not occur because Buyer wrongfully fails to tender
performance at Closing or otherwise breaches this Agreement prior
to
Closing, and Seller is ready to close and is not in material breach
of
this Agreement, Seller shall have the right to terminate this Agreement,
in which case the Escrow Agent shall transmit the Deposit, together
with
interest thereon, to Lender, and Lender shall apply those amounts
to its
claims against the Seller in the Bankruptcy Cases. Buyer’s failure to
close shall not be considered wrongful if (i) conditions to Buyer’s
obligation to close under Article 12 are not satisfied through
no fault of
Buyer and are not waived, or (ii) Buyer has terminated this Agreement
as of right under Section 14.1. The reduction of Seller’s liability to
Lender by application of the Deposit and interest thereon in the
Bankruptcy Cases (said application being expressly approved by
the Seller)
shall be Seller’s sole and exclusive remedy for Buyer’s wrongful failure
to close hereunder and Seller expressly waives any and all other
remedies,
legal and equitable, that it otherwise may have for Buyer’s failure to
close.
|
|
(B)
|
Seller’s
Breach. If
Closing does not occur because Seller wrongfully fails to tender
performance at Closing or otherwise breaches this Agreement prior
to
Closing, and Buyer is ready to close and is not in material breach
of this
Agreement, Buyer may terminate this Agreement, in which event
Seller will
return the Deposit, together with interest thereon, to Buyer
immediately
after the determination that the Closing will not occur. If Buyer
elects
not to terminate this Agreement upon any such breach by Seller,
Buyer
shall retain all legal remedies for Seller’s breach of this Agreement,
including, without limitation, specific performance of this Agreement.
Seller’s failure to close shall not be considered wrongful if
(i) conditions to Seller’s conditions to close under Article 13 are
not satisfied through no fault of Seller and are not waived;
or
(ii) Seller has terminated this Agreement as of right under Section
14.1.
|
|
(C)
|
Termination
Pursuant to Section 14.1. If
Buyer or Seller terminates this Agreement pursuant to Section 14.1
in the
absence of a breach by the other Party, Seller shall return the
Deposit to
Buyer and neither Buyer nor Seller shall have any liability to
the other
Party for termination of this Agreement. If Buyer or Seller terminates
this Agreement pursuant to Section 14.1 and asserts that a breach
of this
Agreement has occurred, the notice of termination shall include
a
statement describing the nature of the alleged breach together
with
supporting documentation.
|
|
(D)
|
Effect
of Termination.
In the event of the termination of this Agreement pursuant to the
provisions of this Article 15 or elsewhere in this Agreement, this
Agreement shall become void and have no further force and effect
and,
except as provided in this Article 15, for the indemnities provided
for in
Sections 7.2(B) and 15.2, any breach of this Agreement prior to
such
termination and any continuing confidentiality requirement, neither
Party
shall have any further right, duty or liability to the other hereunder.
Upon termination, Buyer agrees to return to Seller or destroy all
materials, documents and copies thereof provided, obtained or discovered
in the course of any due diligence investigations of the
Assets.
|
|
16.
|
INDEMNIFICATION.
|
|
(A)
|
MISREPRESENTATIONS.
ALL CLAIMS, DEMANDS, LIABILITIES, JUDGMENTS, LOSSES AND REASONABLE
COSTS,
EXPENSES AND ATTORNEYS’ FEES (INDIVIDUALLY A “LOSS” AND COLLECTIVELY, THE
“LOSSES”) ARISING FROM THE BREACH BY SELLER OF ANY REPRESENTATION OR
WARRANTY SET FORTH IN THIS AGREEMENT THAT SURVIVES
CLOSING;
|
|
(B)
|
BREACH
OF COVENANTS.
ALL LOSSES ARISING FROM THE BREACH BY SELLER OF ANY COVENANT SET
FORTH IN
THIS AGREEMENT; AND
|
|
(C)
|
OWNERSHIP
AND OPERATION.
ALL LOSSES ARISING FROM SELLER’S OWNERSHIP OR OPERATION OF THE ASSETS
PRIOR TO THE EFFECTIVE TIME DIRECTLY ASSOCIATED WITH THE FOLLOWING
MATTERS:
|
|
(i)
|
DAMAGES
TO PERSONS OR PROPERTY, OR DEATH, FOR CLAIMS ASSERTED BY ANY THIRD
PARTY
AND ACCRUING PRIOR TO THE EFFECTIVE
TIME;
|
|
(ii)
|
THE
VIOLATION BY SELLER OF THE TERMS OF ANY AGREEMENT BINDING UPON
SELLER;
|
|
(iii)
|
CLAIMS
AGAINST SELLER BY CO-OWNERS, PARTNERS, JOINT VENTURERS AND OTHER
PARTICIPANTS IN THE WELLS;
|
|
(iv)
|
THE
IMPROPER PAYMENT OF ROYALTIES, RENTALS AND SIMILAR PAYMENTS BY
SELLER
UNDER THE LEASES PRIOR TO THE EFFECTIVE
TIME;
|
|
(v)
|
THE
LITIGATION MATTERS SET FORTH ON EXHIBIT
8.1(G);
|
|
(vi)
|
AD
VALOREM, PROPERTY, SEVERANCE AND SIMILAR TAXES ATTRIBUTABLE TO
THE PERIOD
OF TIME PRIOR TO THE EFFECTIVE
TIME;
|
|
(vii)
|
ANY
CONTAMINATION OR CONDITION THAT IS THE RESULT OF ANY OFF-SITE DISPOSAL
BY
SELLER OR ITS AFFILIATES OF ANY POLLUTANTS, CONTAMINANTS OR HAZARDOUS
MATERIAL ON, IN OR BELOW ANY PROPERTIES NOT INCLUDED IN THE ASSETS
PRIOR
TO THE EFFECTIVE TIME; AND
|
|
(viii)
|
COSTS
AND EXPENSES RELATING TO THE OWNERSHIP OR OPERATION OF THE ASSETS
THAT ARE
UNPAID AS OF THE CLOSING DATE AND THAT ARE ATTRIBUTABLE TO THE
PERIOD OF
TIME PRIOR TO THE EFFECTIVE TIME.
|
|
(D)
|
CLAIMS
OF NCE.
ALL CLAIMS, DEMANDS, LIABILITIES, JUDGMENTS, LOSSES AND REASONABLE
COSTS,
EXPENSES AND ATTORNEYS’ FEES ASSOCIATED WITH CLAIMS ASSERTED AGAINST BUYER
BY NEW CONCEPTS ENERGY, INC. IN CONNECTION WITH THE
ASSETS.
|
|
(E)
|
Notwithstanding
the above, the following limitations shall apply to Seller’s
indemnification obligations:
|
|
(i)
|
Seller
shall not be obligated to indemnify Buyer for any Loss unless Buyer
has
delivered a written notice of such Loss within the Survival Period
(as
defined below) applicable to such Loss. Any Loss for which Seller
does not
receive written notice before the end of the Survival Period shall
be
deemed to be an Assumed Liability. The “Survival Period” applicable to
Losses shall mean:
|
|
(1)
|
With
regard to a breach of representations and warranties contained
in Sections
8.1(A), (B), (C), (D) and (E), for a period of four (4) years following
the Closing;
|
|
(2)
|
All
of the other representations and warranties by Seller in this Agreement
for a period of one (1) year following the
Closing;
|
|
(3)
|
With
regard to a breach of a covenant by Seller, for a period equal
to the
lesser of the applicable statute of limitations period of four (4) years
following the Closing; and
|
|
(4)
|
With
regard to the matters covered by Section 16.1 (C), for a period
equal to
the lesser of the applicable statute of limitations period or four
(4)
years following the Closing.
|
|
(ii)
|
The
indemnification obligations of Seller pursuant to this Agreement
shall be
limited to actual Losses and shall not include incidental, consequential,
indirect, punitive, or exemplary Losses or
damages;
|
|
(iii)
|
Seller’s
aggregate liabilities and obligations under this Article 16 shall
not
exceed one hundred percent (100%) of the Base Purchase
Price;
|
|
(iv)
|
Seller
shall have no liability or obligation for any Losses, unless and
until and
only to the extent that the aggregate Losses for which Buyer is
entitled
to recover under this Agreement exceeds one percent (1%) of the
Base
Purchase Price (the “Indemnity Deductible”) (such amount being a
deductible and not a threshold).
|
|
(v)
|
The
amount of Losses required to be paid by Seller to indemnify Buyer
pursuant
to this Agreement shall be reduced to the extent of any amounts
actually
received by Buyer pursuant to the terms of the insurance policies
(if any)
covering such claim and any tax benefits received by
Buyer.
|
|
(vi)
|
Except
as specifically provided in Section 16.1(C), Seller’s indemnification
obligations shall not cover any liabilities, duties and obligations
relating to properly plugging and abandoning wells, restoring and
reclaiming the surface, removal of all pipelines, equipment, and
related
facilities now or hereafter located on the Assets, and cleaning
up,
restoring and Remediation of the Assets in accordance with the
Environmental Laws and the relevant Leases, or any other violation
or
claimed violation of Environmental Laws (including but not limited
to the
payment of fines, penalties, monetary sanctions or other civil
liabilities) or the presence, disposal, release or threatened release
of
any hazardous substance or hazardous waste from the Assets into
the
atmosphere or into or upon land or any water course or body of
water,
including groundwater, whether or not attributable to Seller’s activities
or the activities of third parties. All such matters are covered
exclusively by Article 6 of this
Agreement.
|
|
(A)
|
MISREPRESENTATIONS.
ALL LOSSES ARISING FROM THE BREACH BY BUYER OF ANY REPRESENTATION
OR
WARRANTY SET FORTH IN THIS AGREEMENT THAT SURVIVES
CLOSING;
|
|
(B)
|
BREACH
OF COVENANTS.
ALL LOSSES ARISING FROM THE BREACH BY BUYER OF ANY COVENANT SET
FORTH IN
THIS AGREEMENT;
|
|
(C)
|
ASSUMED
LIABILITIES.
ALL LOSSES ARISING FROM OR COMPRISING THE ASSUMED LIABILITIES.
|
|
16.5
|
Indemnification
of Lender by Seller.
|
| 2. |
(A)Seller
acknowledges and agrees that Lender has acted in good faith and
has
conducted itself in a commercially reasonable manner in its relationships
with Seller in connection with the Loan Documents. Seller hereby
waives,
releases, and discharges Lender from any claims to the
contrary.
|
| 3. |
(B)Through
the Effective Time Seller acknowledges they have no defenses, affirmative
or otherwise, rights of setoff, claims, counterclaims, actions
or causes
of action of any kind or nature whatsoever against Lender or any
past,
present, or future agent, attorney, legal representative, predecessor
in
interest, affiliate, successor, assign, employee, director, or
officer of
Lender, directly or indirectly, arising out of, based upon, or
in any
manner connected with, any transaction, event, circumstance, action,
failure to act, or occurrence of any sort or type, whether known
or
unknown, which occurred, existed, was taken, permitted, or begun
through
the Effective Time and occurred, existed, was taken, permitted,
or begun
in accordance with, pursuant to, or by virtue of the any of the
terms or
conditions of the Loan Documents.
|
| 4. |
(C)Seller
hereby knowingly and voluntarily, forever releases, acquits, and
discharges absolutely and without limitation, Lender from any and
all
manner of claims, demands and causes of action of any nature, whether
known or unknown to Seller, which exist through the Effective Time
and
which: (i) directly or indirectly arise out of, are based upon,
or are in
any manner attributable to the Loan Documents; or (ii) directly
or
indirectly arise out of, are based upon, or are in any manner connected
with or attributable to any action, failure to act, or occurrence
of any
sort or type, whether known or unknown, which occurred, existed,
was
taken, permitted, or begun by any member of Lender on or through
the
Effective Time, and which occurred, existed, was taken, permitted,
or
begun in accordance with, pursuant to, or by virtue of any of the
terms or
conditions of this Agreement or any other of the Loan Documents.
This
release encompasses, without limitation, any claim that Lender
or either
collectively or individually (1) is in any way responsible for
the
condition or any deterioration of the business operations and/or
financial
condition of Seller; (2) has breached any agreement to loan money
or make
other financial accommodations available to Seller or to fund any
operations of Seller; (3) has breached any fiduciary duty; (4)
has
breached any duty of fair dealing or good faith; (5) has committed
any
breach of confidence; (6) has breached any funding commitment;
(7) has
exerted undue influence over Seller; (8) has employed duress or
economic
coercion in its dealings with Seller; (9) has had a conflict of
interest
in its dealing with Seller; or (10) has committed, engaged in or
been
guilty of usury, negligent misrepresentation, negligence, bad faith,
malpractice, violations of the Racketeer Influenced and Corrupt
Organizations Act, intentional or negligent infliction of mental
distress,
tortious interference with contractual relations, tortious interference
with corporate governance or prospective business advantage, breach
of
contract, deceptive trade practices, libel, slander, or conspiracy
(all of
the foregoing collectively, “Claims”). Seller further acknowledges and
agrees that, to the extent any Claims against Lender may exist,
they are
of a speculative nature so as to be incapable of objective valuation
and
that, in any event, the value to Seller of the covenants and obligations
of Lender contained in this Agreement and any other of the documents
executed and delivered in connection with this Agreement substantially
and
materially exceeds any and all value of any kind or nature whatsoever
of
any such Claims and it is the specific intention of Seller, through
this
Agreement, to fully, finally and forever settle and release all
Claims of
Seller which exist through the Effective Time, whether known or
unknown to
Seller. In furtherance of such intention, Seller expressly states
that
this release is fully and finally effective for all of its purposes,
absolutely and immediately upon
Closing.
|
| 5. |
(D)Seller
hereby acknowledges and agrees that the execution of this Agreement
by
Lender shall not constitute an acknowledgement of or admission
by Lender
either individually or collectively of the existence of any Claims
or of
liability for any Claims or matters upon which any Claim may be
asserted.
|
| 6. |
(E)Seller
and Lender hereby each acknowledge that they have freely and voluntarily
entered into this Agreement after an adequate opportunity and sufficient
period of time to review, analyze, and discuss: (i) all terms and
conditions of this Agreement; (ii) any and all other documents
executed
and delivered in connection with the transactions contemplated
by this
Agreement; and (iii) all factual and legal matters relevant to
this
Agreement and/or any and all such other documents, with counsel
freely and
independently selected by Seller. Seller further acknowledges and
agrees
that they have actively and with full understanding participated
in the
negotiation of this Agreement and all other documents executed
and
delivered in connection with this Agreement after consultation
and review
with their counsel. Seller further acknowledges and agrees that
all of the
terms and conditions of this Agreement and any of the other documents
executed and delivered in connection with this Agreement have been
negotiated at arm’s-length, and that this Agreement and any and all such
other documents have been negotiated, prepared, and executed without
fraud, duress, undue influence, or coercion of any kind or nature
whatsoever having been exerted by or imposed upon Seller. No provision
of
this Agreement or any such other documents shall be construed against
or
interpreted to the disadvantage of any party to this Agreement
by any
court or other governmental or judicial authority by reason of
such party
having or being deemed to have structured, dictated, or drafted
such
provision.
|
|
(F)
|
CLAIMS
OF NCE.
Seller agrees to indemnify Lender from all claims, demands, liabilities,
judgements, losses, and reasonable costs, expenses and attorneys’ fees
associated with claims asserted against Lender by New Concepts
Energy,
Inc. in connection with the Assets.
|
|
16.6
|
Indemnification
of Seller by Lender
|
| 8. |
(A)Lender
acknowledges and agrees that Seller has acted in good faith and
has
conducted itself in a commercially reasonable manner in its relationships
with Lender in connection with the Loan Documents. Lender hereby
waives,
releases, and discharges Seller from any claims to the
contrary.
|
| 9. |
(B)Through
the Effective Time Lender acknowledges they have no defenses, affirmative
or otherwise, rights of setoff, claims, counterclaims, actions
or causes
of action of any kind or nature whatsoever against Seller or any
past,
present, or future agent, attorney, legal representative, predecessor
in
interest, affiliate, successor, assign, employee, director, or
officer of
Seller, directly or indirectly, arising out of, based upon, or
in any
manner connected with, any transaction, event, circumstance, action,
failure to act, or occurrence of any sort or type, whether known
or
unknown, which occurred, existed, was taken, permitted, or begun
through
the Effective Time and occurred, existed, was taken, permitted,
or begun
in accordance with, pursuant to, or by virtue of the any of the
terms or
conditions of the Loan Documents.
|
| 10. |
(C)Lender
hereby knowingly and voluntarily, forever releases, acquits, and
discharges absolutely and without limitation, Seller from any and
all
manner of claims, demands and causes of action of any nature, whether
known or unknown to Lender, which exist through the Effective Time
and
which: (i) directly or indirectly arise out of, are based upon,
or are in
any manner attributable to the Loan Documents; or (ii) directly
or
indirectly arise out of, are based upon, or are in any manner connected
with or attributable to any action, failure to act, or occurrence
of any
sort or type, whether known or unknown, which occurred, existed,
was
taken, permitted, or begun by any member of Seller on or through
the
Effective Time, and which occurred, existed, was taken, permitted,
or
begun in accordance with, pursuant to, or by virtue of any of the
terms or
conditions of this Agreement or any other of the Loan Documents.
This
release encompasses, without limitation, any claim that Seller
or either
collectively or individually (1) is in any way responsible for
the
condition or any deterioration of the business operations and/or
financial
condition of Lender; (2) has breached any agreement to loan money
or make
other financial accommodations available to Lender or to fund any
operations of Lender; (3) has breached any fiduciary duty; (4)
has
breached any duty of fair dealing or good faith; (5) has committed
any
breach of confidence; (6) has breached any funding commitment;
(7) has
exerted undue influence over Lender; (8) has employed duress or
economic
coercion in its dealings with Lender; (9) has had a conflict of
interest
in its dealing with Lender; or (10) has committed, engaged in or
been
guilty of usury, negligent misrepresentation, negligence, bad faith,
malpractice, violations of the Racketeer Influenced and Corrupt
Organizations Act, intentional or negligent infliction of mental
distress,
tortious interference with contractual relations, tortious interference
with corporate governance or prospective business advantage, breach
of
contract, deceptive trade practices, libel, slander, or conspiracy
(all of
the foregoing collectively, “Claims”). Lender further acknowledges and
agrees that, to the extent any Claims against Lender may exist,
they are
of a speculative nature so as to be incapable of objective valuation
and
that, in any event, the value to Lender of the covenants and obligations
of Lender contained in this Agreement and any other of the documents
executed and delivered in connection with this Agreement substantially
and
materially exceeds any and all value of any kind or nature whatsoever
of
any such Claims and it is the specific intention of Lender, through
this
Agreement, to fully, finally and forever settle and release all
Claims of
Lender which exist through the Effective Time, whether known or
unknown to
Lender. In furtherance of such intention, Lender expressly states
that
this release is fully and finally effective for all of its purposes,
absolutely and immediately upon
Closing.
|
| 11. |
(D)Lender
hereby acknowledges and agrees that the execution of this Agreement
by
Seller shall not constitute an acknowledgement of or admission
by Seller
either individually or collectively of the existence of any Claims
or of
liability for any Claims or matters upon which any Claim may be
asserted.
|
| 12. |
(E)Seller
and Lender hereby each acknowledge that they have freely and voluntarily
entered into this Agreement after an adequate opportunity and sufficient
period of time to review, analyze, and discuss: (i) all terms and
conditions of this Agreement; (ii) any and all other documents
executed
and delivered in connection with the transactions contemplated
by this
Agreement; and (iii) all factual and legal matters relevant to
this
Agreement and/or any and all such other documents, with counsel
freely and
independently selected by Lender. Lender further acknowledges and
agrees
that they have actively and with full understanding participated
in the
negotiation of this Agreement and all other documents executed
and
delivered in connection with this Agreement after consultation
and review
with their counsel. Lender further acknowledges and agrees that
all of the
terms and conditions of this Agreement and any of the other documents
executed and delivered in connection with this Agreement have been
negotiated at arm’s-length, and that this Agreement and any and all such
other documents have been negotiated, prepared, and executed without
fraud, duress, undue influence, or coercion of any kind or nature
whatsoever having been exerted by or imposed upon Lender. No provision
of
this Agreement or any such other documents shall be construed against
or
interpreted to the disadvantage of any party to this Agreement
by any
court or other governmental or judicial authority by reason of
such party
having or being deemed to have structured, dictated, or drafted
such
provision.
|
|
17.
|
MISCELLANEOUS.
|
|
17.1
|
Casualty
Loss.
|
|
(A)
|
An
event of casualty means volcanic eruptions, acts of God, fire,
explosion,
earthquake, wind storm, flood, drought, condemnation, the exercise
of any
right of eminent domain, confiscation and seizure (a “Casualty”). A
Casualty does not include depletion due to normal production and
depreciation or failure of equipment or
casing.
|
|
(B)
|
If,
prior to the Closing, a Casualty occurs (or Casualties occur) which
results in a reduction in the value of any of the Assets (“Casualty
Loss”), (i) Seller shall retain such Asset and such Asset shall be
the subject of an adjustment to the Base Purchase Price in the
same manner
set forth in Section 6.4 hereof, or (ii) at the Closing, Seller shall
assign to Buyer the right to receive all insurance proceeds or
other sums
payable to Seller by reason of such Casualty Loss, the Base Purchase
Price
shall not be adjusted by reason of such payment, and Seller shall
convey
the affected Asset to Buyer. In the event a Casualty Loss results
in a ten
percent (10%) or greater reduction in the value of an affected
Asset,
Buyer shall have the right to exclude such Asset from the sale
and receive
a reduction of the Base Purchase Price based on the Allocated Value
of
such Asset.
|
|
(C)
|
For
purposes of determining the diminution in value of an Asset as
a result of
a Casualty Loss, the Seller and Buyer shall use the same methodology
as
applied in determining the diminution in value of an Asset as a
result of
a Title Defect as set forth in Section
6.4.
|
|
17.2
|
Confidentiality.
|
|
(A)
|
Prior
to Closing, to the extent not already public, Buyer shall not disclose
to
any party that it is conducting negotiations with Seller or has
entered
into this Agreement other than as expressly permitted in the
confidentiality agreement executed by Buyer in Seller’s favor prior to the
execution of this Agreement, which shall continue to apply until
the
Closing and thereafter in the event of termination of this Agreement
prior
to the Closing. Buyer shall exercise all due diligence in safeguarding
and
maintaining secure all engineering, geological and geophysical
data,
seismic data, reports and maps, the results and findings of Buyer
with
regard to its due diligence associated with the Assets (including
without
limitation with regard to due diligence associated with environmental
and
title matters) and other data relating to the Assets (collectively,
the
“Confidential Information”). Buyer acknowledges that, prior to Closing,
all Confidential Information shall be treated as confidential.
Notwithstanding the foregoing, Seller understands that Buyer has
public
reporting obligations that may require public announcement of certain
information relating to this Agreement. Seller and Buyer shall
consult
with each other with regard to all publicity and other releases
at or
prior to the Closing concerning this Agreement and the transaction
contemplated hereby and, except as required by applicable law or
other
applicable rules or regulations of any governmental body or stock
exchange, neither party shall issue any publicity or other release
without
the prior written consent of the other party, such consent not
to be
unreasonably withheld. Buyer and Seller expressly acknowledge and
agree
that Lender, at Seller’s request, has previously negotiated with certain
parties, including New Energy Concepts, regarding the sale of the
Loans to
such parties, and other transactions regarding the possible resolution
of
Lender’s claims against Seller. Buyer and Seller expressly agree that
Lender shall have no liability to either Buyer or Seller for disclosing
the existence of this transaction, for purposes of effecting a
termination
of those other negotiations, and Lender shall have no liability
to
Borrower or Seller under those circumstances.
|
|
(B)
|
In
the event of termination of this Agreement for any reason, Buyer
shall not
use or knowingly permit others to use such Confidential Information
in a
manner detrimental to Seller, and will not disclose any such Confidential
Information to any person, firm, corporation, association or other
entity
for any reason or purpose whatsoever, except to Seller or to a
governmental agency pursuant to a valid subpoena or other order
or
pursuant to applicable governmental regulations, rules or
statutes.
|
|
(C)
|
The
undertaking of confidentiality shall not diminish or take precedence
over
any separate confidentiality agreement between the Seller and Buyer.
Should this Agreement terminate, such separate confidentiality
agreement
shall remain in full force and
effect.
|
|
17.3
|
Notices.
Any notice, request, demand, or consent required or permitted
to be given
hereunder shall be in writing and delivered in person or by certified
letter, with return receipt requested, or by facsimile addressed
to the
Party for whom intended at the following
addresses:
|
|
17.7
|
Exhibits.
The Exhibits attached to this Agreement are incorporated into
and made a
part of this Agreement.
|
|
17.8
|
Fees,
Expenses, Taxes and Recording.
|
|
(A)
|
Seller
and Buyer shall each be solely responsible for all costs and expenses
incurred by it in connection with this transaction (including,
but not
limited to fees and expenses of its counsel and accountants) and
shall not
be entitled to any reimbursements from one another, except as otherwise
provided in this Agreement. Pursuant to the terms of Article 3
above,
Seller shall be exclusively responsible for all costs and expenses
incurred by Lender in connection with this transaction and the
transactions giving rise to the Loans.
|
|
(B)
|
Buyer
shall file all necessary Tax returns and other documentation with
respect
to all transfer, documentary, sales, use, stamp, registration and
other
similar Taxes and fees, and, if required by applicable law, Seller
shall
join in the execution of any such Tax returns and other documentation.
Notwithstanding anything set forth in this Agreement to the contrary,
Buyer shall pay any transfer, documentary, sales, use, stamp, registration
and other similar Taxes and fees incurred in connection with this
Agreement and the transactions contemplated hereby. Buyer shall
also pay
any equipment lease transfer fees or other fees or expenses incurred
in
connection with transfer of the Assets to Buyer except as otherwise
provided by this Agreement.
|
|
(C)
|
Buyer
shall, at its own cost, promptly record all instruments of conveyance
and
sale in the appropriate office of the state and county in which
the lands
covered by such instrument are located. Buyer shall immediately
file for
and obtain the necessary approval of all federal, Indian, tribal
or state
government agencies to the assignment of the Assets. The assignment
of any
state, federal or Indian tribal oil and gas leases shall be filed
in the
appropriate governmental offices on a form required and in compliance
with
the applicable rules of the applicable government agencies. Buyer
shall
supply Seller with a true and accurate photocopy reflecting the
recording
information of all the recorded and filed assignments within a
reasonable
period of time after their recording and filing. In the event that
Seller
undertakes to record and/or file the conveyance instruments and
other
documents associated with this transfer of interest, Buyer shall
reimburse
Seller for all associated fees at Post
Closing.
|
| SELLER: | ||
| CHANCELLOR GROUP, INC. | ||
| |
|
|
|
Thomas H. Grantham |
||
| President | ||
| GRYPHON PRODUCTION CO., LLC. | ||
| |
|
|
|
Thomas H. Grantham |
||
| Manager | ||
| GRYPHON FIELD SERVICES, LLC | ||
| |
|
|
|
Thomas H. Grantham |
||
| Manager | ||
| BUYER: | ||
| LEGACY RESERVES OPERATING LP | ||
| |
|
|
| By: | LEGACY
RESERVES OPERATING GP LLC,
ITS
GENERAL PARTNER
|
|
|
Kyle A. McGraw |
||
| Executive Vice President | ||
| LENDER: | ||
| CAPWEST RESOURCES, INC | ||
| |
|
|
|
Mark McKinney, President |
||
| WESTERN NATIONAL BANK | ||
| |
|
|
|
Marshall Vicknair, Senior Vice President |
||
| NAME: |
ARCHER
|
|
Lease
Date:
|
October
6, 1926
|
|
Lessor:
|
W.
C. Archer, et ux
|
|
Lessee
|
The
Texas Company
|
|
Recording:
|
Volume
32, Page 229, Deed Records of Gray County, Texas
|
|
Description
|
N/2
of the S/2 of the SE/4 of Section 174, Block 3, I&GN RR Co. Survey,
Gray County, Texas.
|
| WI: 100% | NRI: 85.7500% |
| NAME: |
ARCHER
“A”
|
|
Lease
Date:
|
December
29, 1953
|
|
Lessor:
|
Verna
Archer, et al
|
|
Lessee
|
J.
W. Gayden
|
|
Recording:
|
Volume
162, Page 240, Deed Records of Gray County, Texas
|
|
Description
|
North
20 acres of the NE/4 of the SE/4 of Section 174, Block 3, I&GN RR Co.
Survey, Gray County, Texas.
|
| WI: 100% | NRI: 85.7500% |
| NAME: |
BINKLEY
O. E. and BINKLEY O.E.
“3”
|
|
Lease
Date:
|
July
2, 1924
|
|
Lessor:
|
Orrie
E. Binkley
|
|
Lessee:
|
Farish,
Watts, Collins & Crosby
|
|
Recording:
|
Volume
27, Page 111, Deed Records of Gray County, Texas
|
|
Description:
|
All
of the E/2 of the SE/4 of Section 86, Block 3, I&GN Ry Co. Survey,
Gray County, Texas.
|
| WI: 100% | NRI: 85.7500% Binkley O. E. |
| WI: 100% | NRI: 85.5000% Binkley O. E. “3” |
|
NAME:
|
BOWERS
J. B.
|
|
Lease
Date:
|
February
14, 1924
|
|
Lessor:
|
J.
B. Bowers and wife, Lizzie Bowers
|
|
Lessee:
|
Lee
Bank
|
|
Recording:
|
Volume
1, Page 456, Deed Records of Gray County, Texas
|
|
Description:
|
Insofar
and only insofar as said lease covers the oil and gas rights
down to a
depth of 3,500 feet below the surface in and to that certain
tract, place
and parcel of land lying and being situated in the County of
Gray, State
of Texas, as follows: more particularly described as follows:
S/2 of SE/4
of SE/4 and SE/4 of SW/4 of SE/4 of Section 63, Block B-2, H&GN RR Co.
Survey.
|
| WI: 100% | NRI: 87.5000% |
|
NAME:
|
CATLIN
T W ETAL
|
|
Lease
Date:
|
May
17, 1927
|
|
Lessor:
|
Tom
Catlin, et al
|
|
Lessee:
|
Gulf
Production Company
|
|
Recording:
|
Volume
35, Page 115, Deed Records of Gray County, Texas
|
|
Description:
|
One
hundred sixty acres (160 ac) more or less, as later amended,
out of Survey
57, Block 3, I&GN RR Co. Survey and being out of the Southeast corner
of a 432 acre tract more particularly described as follows: Beginning
at a
point on East boundary line of said Survey 57, 1,031 feet South
of NE/c of
said Survey; Thence Westerly parallel to North line of said Survey
3,000
feet; Thence Southerly parallel to East line of said Survey 1,955
feet;
Thence South 83.75 degrees, East 557 feet; Thence North 88.25
degrees,
East 572 feet; Thence South 42.75 degrees, East 812 feet; Thence
North
86.25 degrees, East 546 feet; Thence South 61.75 degrees, East
865 feet;
Thence South 73.75 degrees, East 17.3 feet to an iron pipe on
East line of
said Survey 57; Thence Northerly with said line 2,973 feet to
place of
beginning and containing 160 mineral acres, more or less, jointly
known as
the Catlin “A” and “B” leases.
|
|
Note:
|
South
85.59 acres of 165.59 acres described in the amendment to the T.W.
Catlin
lease (amendment recorded in Volume 55, Page 17, Deed Records of
Gray
County, Texas) is known as the Catlin “A” lease.
|
| North 80 acres if 165.59 acres described in the amendment to the T.W. Catlin lease (amendment recorded in Volume 55 Page 17, Deed Records, of Gray County, Texas) is known as the Catlin “B” lease. |
| WI: 100% | NRI: 85.7500% |
|
NAME:
|
CATLIN
|
|
Lease
Date:
|
March
10, 1930
|
|
Lessor:
|
Tom
Catlin, et al
|
|
Lessee:
|
H.
H. Sanders
|
|
Recording:
|
Volume
49, Page 631, Deed Records of Gray County, Texas
|
|
Description:
|
A
tract of land out of Section 57, Block 3, I&GN Ry Co. Survey, Gray
County, Texas, being more fully described by metes and bounds
as follows:
Beginning at the Northeast corner of said Survey 57; Thence
West 3,000
feet to a point in the North line of said Survey; Thence South
parallel
with the East line of said Survey 1,031 feet; Thence East parallel
with
the North line of said Survey 3,000 feet to a point in East
line of said
Survey; Thence North along the East line of said Survey to
the place of
beginning, containing 71 acres, more or
less.
|
| WI: 100% | NRI: 84.7656% |
| NAME: |
CATLIN
TOM
|
|
Lease
Date:
|
March
17, 1923
|
|
Amended
February 11, 1931
|
|
|
Lessor:
|
Tom
Catlin, et al
|
|
Lessee:
|
Magnolia
Petroleum Company
|
|
Recording:
|
Volume
25, Page 238, Deed Records of Gray County, Texas
|
|
Description:
|
Lease
covering 40 acres in the E/2 of E/2 of NE/4 of Section 64 and
78 acres in
the W/2 of NW/4 Section 57, in Block 3, I&GN RY Co. Survey, Gray
County, Texas being more fully described as follows: Beginning
at a point
on the North boundary line of Survey 57, 3,000 feet West of its
N/E
corner; Thence West with said North line 2,288.6 feet, more or
less, to
the N/W corner of Survey 57; Thence continuing West with the
North line of
Section 64, 657.2 feet to an iron pipe in a mound and four pits,
the NE
corner of a tract of 40 acres of land conveyed by Frederick De
P. Foster
to C.W. Saunders Jr., by deed dated July 15, 1911; Thence South
with East
line of said Saunders Tract 2,655 feet to an iron pipe set in
a mound and
four pits, the SE corner of said Saunders Tract; Thence East
658.5 feet to
an iron pipe set in a mound and four pits on the East line of
Section 64;
Thence in a Southeasterly direction, following the center of
the
Pampa-Lefors, Public Highway, South 73 degrees East, 1,615 feet
and South
85 degrees 30’ East, to the SW corner of the Gulf Production Company’s
165.59 acre lease; Thence North along the West boundary line
of said Gulf
Production Company’s Lease, and the continuation thereof, 3,146.8 feet,
more or less, to the North boundary line of Survey No. 57, the
PLACE OF
BEGINNING; SAVE AND EXCEPT the East 80 acres of the above described
198
acre Tract, same being previously assigned to De Lea Vicars by
instrument
dated June 24, 1932, resulting in this description containing
118 acres,
more or less.
|
|
Note:
Lease was amended by lease amendment dated February 11,
1931.
|
| WI: 100% | NRI: 85.7500% |
|
NAME:
|
DOSS
|
|
Lease
Date:
|
September
15, 1941
|
|
Lessor:
|
Williston
Benedict
|
|
Lessee:
|
Phillips
Petroleum Company
|
|
Recording:
|
Volume
85, Page 445, Deed Records of Gray County, Texas
|
|
Description:
|
S/2
of SW/4 of SE/4 of Section 141, Block B-2, H&GN RR Co. Survey, Gray
County, Texas, but only as to the oil and casinghead gas rights
from the
surface of the ground down to and including the base of the
fractured
granite formation which is a stratigraphic equivalent of 3,301
feet below
the surface of the ground as found in the C. C. Herrmann #1
Doss Well
located 330 feet from the South line and 2,310 feet from the
East line of
Section 141, Block B-2, H&GN RR Co. Survey, Gray County, Texas, Save
and Except any zone capable of producing gas
only.
|
|
NAME:
|
DOSS
A and DOSS B
|
|
Lease
Date:
|
September
15, 1941
|
|
Lessor:
|
Williston
Benedic
|
|
Lessee:
|
Phillips
Petroleum Company
|
|
Recording:
|
Volume
85, Page 445, Deed Records of Gray County, Texas
|
|
Description:
|
SE/4 of SE/4 and NW/4 of SE/4 and NW/4 of SW/4 and SE/4 of SW/4 of Section 141, Block B-2, H&GN RR Co. Survey, Gray County, Texas, but only insofar as it covers oil and casinghead gas to a depth of 3,346 feet below the surface of the land as to the SE/4 of the SE/4, to a depth of 3,316 feet below the surface of the land as to the SE/4 of SW/4, to a depth of 3,211 feet below the surface of the land as to the NW/4 SW/4, and to a depth of 3,382 feet below the surface of the land as to the NW/4 SE/4. |
| WI: 100% | NRI: 79.6250% |
|
NAME:
|
FAULKNER
SILER
|
|
Lease
Date:
|
June
18, 1923
|
|
Lessor:
|
Siler
Faulkner, et al
|
|
Lessee:
|
C.
B. Shaffer
|
|
Recording:
|
Volume
2, Page 136, Deed Records of Gray County, Texas
|
|
Description:
|
Eighty
(80) acres out of East Part of Section 29 and Eighty (80) acres
out of
East part of Section 30, Block B-2, H&GN RR Co. Survey, Gray County,
Texas.
|
| WI: 100% | NRI: 85.7500% |
|
AME:
|
GLENN
B-2
|
|
Lease
Date:
|
December
6, 1948
|
|
Lessor:
|
J.
S. Morse and wife, E. M. Morris
|
|
Lessee:
|
Kewanee
Oil Company
|
|
Recording:
|
Volume
120, Page 183, Deed Records of Gray County, Texas
|
|
Description:
|
SW/4
of Section 3, Block 26, H&GN Ry. Co. Survey, Gray County, Texas
containing 160 acres more or less.
|
|
Lease
Date:
|
December
6, 1948
|
|
Lessor:
|
S.
P. Benckenstein
|
|
Lessee:
|
Kewanee
Oil Company
|
|
Recording:
|
Volume
120, Page 186, Deed Records of Gray County, Texas
|
|
Description:
|
SW/4 of Section 3, Block 26, H&GN Ry. Co. Survey, Gray County, Texas containing 160 acres more or less. |
|
Lease
Date:
|
December
6, 1948
|
|
Lessor:
|
Vinton
Petroleum Company of Texas
|
|
Lessee:
|
Kewanee
Oil Company
|
|
Recording:
|
Volume
120, Page 185, Deed Records of Gray County, Texas
|
|
Description
|
SW/4
of Section 3, Block 26, H&GN Ry. Co. Survey, Gray County, Texas
containing 160 acres more or less.
|
| WI: 100% | NRI: 43.7500% |
|
WI:
100%
|
NRI:
84.2180%
|
|
WI:
100%
|
NRI:
85.7500%
|
|
WI:
100%
|
NRI:
85.7500%
|
|
WI:
100%
|
NRI:
77.1090%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
Description:
|
E/2
of SW/4 of Section 174, Block 3, I&GN RR Co. Survey, Gray County,
Texas, as to oil and casinghead gas rights, from 162 feet above
sea level
down to and including 3,350 feet below the surface of the ground,
as found
in the C. C. Horrmann Company Number 1 McConnell B Well.
|
|
|
WI:
100%
|
NRI:
82.0000%
|
|
|
|
|
WI:
100%
|
NRI:
82.0000%
|
|
Description:
|
Being
Forty (40) acres more or less of land out of Section 163, Block
3,
I&GN RR Co. Survey, located by virtue of certificate No. 1162
described by metes and bounds in Volume 278, Pages 140-143, of
Deed
Records in Gray County, Texas.
|
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
|
|
Description:
|
S/2
NW/4 & NE/4 NW/4 and the S/2 SW/4 & NE/4 SW/4 of Section 106,
Block 3, I&GN RR Co. Survey, Gray County, Texas (gas rights
only).
|
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
Description:
|
N/2
of Section 130, Block B-2, H&GN RR Co. Survey, Gray County, Texas,
from the surface down to 200 feet below sea level and S/2 Section
130, Blk
B-2, H&GN RR Co. Survey, Gray County, Texas as to all
depths.
|
|
|
WI:
100%
|
NRI:
82.0000%
|
|
Description:
|
Tr.
#1 NE/4 Section 140, Block 3, I&GN Ry. Co. Survey, Gray County,
Texas.
|
|
|
Tract
Participation
|
15.79881
|
|
Tract
Participation
|
.85081
|
|
Tract
Participation
|
2.84276
|
|
Description:
|
Tr.
#18
|
All
of Section 127, Block 3, lying South of R.O.W. of Panhandle & A.T.S.F.
Ry. Co. Survey, Gray County, Texas being 13 acres more or less
out of the
SE/4 thereof.
|
|
Tract
Participation
|
1.16745
|
|
Tract
Participation
|
2.36175
|
|
Description:
|
Tr.
#20
|
All
of plots 153 and 157 suburbs of Pampa, according to map recorded
in Volume
17, Page 114, of Deed Records of Gray County, Texas said tract
containing
96.83 acres, more or less.
|
|
Tract
Participation
|
1.84755
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
84.1950%
|
|
Recording:
|
Volume
29, Page 160-163, Oil and Gas Lease Records of Carson County,
Texas
|
|
Recording:
|
Volume
29, Page 168, Oil and Gas Lease Records of Carson County,
Texas
|
|
Recording:
|
Volume
29, Page 172-175, Oil and Gas Lease Records of Carson County,
Texas
|
|
Recording:
|
Volume
25, Page 345, Deed Records of Gray County, Texas
|
|
Recording:
|
Volume
29, Page 184-187, Oil and Gas Lease Records of Carson County,
Texas
|
|
Recording:
|
Volume
25, Page 343, Deed Records of Gray County, Texas
|
|
Recording:
|
Volume
35, Page 435, Oil and Gas Lease Records of Carson County,
Texas
|
|
WI:
100%
|
NRI:
78.6450%
|
|
WI:
100%
|
NRI:
78.43058%
|
|
WI:
100%
|
NRI:
78.38087% Short J.
C.
|
|
WI:
100%
|
NRI:
78.38100% Short
1
|
|
Description:
|
East
160 acres of the South 264 acres of the N/2 of Section 136, Block
3,
I&GN RR Co. Survey, Gray County, Texas.
|
|
|
WI:
100%
|
NRI:
73.5000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
WI:
100%
|
NRI:
82.0000%
|
|
|
Lease
Name
|
RRC
Lease Number
|
County
|
State
|
Field
|
||||
|
1
|
ARCHER
|
298
|
GRAY
|
TX
|
PANHANDLE,
EAST
|
||||
|
2
|
ARCHER
-A-
|
299
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
3
|
BINKLEY
O E
|
328
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
4
|
BINKLEY
O E 3
|
24640
|
GRAY
|
TX
|
PANHANDLE,
WEST
|
||||
|
5
|
BOWERS
J B
|
377
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
6
|
CATLIN
T W ETAL
|
307
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
7
|
CATLIN
|
345
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
8
|
CATLIN,
TOM
|
387
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
9
|
DOSS*
|
5511
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
10
|
FAULKNER,
SILER
|
390
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
11
|
GLENN
-B- 2
|
26520
|
GRAY
|
TX
|
PANHANDLE,
EAST
|
||||
|
12
|
HARRAH
|
1540
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
13
|
HARRAH
A
|
297
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
14
|
HOLMES
A
|
642
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
15
|
JACKSON
WM
|
2497
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
16
|
MCCONNELL
|
86
|
CARSON
|
TX
|
PANHANDLE
CARSON COUNTY FIELD
|
||||
|
17
|
MCCONNELL
-A-
|
3392
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
18
|
MCCONNELL
"B"
|
4431
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
19
|
MCKINNEY
|
300
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
20
|
MCKINNEY
D F
|
659
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
21
|
MCKINNEY
BIRDIE 8
|
23269
|
GRAY
|
TX
|
PANHANDLE,
WEST
|
||||
|
22
|
MCLARTY
S W ETAL 2
|
25838
|
GRAY
|
TX
|
PANHANDLE,
EAST
|
||||
|
23
|
MEERS
B-1
|
23223
|
GRAY
|
TX
|
PANHANDLE,
WEST
|
||||
|
24
|
MERTEN
H H
|
332
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
25
|
OCHILTREE
|
610
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
26
|
OSBORNE
CINCO
|
2783
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
27
|
PAMPA
UNIT
|
3061
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
28
|
PAMPA
UNIT C502G
|
142719
|
GRAY
|
TX
|
PANHANDLE,
WEST
|
||||
|
29
|
SAC
1
|
26521
|
GRAY
|
TX
|
PANHANDLE,
EAST
|
||||
|
30
|
SAUNDERS
-A- 1
|
25856
|
GRAY
|
TX
|
PANHANDLE,
EAST
|
||||
|
31
|
SAUNDERS
D
|
291
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
32
|
SAUNDERS
J M
|
313
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
33
|
SCHAFER
RANCH EAST
|
6568
|
GRAY
|
TX
|
PANHANDLE
CARSON COUNTY FIELD
|
||||
|
34
|
SHORT
-B-
|
684
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
35
|
SHORT
1
|
25834
|
GRAY
|
TX
|
PANHANDLE,
EAST
|
||||
|
36
|
SHORT
J C
|
279
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
37
|
SULLIVAN
R
|
606
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
38
|
THORNBURG
|
2319
|
CARSON
|
TX
|
PANHANDLE
CARSON COUNTY FIELD
|
||||
|
39
|
WRIGHT-CARRIE
|
410
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
40
|
WRIGHT
J E
|
411
|
GRAY
|
TX
|
PANHANDLE
GRAY COUNTY FIELD
|
||||
|
|
TOTALS
|
|
|
|
|
||||
|
*
The Oil NRI on the Doss Lease is 0.79625; the Gas NRI is
0.82375
|
|||||||||
|
Working
Interest
|
Net
Interest
|
Type
|
Allocated
Value, $
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$314,697
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8550000
|
Gas
|
$60,728
|
||||||
|
1.0000000
|
0.8750000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$2,070,219
|
||||||
|
1.0000000
|
0.8476560
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$554,884
|
||||||
|
1.0000000
|
0.79625*
|
Oil
|
$472,999
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$742,011
|
||||||
|
0.5000000
|
0.4375000
|
Gas
|
$1,000
|
||||||
|
1.0000000
|
0.8421800
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$49,120
|
||||||
|
1.0000000
|
0.7710900
|
Oil
|
$581,519
|
||||||
|
1.0000000
|
0.8200000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8750000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.7962500
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8750000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8750000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8550000
|
Gas
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Gas
|
$43,500
|
||||||
|
1.0000000
|
0.8750000
|
Gas
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$9,627
|
||||||
|
1.0000000
|
0.7503125
|
Oil
|
$14,893
|
||||||
|
1.0000000
|
0.8039060
|
Oil
|
$1,000
|
||||||
|
0.8235000
|
0.6364500
|
Oil
|
$384,482
|
||||||
|
0.7819000
|
0.5933600
|
Gas
|
$1,000
|
||||||
|
0.5000000
|
0.4375000
|
Gas
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Gas
|
$1,000
|
||||||
|
1.0000000
|
0.8575000
|
Oil
|
$1,342,206
|
||||||
|
1.0000000
|
0.8419500
|
Oil
|
$950,399
|
||||||
|
1.0000000
|
0.7864500
|
Oil
|
$4,741,342
|
||||||
|
1.0000000
|
0.7843058
|
Oil
|
$180,458
|
||||||
|
1.0000000
|
0.7838100
|
Gas
|
$292,522
|
||||||
|
1.0000000
|
0.7838087
|
Oil
|
$422,396
|
||||||
|
1.0000000
|
0.7350000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8750000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8750000
|
Oil
|
$1,000
|
||||||
|
1.0000000
|
0.8750000
|
Oil
|
$1,000
|
||||||
|
|
|
|
$13,250,000
|
||||||
|
A.
|
The
Parties have entered into that certain Purchase and Sale Agreement
of even
date herewith (the “Purchase and Sale Agreement”). Under the terms of the
Purchase and Sale Agreement, CapWest agrees to convey to the Seller
certain interests that it holds in oil and gas properties, the
Seller
agrees to convey those interests, as well as other interests to
the Buyer,
the Lender agrees to release Seller and its properties from certain
existing liens, and the Buyer agrees to purchase such interests,
free and
clear of such liens, all as more particularly described in the
Purchase
and Sale Agreement. Capitalized terms not otherwise defined herein
are
defined in the Purchase and Sale Agreement.
|
|
B.
|
Section
2.2 of the Purchase and Sale Agreement requires that Buyer shall,
within
three (3) days of the execution of that agreement transmit to WNB,
as
Escrow Agent, the Deposit, in an amount equal to Six Hundred Seventy-Five
Thousand and No/100 Dollars
($675,000.00).
|
|
C.
|
The
Parties have agreed to enter into this Agreement in order to establish
the
terms to which the Escrow Agent will be subject and the manner
in which
the Deposit will be distributed and credited to the Parties.
|
|
(i)
|
The
Escrow Agent shall first reimburse itself for any and all costs
or
expenses that it incurs in connection with the establishment of
the Escrow
Account, such costs and expenses to include, but not be limited
to, any
and all attorneys’ fees. Invoices presented to the Escrow Agent for such
expenses shall provide sufficient evidence for the Escrow Agent
to
reimburse itself for such expenses. Escrow Agent agrees that it
will not
be entitled to charge a fee for its services as Escrow
Agent.
|
|
(ii)
|
The
Escrow Agent shall retain in the interest bearing Escrow Account
the sum
of $250,000 to and until Seller has arranged and deposited with
the Texas
Railroad Commission a sufficient bond or letter of credit covering
the
Properties it will retain, and WNB has been fully released from
any
obligation on its letter of credit with the Texas Railroad Commission,
at
which time Escrow Agent shall promptly remit the sum of $250,000
from the
Escrow Account to Seller.
|
|
(iii)
|
The
Escrow Agent shall pay those Creditors of the Seller, who have
filed
Proofs of Claim and/or were listed in Schedule F in the Debtors’
Bankruptcies, and whose debts and/or claims were scheduled to be
“ALLOWED
and PAID” in the CapWest Amended Plan or the Debtors’ Amended Plan. The
Escrow Agent shall pay such debts and /or claims in the amount
scheduled
or claimed within ten (10) days of the Closing. Those Creditors
of the
Seller, who have filed Proofs of Claims and/or were listed in Schedule
F
in the Debtors’ Bankruptcies, and whose debts and/or claims were scheduled
“NEED TO INVESTIGATE” and/or “(Objection will be filed)” in the CapWest
Amended Plan or the Debtors’ Amended Plan will be paid by the Escrow Agent
forty-five (45) days after the Closing in the amount scheduled
or claimed
unless otherwise agreed upon by the Seller and Creditor. If the
Seller
files an action in a court of competent jurisdiction contesting
the
validity of such debts and/or claims the Escrow Agent shall withhold
payment and shall only pay or not pay said debts and/or claims
in
accordance with the orders of said court or the agreement of the
Seller
and Creditor.
|
|
(iv)
|
From
time to time during the period ending on the later to occur of
(A) ninety
(90) days after the Closing, and (B) that date when the claims
described
in subparagraphs (i), (ii), and (iii) have been paid, Buyer may
claim
entitlement to all or some portion of the Escrowed Funds by reason
of the
Seller’s breach of the terms of the Purchase and Sale Agreement. In that
event, Buyer shall provide written notice (a "Notice of Liquidated
Claim")
to the Escrow Agent and the Seller: (i) stating that Seller has
breached
the Purchase and Sale Agreement; (ii) specifying the amount of
damages to
Buyer arising from that breach; (iii) describing the reason(s)
Buyer is
entitled to receive the amount of Escrowed Funds specified in the
Notice
of Liquidated Claim by reason of the occurrence of such a breach,
including without limitation the provision(s) of the Purchase and
Sale
Agreement related thereto; and (iv) requesting payment thereof. Upon
receipt of such notice, the Seller shall have ten (10) days to
dispute the
delivery of the amount of Escrowed Funds requested in the Buyer’s Notice
of Liquidated Claim by giving written notice to the Escrow Agent
and the
Buyer specifying its objection. If the Seller does not timely give
notice
of dispute, the Seller shall be deemed to have agreed to delivery
to the
Buyer of the Escrowed Funds or portion thereof specified in the
Notice of
Liquidated Claim, and the Escrow Agent shall make distribution
of such
amount to the Buyer. If the Seller timely disputes the requested
delivery
of the Escrowed Funds or the portion thereof specified in the Buyer’s
Notice of Liquidated Claim, the Escrow Agent will not deliver funds
relating to such claimed breach unless and until it receives, and
in
accordance with, joint instructions from both parties or a final
judgment
or order of court of competent jurisdiction directing disposition
of the
Escrowed Funds relating to such claim.
|
|
(v)
|
The
Escrow Agent shall pay the remainder of the Escrowed Funds, together
with
any interest accruing thereon, to the Seller.
|
|
(vi)
|
Notwithstanding
anything contained herein to the contrary, the Seller and the Buyer
agree
that the claims described in subparagraphs (i) through (iii) above
take
precedence for all purposes over any claims that may be asserted
by Buyer
pursuant to the terms of subparagraph (iv), or Seller pursuant
to the
terms of subparagraph (v). In the event that the claims described
in
subparagraphs (i) through (iii) above exhaust the Escrowed Funds,
the
Buyer and the Seller agree that they shall have no further right
to such
funds, and the Escrow Agent shall be free of any further claim
from Seller
or Buyer.
|