Form 8K
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 7, 2002
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other
jurisdiction of incorporation)
0-13305 75-1971716
(Commission file (IRS employer
number) identification
number)
110 N. Marienfeld, Suite 465, Midland, Texas 79701
(Address of principal executive offices) (Zip code)
(915) 684-3727
(Registrant's telephone number including area code)
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
Disposition of Assets
As reported in our Form 8-K Report dated June 30, 1999, Parallel Petroleum
Corporation and three other privately owned oil and gas companies formed First
Permian, L.L.C., a Delaware limited liability company, in June, 1999 for the
purpose of acquiring all of the oil and gas properties owned by Fina Oil and
Chemical Company located in the Permian Basin of west Texas. First Permian
acquired the properties from Fina on June 30, 1999 for a purchase price of
$96.125 million. First Permian's oil and gas properties are located in
thirty-two counties in the Permian Basin of west Texas.
Parallel Petroleum Corporation owns 30.675% of the total number of
outstanding common units of membership interest in First Permian. The remaining
membership interests are owned in varying percentages by fourteen other members
of First Permian, L.L.C.
On March 7, 2002, First Permian, L.L.C. entered into an Agreement of Sale
and Purchase (the "Agreement"), dated as of March 7, 2002, with Energen
Resources Corporation, a wholly owned subsidiary of Energen Corporation. Under
terms of the Agreement, First Permian will sell all of its oil and gas
properties to Energen Resources for $120 million in cash and approximately $70
million in common stock of Energen Corporation. Energen will issue 3,043,479
shares of its common stock to Parallel and the other owners of First Permian
provided the average closing stock price for the 20 trading days ending on the
third business day prior to close is between $18.40 and $27.60 per share. If the
average price exceeds $27.60, the number of Energen shares issued will be
reduced to $84 million divided by the average price. If the average price is
below $18.40, the number of Energen shares issued will be increased to $56
million divided by the average price. Energen common stock closed at $24.36 per
share on March 7, 2002. Energen's common stock is listed on the New York Stock
Exchange under the symbol EGN.
Parallel's estimated share of the net proceeds (including the value of its
share of the common stock) from the transaction is approximately $29 million.
The closing of the transaction is subject to Energen's satisfactory
completion of its due diligence review and other customary terms and conditions.
Closing is anticipated to occur in early April, with an effective date of
January 1, 2002.
Energen is headquartered in Birmingham, Alabama and is a diversified energy
holding company engaged primarily in the acquisition, development, exploration
and production of oil, natural gas and natural gas liquids in the continental
United States and in the purchase, distribution, and sale of natural gas,
principally in central and north Alabama.
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
It is impractical to provide the financial statements required by Item 7 of
this Report on Form 8-K at the time of filing hereof. Such financial statements
will be filed not later than May 21, 2002.
(b) Exhibits.
Exhibit No. Description
*10.1 Agreement of Sale and Purchase, dated March 7, 2002,
between First Permian, L.L.C. and Energen Resources
Corporation
10.2 Amended and Restated Limited Liability Company
Agreement of First Permian, L.L.C., dated as of May 31,
2000 (Incorporated by reference to Exhibit 10.16 of
Form 10-K of the Registrant for the fiscal year ended
December 31, 2000).
* Filed herewith.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: March 22, 2002
PARALLEL PETROLEUM CORPORATION
By: /s/ Larry C. Oldham
Larry C. Oldham, President and
Principal Financial Officer
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Exhibit 10.1
AGREEMENT OF SALE AND PURCHASE
BETWEEN FIRST PERMIAN, L.L.C.
AS SELLER
AND
ENERGEN RESOURCES CORPORATION
AS BUYER
Dated March 7, 2002
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TABLE OF CONTENTS
Page
1. Properties.......................................................1
(a) Property to be Sold and Purchased.......................1
(b) Excluded Assets.........................................3
(c) Assumed Liabilities.....................................4
2. Purchase Price...................................................5
3. Deposit..........................................................6
4. Representations of Seller........................................6
(a) Representations.........................................6
(i) Organization and Qualification.................6
(ii) Due Authorization..............................6
(iii) Approvals......................................6
(iv) Valid, Binding and Enforceable.................7
(v) Litigation.....................................7
(vi) AFE's..........................................7
(vii) Contractual Restrictions.......................7
(viii) Operating Permits and Consents.................7
(ix) Broker's Fees..................................8
(x) Taxes..........................................8
(xi) Preferential Purchase Rights and
Restrictions on Assignment.................8
(xii) Compliance with Laws...........................8
(xiii) Tax Partnerships...............................9
(xiv) Interests in Full Force........................9
(xv) Material Contracts.............................9
(xvi) Production Imbalances..........................9
(xvii) Wells..........................................9
(xviii) Condition of Properties.......................10
(xix) Securities Representations....................10
(b) Disclaimers............................................11
5. Representations of Buyer........................................12
(a) Organization and Qualification.........................12
(b) Due Authorization......................................13
(c) Approvals..............................................13
(d) Valid, Binding and Enforceable.........................13
(e) No Litigation..........................................13
(f) Knowledgeable Buyer, No Distribution...................13
(g) Funds ..............................................13
(h) Validity of Energen Common Stock.......................13
(i) Financial Reports and SEC Documents;
Material Adverse Effect...........................14
(j) No Material Change.....................................14
i
(a) Access by Buyer........................................14
(i) Records.......................................14
(ii) Physical Inspection...........................15
(iii) Indemnification and Limitation
on Liability..............................15
(b) Interim Operation......................................16
(c) Preferential Rights and Consents.......................16
7. Due Diligence Reviews...........................................17
(a) Review By Buyer........................................17
(b) Nature of Defects......................................18
(i) NRI or WI Variances...........................18
(ii) Liens.........................................18
(iii) Preferential Rights and Consents..............18
(iv) Overproduced Positions........................19
(v) Environmental Matters.........................19
(vi) Other Matters.................................19
(c) Seller's Response......................................19
8. Certain Price Adjustments.......................................20
(a) Procedures.............................................20
(i) Agree Upon Adjustment.........................20
(ii) Exclude Property..............................20
(b) Certain Adjustments....................................20
(i) NRI Variance/Proportionate
Price Reductions..........................20
(ii) Liens/Payoff Amount...........................21
(iii) Overproduced Position/Per
Mcf Amount................................21
(iv) N. Robertson Unit.............................21
(v) Overproduced Position/Per BBL Amount..........21
(c) Possible Upward Adjustments............................21
(d) Limitations on Adjustments.............................22
9. Conditions Precedent to the Obligations of Buyer................22
(a) Representations True and Correct.......................22
(b) Compliance with Covenants and Agreements...............23
(c) Price Adjustment Limitations...........................23
(d) Litigation.............................................23
(e) No Material Adverse Change.............................23
(f) Documents Regarding Operator Status....................23
(g) Stockholders' Agreement................................23
10. Conditions Precedent to the Obligations of Seller...............24
(a) Representations True and Correct.......................24
(b) Compliance With Covenants and Agreements...............24
(c) Price Adjustment Limitations...........................24
(d) Litigation.............................................24
(e) Share Price............................................24
11. Closing.........................................................25
ii
(a) Actions At Closing.....................................25
(i) Delivery of Conveyance........................25
(ii) Letters in Lieu...............................25
(iii) Turn Over Possession..........................25
(iv) Payment to Seller.............................25
(v) Succession by Buyer...........................26
(vi) Affidavit.....................................26
(vii) Transition Services...........................26
(b) Post Closing Actions...................................26
(i) Transfer of Files.............................26
(ii) Notifications by Buyer........................26
12. Certain Accounting Adjustments..................................26
(a) Adjustments for Revenues and Expenses..................26
(b) Initial Adjustment at Closing..........................27
(c) Adjustment Post Closing................................28
(d) No Further Adjustments.................................28
13. Assumption and Indemnification..................................28
14. No Commissions Owed.............................................30
15. Casualty Loss ..............................................30
(a) Oil and Gas Properties.................................30
(b) Other Properties.......................................30
16. Notices.........................................................30
17. Survival of Provisions..........................................31
18. Registration of Energen Common Stock............................32
(a) Registration...........................................32
(i) Filing of Registration Statement..............32
(ii) Defined Terms.................................32
(b) Registration Procedure.................................33
(i) Pre-Filing Draft of Registration Statement....33
(ii) Filing of Amendments..........................33
(iii) Furnishing Copies of Filings..................33
(iv) Changes to Registration Statement, Etc........33
(v) Stop Orders...................................34
(c) Certain Additional Covenants of Energen, Seller and
the Selling Members...............................34
(i) Furnishing Information to Energen.............34
(ii) Discontinuing Sales Until Prospectus
is Corrected.......................34
(iii) Discontinuing Sales Due to Disadvantageous
Condition..........................34
(d) Indemnification........................................35
(i) Indemnification by Energen....................35
(ii) Indemnification by the Members................36
(iii) Notices of Claims, Etc........................37
iii
(iv) Contribution..................................37
19. Certain Agreements Regarding Westbrook Southeast Unit...........38
20. Miscellaneous Matters...........................................38
(a) Further Assurances.....................................38
(b) Gas Imbalances, Makeup Obligations.....................38
(c) Parties Bear Own Expenses/No Special Damages...........39
(d) No Sales Taxes.........................................39
(e) Entire Agreement.......................................39
(f) Amendments, Waivers....................................39
(g) Choice of Law..........................................39
(h) Headings, Time of Essence, etc.........................40
(i) No Assignment..........................................40
(j) Successors and Assigns.................................40
(k) No Press Releases......................................40
(1) Counterpart Execution..................................40
(m) Recording..............................................40
(n) Conversion.............................................40
(o) Energen Covenants......................................40
iv
LIST OF SCHEDULES AND EXHIBITS
Schedule I Wells and Units with WI & NRI and allocated price
Exhibit A
Exhibit 1(a)(iii) Units
Exhibit 1(a)(iv) Wells
Exhibit 1(a)(v) Permits
Exhibit 4(a)(iii) Approvals
Exhibit 4(a)(v) Litigation
Exhibit 4(a)(vi) Outstanding AFE's
Exhibit 4(a)(viii) Permits Required
Exhibit 4(a)(x) Taxes
Exhibit 4(a)(xi) Preferential Rights to Purchase and Consents to Assign
Exhibit 4(a)(xv) Material Contracts, Oil and Gas Information
Exhibit 4(a)(xvi) Production Imbalances
Exhibit 6(a)(ii) Confidentiality Agreement
Exhibit 7(b)(iv) Overproduced Positions
Exhibit 7(b)(v) Environmental Matters
Exhibit 11(b)(vii) Transition Agreement
Exhibit 12(a)(iii) AFE's
Exhibit 12(a)(iv) Lease Bonuses
Exhibit 18 Stockholders' Agreement
Exhibit 11 Conveyance
v
AGREEMENT OF SALE AND PURCHASE
This Agreement dated March 7, 2002, by and between First Permian, L.L.C.
(herein called "Seller") and Energen Resources Corporation (herein called
"Buyer");
WITNESSETH:
1 . Properties.
(a) Property to be Sold and Purchased.
Seller agrees to sell and Buyer agrees to purchase, for the consideration
hereinafter set forth, and subject to the terms and provisions herein
contained, the following described properties, rights and interests:
(i) All right, title and interest of Seller in and to the oil, gas
and/or mineral leases, subleases, assignments and other instruments
described on Exhibit A hereto (and any ratifications and/or amendments
to such instruments, whether or not such ratifications or amendments
are described on such Exhibit A) (collectively called the "Leases");
and
(ii) Without limitation of the foregoing, all other right, title and
interest (of whatever kind or character, whether legal or equitable,
and whether vested or contingent) of Seller in and to the oil, gas and
other minerals in and under or that may be produced from the lands
described on Exhibit A hereto or described in any of the Leases
described on such Exhibit A (including, without limitation, interests
in oil, gas and/or mineral leases, overriding royalties, production
payments, net profits interests, carried interests, fee mineral
interests, fee royalty interests, rights of recoupment and any
economic or contractual rights or any other interests insofar as they
cover such lands), even though Seller's interest therein may be
incorrectly described in, or omitted from, such Exhibit A
(collectively called the "Interests"); and
(iii) All rights, titles and interests of Seller in and to, or
otherwise derived from, all presently existing and valid oil, gas
and/or mineral unitization, pooling, and/or communitization
agreements, declarations and/or orders (including, without limitation,
all units formed under orders, rules, regulations, or other official
acts of any federal, state, or other authority having jurisdiction,
and voluntary unitization agreements, designations and/or
declarations) relating to the Leases or Interests, including, without
limitation, those units, pooling and/or communitization agreements,
declarations and/or orders described on Exhibit l(a)(iii)
(collectively called the "Units"); and
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(iv) All rights, titles and interests of Seller in and to all wells
located on the lands covered by the Leases, Interests or Units or on
lands pooled therewith, including, without limitation, those wells
described in Exhibit l(a)(iv) (collectively called the "Wells") and in
and to all real, personal and mixed property and fixtures located on
the properties described in the Leases, Interests or Units or on lands
pooled or unitized therewith, or used in connection with the
exploration, development, operation or maintenance thereof, including,
without limitation, materials, supplies, machinery, equipment,
improvements, wells, wellhead equipment, pumping units, flowlines,
tanks, buildings, injection facilities, saltwater disposal facilities,
compression facilities, gathering systems, casing, tubing, tanks,
compressors, pumps, motors, pipelines, field processing equipment,
inventory and crude oil, natural gas, condensate or products in
storage severed after the Effective Date (the "Related Properties");
and
(v) To the extent assignable, all governmental permits, licenses and
authorizations, as well as any applications for the same, related to
the Leases, Interests, Units or Wells or the use thereof, including,
without limitation, those permits, licenses and authorizations more
particularly described on Exhibit l(a)(v) (the "Permits"); and
(vi) All rights, titles and interests of Seller in and to all other
real property interests and the improvements located thereon and used
in connection with the Leases, Interests, Units or Wells, including,
without limitation, the fee interests, rights of way, easements,
leasehold interests and other rights of surface use and water rights
more particularly described on Exhibit A; and
(vii) To the extent assignable and applicable to the Leases, Wells,
Interests and Units, all gas purchase and sale contracts (including
interests and rights, if any, with respect to any prepayments,
take-or-pay, buydown and buyout agreements), crude purchase and sale
agreements, farmin agreements, farmout agreements, bottom hole
agreements, acreage contribution agreements, operating agreements,
unit agreements, processing agreements, options, leases of equipment
or facilities, joint venture agreements, pooling agreements,
transportation agreements, rightsof-way and other contracts,
agreements and rights, which are owned by Seller, in whole or in part,
and are appurtenant to the Leases Interests, Units or Wells
(collectively, the "Contracts"); and
(viii) Originals of all of Seller's files, records, maps, books,
records, documentation and data relating to the items described in
subsections (i) through (vii) above, including, without limitation,
title records and title curative documents; lease files, land files,
prospect files, well files, drilling reports, production sales
agreement files, gas processing files, division order files, title
opinions, and abstracts, governmental filings, accounting files,
litigation files (except for the litigation files relating to the
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Litigation Indemnities, as hereinafter defined), property tax records
and receipts, sales and use tax records, severance tax records,
advance billing records, joint interest billing records, payables
records, revenue distribution records, gas purchase records, surveys,
maps and drawings; contracts; correspondence; engineering and
geological records, data and infon-nation; to the extent assignable,
intellectual property and computer software, including tapes, disks,
data and program documentation; production records, electric and mud
logs, core data, pressure data, decline curves, graphical production
curves, geophysical and seismic records, data and information and all
related matters and construction documents (except (i) to the extent
the transfer, delivery or copying of such records is prohibited by an
existing contract with a third party not affiliated with Seller; (ii)
all documents and instruments of Seller that may be protected by the
attomey-client privilege; (iii) all accounting and Tax files, books,
records, Tax returns and Tax work papers related to such items; and
(iv) any of Seller's proprietary geophysical and seismic records, data
and information which Seller is prohibited from transferring by an
existing contract with a third party not affiliated with Seller, for
which Seller agrees to grant Buyer a license on Seller's license form
to the extent, in Seller's reasonable opinion, it is entitled to
provide such a license without liability to a third party)
(collectively the "Records").
The properties, rights and interests specified in the foregoing subsections
(i), (ii), (iii) and (iv), exclusive of the properties, rights and
interests excluded below, are herein sometimes collectively called the "Oil
and Gas Properties," and the properties, rights and interests specified in
the foregoing subsections (i), (ii), (iii), (iv), (v), (vi), (vii) and
(viii) exclusive of the properties, rights and interests excluded below,
are herein sometimes collectively called the "Properties."
(b) Excluded Assets.
The Properties do not include, and there is hereby expressly excepted and
excluded therefrom and reserved to Seller:
(i) any accounts received or accounts payable, including revenue held
in suspense from working interest owners in arrears on joint interest
bills, accruing before the Effective Date;
(ii) except for the Records, all other corporate, financial, tax and
legal (other than title) records of Seller;
(iii) all contracts of insurance or indemnity;
(iv) all hydrocarbon production from or attributable to the Properties
with respect to all periods prior to the Effective Date, as described
in Section 12(a), and all proceeds attributable thereto;
(v) any refund of costs, taxes or expenses bome by Seller attributable
to the period prior to the Effective Date;
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(vi) Properties excluded from the purchase and sale contemplated by
this Agreement under Section 8(a)(ii);
(vii) any other right or interest in and to the Properties to the
extent attributable to the period prior to the Effective Date;
(viii) the right to retain copies (but not the originals) of all files
(described in Section 11(b)(i));
(ix) except to the extent constituting the suspended funds on royalty,
all deposits, cash, checks, funds and accounts receivable attributable
to Seller's interests in the Properties with respect to any period of
time prior to the Effective Date;
(x) except for the Records, all other computer or communications
software or intellectual property (including tapes, data and program
documentation and all tangible manifestations and technical
information relating thereto) owned, licensed or used by Seller;
(xi) any logo, service mark, copyright, trade name or trademark of or
associated with Seller or any affiliate of Seller or any business of
Seller or of any affiliate of Seller;
(xii) furniture and fixtures in the Midland office, and lease
agreement pertaining to the Midland office on 110 W. Louisiana, Suite
500;
(xiii) any surface fee or other real property interests not related to
or appurtenant to, or used or useful in connection with, the Wells,
Leases, Units or Interests;
(xiv) storage facility located at 236 South F.M. 1601, Midland, Texas;
and
(xv) the "OGRE," "Artesia" and "OFM" computer software and programs.
These excluded assets are collectively referred to as the "Excluded
Assets." Buyer shall not be responsible for, and Seller expressly retains,
all liabilities related to the Excluded Assets, whether such liabilities
arise before or after the Effective Date.
(c) Assumed Liabilities.
On the Closing Date, Buyer shall assume and agree to timely and fully pay,
perform and otherwise discharge, all of the liabilities and obligations
which relate directly or indirectly to the Properties, other than the
Excluded Assets, that accrue from and after the Effective Date
(collectively, the "Assumed Liabilities"). Notwithstanding the foregoing,
Assumed Liabilities shall not include, and there is excepted, reserved and
excluded from such liabilities assumed by Buyer, the liabilities and
obligations for which Seller indemnifies Buyer against as provided in
Section 13(b) hereof. 2. Purchase Price.
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2 . Purchase Price.
(a) Subject to subsection (b) below, in consideration for the Properties,
Buyer will pay to Seller $120,000,000 in cash and Energen Corporation
("Energen") will issue to Seller an aggregate of 3,043,479 shares of
Energen common stock, par value $0.01 per share ("Energen Common Stock"),
which is quoted under the symbol "EGN" on the New York Stock Exchange, Inc.
("NYSE"). Such cash and Energen Common Stock, unadjusted by any adjustments
provided for in this Agreement or agreed to by the parties, are herein
called the "Base Purchase Price." The cash portion of the Base Purchase
Price may be adjusted as provided in Sections 6(c) and 8 hereof and the
Energen Common Stock portion of the Base Purchase Price may be adjusted as
provided in Section 2(b) hereof (the Base Purchase Price, as so adjusted,
and as the same may otherwise be adjusted by mutual agreement of the
parties, being herein called the "Purchase Price"). The Purchase Price
shall be delivered at the Closing as hereinafter provided.
(b) (i) In the event that the average closing sale price of the Energen
Common Stock as reported by the NYSE for the twenty days of trading ending
on the third business day prior to the Closing (the "Average Closing Share
Price") is less than $18.40 per share, in lieu of the number of shares of
Energen Common Stock provided in subsection (a) above, Buyer will issue to
Seller an aggregate number of shares of Energen Common Stock equal to
$56,000,000 divided by the Average Closing Share Price.
(ii) In the event that the Average Closing Share Price is more than
$27.60 per share, in lieu of the number of shares of Energen Common
Stock provided in subsection (a) above, Buyer will issue to Seller an
aggregate number of shares of Energen Common Stock equal to
$84,000,000 divided by the Average Closing Share Price.
(iii) The share prices set forth in subsections (b) (i) and (b) (ii)
above shall be adjusted appropriately to reflect any stock dividends,
stock combinations, stock splits, or reverse stock splits with respect
to Energen Common Stock.
(c) Energen will not issue any certificates for any fractional shares of
Energen Common Stock otherwise issuable pursuant to the transaction
contemplated hereby. In lieu of issuing such fractional shares, Buyer shall
pay cash to Seller in respect of such fractional share. Such cash payment
shall be based on the Average Closing Share Price.
(d) The shares of Energen Common Stock issued to the Seller pursuant to the
transactions contemplated in this Agreement are refeffed to herein as the
"Shares."
(e) Energen will promptly use its reasonable best efforts to list, prior to
the Closing, the Shares on the NYSE, subject to official notice of
issuance.
(f) The purchase price for federal income tax purposes shall be allocated
among the Assets in the manner required by Section 1060 of the Internal
Revenue Code of 1986 (the "Code"). The parties shall agree on such an
allocation within 30 days of the Closing Date;
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provided, however, the parties hereby agree that, for federal income tax
purposes, the value of the Energen Common Stock shall be the average of the
highest and lowest prices of such stock on the day of Closing. It is agreed
that substantially all of the Properties shall be classified as class 5
(equipment and real property) assets for purposes of Form 8594. The parties
shall use such allocation for purposes of any required tax returns or other
filings made with the Internal Revenue Service pursuant to Section 1060 of
the Code.
3. Deposit. On or before March 7, 2002, Buyer shall pay to Seller $7,500,000
(such amount being herein called the "Deposit"). In the event the transaction
contemplated hereby is consummated in accordance with the terms hereof, the
Deposit shall be applied to the Purchase Price to be paid by Buyer at the
Closing. In the event the transaction contemplated hereby fails to close on the
Closing Date, as a result of a material breach of this Agreement by Seller
(regardless of whether this Agreement has been breached by Buyer), or in the
event this Agreement is terminated by Buyer in accordance with Section 9 below
or is terminated by Seller in accordance with any subsection of Section 10 below
other than subsections 10(a) and 10(b), the Deposit shall be returned to Buyer.
In the event that the transaction contemplated hereby does not close for any
other reason, the Deposit shall be retained by Seller as its sole and exclusive
remedy under this Agreement. The Deposit shall not bear interest, and if the
same is paid to Buyer, or if Buyer receives credit for same against the Purchase
Price paid at Closing, such payment, or credit, shall be in the amount of the
Deposit and shall not include any additional amounts. THE PARTIES HEREBY
ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO SELLER OCCASIONED BY THE FAILURE OF
THIS TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO
ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE
OF SUCH DAMAGES UNDER THE CIRCUMSTANCES AND DOES NOT CONSTITUTE A PENALTY.
4. Representations of Seller.
(a) Representations. Seller represents to Buyer that:
(i) Organization and Qualification. Seller is a limited liability
company duly organized and legally existing and in good standing under
the laws of the State of Delaware and is qualified to do business and
in good standing in each of the states in which Oil and Gas Properties
are located where the laws of such state would require a limited
liability company owning the Oil and Gas Properties located in such
state to so qualify.
(ii) Due Authorization. Seller has full power to enter into and
perform its obligations under this Agreement and has taken all proper
action to authorize entering into this Agreement and performance of
its obligations hereunder.
(iii) Approvals. Other than requirements (if any) that there be
obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for approvals ("Routine
Governmental Approvals") required to be obtained from governmental
entities who are lessors under leases forming a part of the Oil and
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Gas Properties (or who administer such leases on behalf of such
lessors) which are customarily obtained post-closing and which Seller
has no reason to believe cannot be obtained to Seller's knowledge
(which, as used in this Agreement, shall mean to the actual knowledge
of any of Seller's officers) and except as set forth in Exhibit
4(a)(iii), neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, nor the
compliance with the terms hereof, will result in any default under any
agreement or instrument to which Seller is a party or by which the
Properties are bound, or violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or to the Properties.
(iv) Valid, Binding and Enforceable. This Agreement constitutes (and
the Conveyance provided for herein to be delivered at Closing will,
when executed and delivered, constitute) the legal, valid and binding
obligation of Seller, enforceable in accordance with its terms, except
as limited by bankruptcy or other laws applicable generally to
creditor's rights and as limited by general equitable principles.
(v) Litigation. Except for those suits, actions and other proceedings
that are listed on Exhibit 4(a)(v) or to which Seller is not a party
and that affect the oil and gas industry generally or in the states
where the Oil and Gas Properties are located, there are no pending,
and to the best of Seller's knowledge, threatened suits, actions, or
other proceedings which affect the Properties in any material respect
(including, without limitation, any actions challenging or pertaining
to Seller's title to any of the Properties), or affecting the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(vi) AFE'S. With respect to the joint, unit or other operating
agreements relating to the Properties, except as set forth in Exhibit
4(a)(vi), there are no calls or payments in excess of $25,000.00 under
authorities for expenditures for payments relating to the Properties
which are due or which Seller has committed to make which have not
been made.
(vii) 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 Properties 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.
(viii) Operating Permits and Consents. Except as to Required Permits
(hereinafter defined) relating to or arising under Environmental Laws
(hereinafter defined), with respect to Properties, to the best of
Seller's knowledge, (i) the operator of such Properties has acquired
all pen-nits, licenses, certificates, authorizations, approvals and
consents from appropriate governmental bodies, authorities and
agencies which are required to conduct operations on the Properties in
material compliance with applicable laws, rules, regulations,
ordinances and orders (the "Required Permits"),
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(ii) the operator of such Properties has made any necessary
applications for renewal of the Required Permits, (iii) the Required
Permits are in full force and effect and (iv) the Properties are in
material compliance with all Required Permits. To the best of Seller's
knowledge, all Required Permits are listed on Exhibit 4(a)(viii).
Seller shall assist Buyer in causing the transfer of any Required
Permit (on the same terms and conditions) to Buyer as may be necessary
to allow Buyer to operate the Properties as currently conducted.
Seller has not been advised, in writing, that any violations exist or
have been recorded in respect of any Required Permits, or the filings
or reports related thereto, and no judicial, administrative or
arbitral proceeding is pending or, to the best of Seller's knowledge,
threatened relating to the challenging, revocation or limitation of
any of the Required Permits, or the filings or reports related
thereto.
(ix) Broker's Fees. Seller shall retain the obligation or liability,
contingent or otherwise, for brokers' or finders' fees for brokers or
finders claiming by, through, or under Seller in respect of the
matters provided for in this Agreement and Buyer shall have no
responsibility therefor.
(x) Taxes. Except as set forth in Exhibit 4(a)(x), (i) Seller has
filed (with respect to the Properties) all material Tax returns that
are due by Seller, (ii) all Taxes due with respect to the Properties
have been paid, and (iii) there is no material dispute or claim
concerning any Tax liability of the Seller (with respect to the
Properties) claimed or raised by any Tax authority in writing. For
purposes of this Agreement, the term "Tax" or "Taxes" means any
federal, state, local or tribal, income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of
the Code), custom duties, capital stock, franchise, profits,
withholding, social security (or similar excises), unemployment,
disability, real property, personal property, ad valorem, production
and similar taxes based on the value of property or production of Oil
and Gas, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed
or not.
(xi) Preferential Purchase Rights and Restrictions on Assignment. To
the best of Seller's knowledge, all preferential purchase rights,
consent requirements, notice of assignment requirements and any other
restrictions or limitations on assignment with respect to the
Properties (collectively, the "Preferential Rights and Consents") are
identified and set forth on Exhibit 4(a)(xi).
(xii) Compliance with Laws. To the best of Seller's knowledge, except
in regard to Environmental Laws, the Properties, have been operated,
in substantial compliance with all laws, ordinances, regulations and
orders applicable to the Properties, except where the failure to be in
such compliance would not, singularly or in the aggregate, have a
material adverse effect on the Properties taken as a whole.
-8-
(xiii) Tax Partnerships. The Properties are not subject to any tax
partnership agreement which would bind Buyer.
(xiv) Interests in Full Force. To the best of Seller's knowledge, the
following statements are true as to the Properties: (i) All Leases,
unit agreements, pooling agreements, communitization agreements and
other agreements or documents creating interests comprising the
Properties are in full force and effect, (ii) Seller is in substantial
compliance with all express covenants thereunder, (iii) there are no
amounts claimed to be due to Seller in respect to the Properties that
are being held in suspense because of a dispute as to title of such
Properties or for any other reason, (iv) Seller is entitled to be
paid, and is being paid, its interest in the Properties without
indemnity or guarantee other than those customarily found in division
orders and other similar agreements and documents and (v) Seller has
not received written notice that it is in default under the items
described in (i) above which default would have or could reasonably be
expected to have a material adverse effect on any of the Properties.
(xv) Material Contracts. Exhibit 4(a)(xv) to this Agreement is a
complete list of all existing material contracts with respect to the
Properties (collectively the "Material Contracts"). To Seller's
knowledge, all the Material Contracts are valid and effective. Seller
has not received written notice that it is in default under any
Material Contract, which default would have or could reasonably be
expected to have a material adverse effect on any of the Properties.
As used in this provision, Material Contracts (excluding the
agreements and documents creating the Interests) means:
(1) All AFE's currently outstanding affecting the Properties
which require a future expenditure in the aggregate in excess of
$25,000; and
(2) Any agreement that has a term of one (1) year or more and/or
provides for future payments aggregating in excess of $25,000 that is
not terminable (without penalty) on no more than thirty (30) days
notice.
(xvi) Production Imbalances. Except as set forth on Exhibit 4(a)(xvi),
there are no production imbalances relating to the Properties.
(xvii) Wells. To the best knowledge of Seller, (i) all of the Wells
have been drilled and completed within the boundaries of the Leases,
Units or Interests or within the limits otherwise permitted by
contract, pooling or unit agreement, and by applicable law; all
drilling and completion of such Wells and all development and
operations on the Properties have been conducted in substantial
compliance with all of the terms and conditions of the Contracts and
the applicable agreements and documents creating the Interests and
(ii) no Well is subject to penalties on allowables because of any
overproduction or any other violation of any applicable law, Required
Permit or order that would prevent such Well from being entitled to
its full legal and regular
-9-
allowable from and after the Closing Date as prescribed by any
governmental authority.
(xviii) Condition of Properties. To the best of Seller's knowledge,
all wells, fixtures, facilities, personal property and equipment that
are material to the operation of the Wells operated by Seller have
been and are currently being maintained in a state of repair so as to
be adequate for normal operations as currently operated. To the best
of Seller's knowledge, all wells, fixtures, facilities, personal
property and equipment that are material to the operation of Wells
that are not operated by Seller have been and are currently being
maintained in a state of repair so as to be adequate for normal
operations as currently operated.
(xix) Securities Representations.
(1) Except for any distribution of the Shares to its members and
any Member's sale pursuant to registration under Section 18, the
Seller will hold the Shares for its own account for investment
purposes only, and not with a view to, or for resale in connection
with, any distribution of all or any part thereof, except in
compliance with applicable federal or state securities laws.
(2) Seller understands that (A) the Shares (1) have not been
registered under the Securities Act or any state securities laws, (2)
will be issued in reliance upon exemptions from registration under the
Securities Act and applicable state securities laws for an offer and
sale of securities not involving a public offering, and(3) may not be
sold, transferred or otherwise disposed of without satisfaction of
certain conditions, including registration under, or the availability
of any exemption from registration under the Securities Act and
applicable state securities laws, and (B) Seller must therefore bear
the economic risk of such investment indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and
applicable state securities laws or is exempt therefrom. Seller
further understands that such exemptions depend upon, among other
things, the nature of the investment intent of Seller expressed
herein.
(3) Seller has been fumished by Buyer and Energen all information
(or provided accessto all information) regarding the business and
financial condition of Energen, the attributes of the Shares and the
merits and risks of an investment in the Shares which Seller has
requested to evaluate an investment in the Shares. Specifically,
Seller acknowledges that Seller has had an opportunity to review
Energen's Annual Report on Form 10-K for the year ended September 30,
2001 and Quarterly Report on Form 10-Q for the quarter ended December
31, 2001 and the other SEC Documents (as defined in Section 5(i)).
(4) Seller is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Act, and Seller, or those persons
retained by Seller, have
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knowledge, skill and experience in financial, business and investment
matters relating to an investment of the same nature as the Shares and
are capable of evaluating the merits and risks of such investment and
protecting Seller in connection with the purchase and an investment in
the Shares. Seller has, to the extent deemed necessary, retained, at
its own expense, and relied upon, appropriate professional advice
regarding the investment, tax and legal merits and consequences of an
investment in the Shares. Seller has examined the SEC Documents, or
caused the same to be examined, by its representatives to the extent
it deems necessary or appropriate. Seller has not received any legal,
business, tax or other advice from Energen, its counsel or other
representatives.
(5) No person or entity, other than Energen, has been authorized
to give any information or to make any representations on behalf of
Energen in connection with the purchase, and if given or made, such
information or representations have not been relied upon by Seller as
having been made or authorized by Energen. The only representations,
warranties and information made by Energen in connection with the
purchase are those contained in this Agreement and the SEC Documents.
(6) Energen has provided Seller the opportunity to ask questions
of, and receive answers from, Energen and Buyer and their respective
officers and directors concerning the purchase and the Shares and to
obtain any appropriate additional information necessary to the
investment decision being made by Seller in connection with the
Purchase and the Shares.
(b) Disclaimers. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN SECTION 4 AND THE SPECIAL WARRANTY IN THE CONVEYANCE ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND SELLER EXPRESSLY DISCLAIMS
ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION
OF THE FOREGOING AND EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES
OF SELLER CONTAINED IN SECTION 4 AND THE SPECIAL WARRANTY IN THE
CONVEYANCE, THE PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY
WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, RELATING TO TITLE TO THE PROPERTIES OR RELATING TO THE
CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT
OR ITS FITNESS FOR ANY PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THE
FIRST SENTENCE OF THIS PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. PRIOR TO CLOSING,
BUYER SHALL HAVE THE OPPORTUNITY TO INSPECT THE PROPERTIES, AND, EXCEPT FOR
ANY BREACHES BY SELLER OF THE REPRESENTATION AND WARRANTY
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CONTAINED IN SECTION 4(a)(xviii), UPON CLOSING BUYER SHALL BE DEEMED TO
HAVE WAIVED ANY CLAIMS AGAINST SELLER WITH RESPECT TO THE CONDITION OF THE
PROPERTIES, INCLUDING, WITHOUT LIMITATION, AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING, BUT NOT
LIMITED TO, CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR
DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE
FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS (NORM). EXCEPT FOR THE
EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 4, BUYER IS
RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND EXCEPT FOR
ANY BREACHES BY SELLER OF THE REPRESENTATION AND WARRANTY CONTAINED IN
SECTION 4(a)(xviii), BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR AS IS,
WHERE IS CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, SELLER MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS
TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY
OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL
CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED IN ANY MATERIALS
FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLERIS AGENTS OR
REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,
INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR
OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED BUYER AS A
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S
SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
5. Representations of Buyer. Buyer represents to Seller that:
(a) Organization and Qualification. Buyer is a corporation duly organized
and legally existing and in good standing under the laws of the State of
Alabama, and is qualified to do business and in good standing in each of
the states in which Oil and Gas Properties are located where the laws of
such state would require a corporation owning or operating the Oil and Gas
Properties located in such state to so qualify. Buyer is also qualified to
own and operate oil and gas properties with all applicable governmental
agencies having jurisdiction over the Properties, to the extent such
qualification is necessary or appropriate or will be necessary or
appropriate upon consummation of the transactions contemplated hereby
(including, without limitation, Buyer has met, or will have met at or
before Closing, all bonding requirements of such agencies).
-12-
(b) Due Authorization. Buyer has the full power to enter into and perform
its obligations under this Agreement and shall have taken all proper action
to authorize entering into this Agreement and performance of its
obligations hereunder.
(c) Approvals. Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, nor the
compliance with the terms hereof, will result in any default under any
agreement or instrument to which Buyer is a party, or violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Buyer.
(d) Valid, Binding and Enforceable. This Agreement constitutes (and the
Conveyance provided for herein to be delivered at Closing will, when
executed and delivered, constitute) the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms, except as limited by
bankruptcy or other laws applicable generally to creditor's rights and as
limited by general equitable principles.
(e) No Litigation. There are no pending suits, actions, or other
proceedings in which Buyer is a party (or, to Buyer's knowledge, which have
been threatened to be instituted against Buyer) which affect the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(f) Knowledgeable Buyer, No Distribution. Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Properties for purchase, and is
acquiring the Properties for its own account and not with the intent to
make a distribution in violation of the Securities Act of 1933 as amended
(and the rules and regulations pertaining thereto) or in violation of any
other applicable securities laws, rules or regulations.
(g) Funds. Buyer has, and at the Closing will have, such funds as are
necessary for the consummation by Buyer of the transactions contemplated
hereby.
(h) Validity of Energen Common Stock. The shares of Energen Common Stock to
be issued in exchange for the Properties, when issued in accordance with
the terms of this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable and will not be subject to preemptive or similar
rights. The Shares are free and clear of all liens, charges, pledges,
options, mortgages, security interests, claims, restrictions (whether on
voting, sale, transfer, disposition, or otherwise), and other encumbrances
of every type and description, whether imposed by law, agreement,
understanding, or otherwise, except restrictions on transfer that may be
imposed by federal or state securities laws or the Stockholders' Agreement
to be entered into pursuant hereto.
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(i) Financial Reports and SEC Documents; Material Adverse Effect.
Energen's Annual Report on Form 10-K for the fiscal year ended
September 30, 2001, and all other reports, registration statements,
definitive proxy statements or information statements filed by it
subsequent to September 30, 2001, under the Securities Act of 1933, as
amended (the "Securities Act"), or under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") in the form filed (collectively, the "SEC Documents")
with the SEC, as of the date filed, (A) complied in all material
respects with the applicable requirements under the Securities Act or
the Exchange Act, as the case may be, and (B) did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and each of the consolidated balance sheets contained in
or incorporated by reference into any such SEC Document (including the
related notes and schedules thereto) fairly presented the financial
position of Energen and its consolidated subsidiaries as of its date,
and each of the consolidated statements of income, shareholders'
equity and cash flows in such SEC Documents (including any related
notes and schedules thereto) fairly presented in all material respects
the results of operations, shareholders' equity and cash flows, as the
case may be, of Energen and its consolidated subsidiaries for the
periods to which they relate, in each case in accordance with
generally accepted accounting principles consistently applied during
the periods involved, except in each case as may be noted therein,
subject to non-nal year-end audit adjustments and the absence of
footnotes in the case of interim unaudited statements.
(j) No Material Change. Except as described in the SEC Documents,
since September 30, 2001, no event has occurred or circumstance arisen
that, individually or taken together with all other facts,
circumstances and events, is reasonably likely to result in a material
adverse effect with respect to Energen and its consolidated
subsidiaries, taken as a whole.
6. Certain Covenants of Seller Pending Closing. Between the date of this
Agreement and the Closing Date:
(a) Access by Buyer.
(i) Records. Subject to the Confidentiality Agreement between the
parties (a copy of which is attached hereto as Exhibit 6(a)),
Seller will give Buyer, or Buyer's authorized representatives, at
Seller's office and at all reasonable times before the Closing
Date, access to the Records, for the purpose of conducting due
diligence reviews contemplated by Section 7 below. Buyer may make
copies of such records, at its expense, but shall, if Seller so
requests, return all copies so made if the Closing does not
occur; all costs of copying such items shall be bome by Buyer.
BUYER RECOGNIZES AND AGREES THAT ALL MATERIALS MADE AVAILABLE TO
IT IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY,
WHETHER MADE AVAILABLE PURSUANT TO THIS SECTION OR OTHERWISE, ARE
MADE AVAILABLE TO IT AS AN ACCOMMODATION,
-14-
AND EXCEPT AS OTHERWISE PROVIDED HEREIN WITHOUT REPRESENTATION OR
WARRANTY OF ANY KIND AS TO THE ACCURACY AND COMPLETENESS OF SUCH
MATERIALS. NO REPRESENTATIONS OR WARRANTY OF ANY KIND IS MADE BY
SELLER AS TO THE INFORMATION SUPPLIED TO BUYER AND EXCEPT FOR THE
EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 4,
WITH RESPECT TO THE PROPERTIES TO WHICH THE INFORMATION RELATES,
AND BUYER EXPRESSLY AGREES THAT ANY CONCLUSIONS DRAWN FROM SUCH
INFORMATION SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND
JUDGMENT.
(ii) Physical Inspection. Subject to the Confidentiality
Agreement between the parties (described above), Seller shall
make a good faith effort to give Buyer, or Buyer's authorized
representatives, at all reasonable times before the Closing Date
and upon adequate notice to Seller, physical access to the Oil
and Gas Properties for the purpose of inspecting same. Buyer
recognizes that some or all of the Properties may be operated by
parties other than Seller and that Seller's ability to obtain
access to such properties, and the manner and extent of such
access, is subject to such third parties. Buyer agrees to comply
fully with the rules, regulations and instructions issued by
Seller (and, where Properties are operated by other parties, such
other parties) regarding the actions of Buyer while upon,
entering or leaving the Properties. Buyer agrees to fumish Seller
with any report (at no cost to Seller), it receives or prepares,
related to Buyer's envirorunental inspection of the Properties.
Buyer will send Seller a copy of such report within 2 days before
Closing at the address set forth in Section 16.
(iii) Indemnification and Limitation on Liability. If Buyer
exercises rights of access under this Section or otherwise, or
conducts examinations or inspections under this Section or
otherwise, then (a) such access, examination and inspection shall
be at Buyer's sole risk, cost and expense and Buyer waives and
releases all claims against Seller (and its partners and its and
their affiliates and the respective directors, officers,
employees, attorneys, contractors and agents of such parties)
arising in any way therefrom or in any way connected therewith or
arising in connection with the conduct of its directors,
officers, employees, attorneys, contractors and agents in
connection therewith and (b) Buyer shall indemnify, defend and
hold harmless Seller (and its partners and its and their
affiliates and the respective officers, directors, employees,
attorneys, contractors and agents of such parties) from any and
all claims, actions, causes of action liabilities, damages,
losses, costs or expenses (including, without limitation, court
costs and attorneys fees), or liens or encumbrances for labor or
materials, arising out of or in any way connected with such
matters. THE FOREGOING RELEASE AND INDEMNIFICATION SHALL APPLY
WHETHER OR NOT SUCH CLAIMS, ACTIONS, CAUSES OF ACTION,
LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE
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OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE
NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE,
BUT EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED
PARTY, OR (ii) STRICT LIABILITY.
(b) Interim Operation. Seller will continue the operation of the Properties
in the ordinary course of its business (or, where Seller is not the
operator of a Property, will continue its actions as a non-operator in the
ordinary course of its business), and will not sell or otherwise dispose of
any portion of the Properties, except for sales or other dispositions of
(i) oil, gas and other minerals in the ordinary course of business after
production, or (ii) equipment and other personal property or fixtures in
the ordinary course of business where the same has become obsolete, is
otherwise no longer useful for the operation of the Properties, or is
replaced by an item or items of at least equal suitability. Should Seller
receive (or desire to make) any proposals to drill additional wells on the
Oil and Gas Properties, or to conduct other operations which require
consent of non-operators under the applicable operating agreement, it will
notify Buyer of, and consult with Buyer concerning, such proposals, and
will not consent to any single operation exceeding $50,000 in cost (net to
Seller's interest) without the consent of Buyer, which such consent will
not be unreasonably withheld. If such proposed operation does not exceed
$50,000 (net to Seller's interest) any decisions with respect to such
proposal shall be made by Seller in its sole discretion, so long as the
decisions are made in the ordinary course of business. Without expanding
any obligations which Seller may have to Buyer, it is expressly agreed that
Seller shall never have any liability to Buyer with respect to operation of
a Property greater than that which it might have as the operator to a
non-operator under the applicable operating agreement (or, in the absence
of such an agreement, under the AAPL 610 (1989 Revision) form Operating
Agreement), IT BEING RECOGNIZED THAT, UNDER SUCH AGREEMENTS AND SUCH FORM,
THE OPERATOR IS NOT RESPONSIBLE FOR ITS OWN NEGLIGENCE, AND HAS NO
RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(c) Preferential Rights and Consents. Seller and Buyer will use reasonable
efforts consistent with industry practice in transactions of this type,
with respect to all Oil and Gas Properties, to develop a list of the names
and addresses of parties holding Preferential Rights and Consents. Seller
will request, from the parties so identified (and in accordance with the
documents creating such rights), execution of Consents and/or waivers of
Preferential Rights. Seller shall have no obligation other than to request
such execution of Consents and/or waivers of Preferential Rights
(including, without limitation, Seller shall have no obligation to assure
that such Consents or waivers of Preferential Rights are obtained). If,
prior to Closing, Seller fails to obtain requisite Consents and/or waivers
of Preferential Rights or the time periods for the giving of a Consent or
the exercise of a Preferential Right have not expired, Buyer may at its
sole option prior to Closing (i) waive the defect or (ii) exclude the
property affected, or in the case where only a portion of the property is
affected, exclude the affected portion, from the Oil and Gas Properties and
deduct the Pref Right Value (as defined
-16-
below) therefore from the Base Purchase Price. If a party from whom a
waiver of a Preferential Right is requested refuses to give such waiver
prior to Closing, Seller will tender to such party the required interest in
the Property (the value of which shall be deemed to be equal to the amount
specified in Schedule I hereto for such Property, reduced appropriately, as
determined by mutual agreement of Buyer and Seller, if less than the entire
Property must be tendered) (the "Pref Right Value"), and to the extent that
such Preferential Right is exercised by such party, and such interest in
such Property is actually sold to such party so exercising such right, such
interest in such Property will be excluded from the transaction
contemplated hereby and the cash portion of the Base Purchase Price will be
adjusted downward by the Pref Right Value. With respect to any properties
that have been excluded from the Oil and Gas Properties prior to Closing
because of the existence of a Preferential Right that has not been
exercised or waived, if, within ninety (90) days after Closing, such
Preferential Right is waived or the time period for the exercise thereof
has passed without the Preferential Right being exercised, then Seller
shall convey such property to Buyer and Buyer shall pay in cash the Pref
Right Value therefor. If after the Closing, any party holding a
Preferential Right on a Property elects to exercise same and Buyer has paid
for and accepted conveyance of the Property, Buyer shall comply with the
terms of the applicable Preferential Right. Buyer shall be due any
consideration paid by such third party upon the exercise of such
Preferential Right in exchange for Buyer delivering such third party an
assignment for that portion of the Property affected by the exercise of
such Preferential Right, and Seller shall pay to Buyer, the amount, if any,
which the Pref Right Value for such Property exceeds the amount received by
Buyer from such third party for such Property. Buyer shall indemnify Seller
for any failure to comply with the terms of the Preferential Right as
provided in the preceding sentence, up to an amount not to exceed the Pref
Right Value for the affected Property.
7. Due Diligence Reviews.
(a) Review By Buyer. Buyer may conduct, at its sole cost, such title
examination or investigation, and other examinations and investigations, as
it may in its sole discretion choose to conduct with respect to the
Properties in order to determine whether Defects (as below defined) exist.
Should, as a result of such examinations and investigations, or otherwise,
one or more matters come to Buyer's attention which would constitute a
Defect (as below defined), and should there be one or more of such Defects
which Buyer is unwilling to waive and close the transaction contemplated
hereby notwithstanding the fact that such Defects exist, Buyer shall notify
Seller in writing of such Defects as soon as the same are identified by
Buyer, but in no event later than three (3) business days before Closing
(such Defects of which Buyer so provides notice are herein called "Asserted
Defects"). Such notification shall include, for each Asserted Defect, (i) a
description of the Asserted Defect and the wells and/or units and/or PDNP
or PUD (both as defined below) locations listed on Schedule I to which it
relates and all supporting documentation reasonably necessary to fully
describe the basis for the Defect, (ii) for each applicable well or unit or
PUD location, the size of any variance from Net Revenue Interest or Working
Interest which does or could result from such Asserted Defect and (iii) the
amount by which Buyer would propose to adjust the Purchase Price. All
Defects with respect to which Buyer fails to so give
-17-
Seller notice will be deemed waived for all purposes; provided, however,
such waiver shall not be deemed to constitute a waiver of any breach of the
title warranties set forth in the Conveyance. All access to Seller's
records and the Properties in connection with such due diligence shall be
subject and pursuant to Section 6(a) (including, without limitation, the
exculpation and indemnification provisions contained in Section 6(a)(iii)).
For this Agreement, "PDNP" shall mean one or more properties or portions of
properties to which Proved Reserves are categorized as Proved Developed
Non-Producing in the Definitions for Oil and Gas Reserves promulgated by
the Society of Petroleum Engineers as in effect at Closing. For this
Agreement, "PUD" shall mean one or more properties or portions of
properties to which Proved Reserves are categorized as Undeveloped in the
Definitions for Oil and Gas Reserves promulgated by the Society of
Petroleum Engineers as in effect at Closing.
(b) Nature of Defects. The term "Defect" as used in this Section shall mean
the following:
(i) NRI or WI Variances. Seller's ownership of the Properties is such
that, with respect to a well, or unit, or PDNP or PUD location listed
on Schedule I hereto, it (A) entitles Seller to receive a decimal
share of the oil, gas and other hydrocarbons produced from such unit,
or from currently producing completions in such well, or from any PDNP
or PUD location which is less than the decimal share set forth on
Schedule I in connection with such well or unit in the column headed
Net Revenue Interest or (B) causes Seller to be obligated to bear a
decimal share of the cost of operation of such well (as to such
completions), or unit, or PDNP or PUD location greater than the
decimal share set forth on Schedule I in connection with such well, or
unit, or PDNP or PUD location in the column headed Working Interest
(without at least a proportionate increase in the share of production
to which Seller is entitled to receive from such well, or unit, or
PDNP or PUD location).
(ii) Liens. Seller's ownership of an Oil and Gas Property is subject
to a lien other than (A) a lien for taxes which are not yet delinquent
or (B) a mechanic's or materialmen's lien (or other similar lien), or
a lien under an operating agreement or similar agreement, to the
extent the same relates to expenses incurred which are not yet
delinquent or (C) liens which will be released at or before Closing.
(iii) Preferential Rights and Consents. Seller's ownership of an Oil
and Gas Property is subject to a Preferential Right or a requirement
that Consent be obtained, unless such Consent or a waiver of such
Preferential Right has been obtained with respect to the transaction
contemplated hereby or, in the case of a Preferential Right, an
appropriate tender of the applicable interest has been made to all
parties holding such right and, with respect to each such party,
either (A) the period of time required for such party to exercise such
right has expired without such party exercising such right, (B) such
right has been exercised and the affected portion of the Properties
has
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been excluded from the transactions contemplated hereby (and the cash
portion of the Base Purchase Price adjusted downward) as provided in
Section 6(c), or (C) the period of time required for such party to
exercise such right has not expired (in which case Section 6(c) shall
control). (iv) Overproduced Positions. With respect to any well or
unit listed on Schedule 1, Seller and its predecessors in title to the
Properties have collectively taken more gas or oil from such well or
unit than the ownership of the Properties would entitle them to
receive (an overproduced position), except for overproduced positions
for wells or units disclosed on Exhibit 7(b)(iv) as being in an
overproduced position, where the overproduced position actually
determined to exist is not greater than 100% of that disclosed on the
exhibit.
(v) Environmental Matters. Except as disclosed on Exhibit 7(b)(v), an
Oil and Gas Property is in violation of Environmental Laws (below
defined) in any material respect (Environmental Laws shall mean all
applicable federal, state or local laws, rules, orders or regulations
pertaining to health or the envirom-nent, including those relating to
waste materials and/or hazardous substances).
(vi) Other Matters. Any other liens, charges, encumbrances,
agreements, obligations, irregularities or circumstances affecting the
Properties that individually or in the aggregate materially reduce the
revenues from the Oil and Gas Properties or materially increase the
costs of the operation of the Oil and Gas Properties.
Notwithstanding any other provision in this Agreement to the contrary, the
following matters shall not constitute, and shall not be asserted as, a
Defect: (i) defects or irregularities arising out of lack of corporate
authorization or a variation in corporate name, unless Buyer provides
affirmative evidence that such corporate action was not authorized and
results in another person's superior claim of title to the relevant
Property; (ii) defects or irregularities that have been cured or remedied
by the passage of time, including, without limitation, applicable statutes
of limitation or statutes for prescription; (iii) defects or irregularities
in the chain of title consisting of the failure to recite marital status in
documents or omissions of heirship proceedings; (iv) defects or
irregularities in title which for a period of 5 years or more has not
delayed or prevented Seller (or Seller's predecessor, if owned by Seller
less than 5 years) from receiving its Net Revenue Interest share of the
proceeds of production or causes it to bear a share of expenses and costs
greater than its Working Interest share from any unit or well; (v) defects
or irregularities resulting from or related to probate proceedings or the
lack thereof which defects or irregularities have been outstanding for 5
years or more; and (vi) conventional rights of reassignment normally
actuated by an intent to abandon or release a lease and requiring notice to
the holders of such rights and any defect or irregularity as would normally
be waived by persons engaged in the oil and gas business when purchasing
producing properties.
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(c) Seller's Response. In the event that Buyer notifies Seller of Asserted
Defects, Seller may (but shall have no obligation to) (i) attempt to cure,
prior to Closing or within 90 days after Closing (the "Defect Cure
Deadline"), one or more Asserted Defects, or (ii)Seller may elect to have
one or more Asserted Defects handled under Section 8 below (it being
expressly recognized that Seller may attempt to cure Asserted Defects while
acting under this election).
8. Certain Price Adjustments.
(a) Procedures. In the event that, as a part of the due diligence reviews
provided for in Section 7 above, Asserted Defects are presented to Seller
and Seller is unable (or unwilling) to cure such Asserted Defects by
Closing, or in the event that Buyer or Seller has elected (pursuant to
Section 15) to treat an Oil and Gas Property affected by a casualty loss as
if it was an Oil and Gas Property affected by an Asserted Defect, then:
(i) Agree Upon Adjustment. Buyer and Seller shall, with respect to
each Property affected by such matters for which Seller is unable (or
unwilling) to cure before Closing, attempt to agree upon an
appropriate downward adjustment of the Purchase Price to account for
such matters; and
(ii) Exclude Property. With respect to each Property as to which Buyer
and Seller are unable to agree upon an appropriate adjustment with
respect to all such matters affecting such Property or each Property
as to which the Asserted Defect amount exceeds an amount properly
allocable to such Property based upon the allocated values set forth
on Schedule 1, or for any other reason set forth by Seller, such
Property may be excluded at the option of either Buyer or Seller, from
the transaction contemplated hereby, and the Purchase Price will be
reduced by an amount properly allocable to such Property based upon
the allocated values set forth on Schedule I for the wells and PDNP or
PUD locations located on such Property plus the amount attributed on
Schedule I to the units in which such Property participates (but in
the case of such units, limited to the portion of such amount which is
proportionate to the portion of Seller's interest in such units,
respectively, which is attributable to such Property) (the "Allocated
Property Value"); provided, however, if Seller is able to cure such
Asserted Defects prior to the Defect Cure Deadline, then Seller shall
convey the affected Property to Buyer and Buyer shall pay to Seller
the Allocated Property Value for such Property.
(b) Certain Adjustments. In the event that Buyer raises as an Asserted
Defect one of the following types of Defects, the cash portion of the Base
Purchase Price shall be adjusted as set forth below in connection with such
Defect (and such adjustment shall be deemed an adjustment agreed to under
Section 8(a)(i)):
(i) NRI Variance/Proportionate Price Reductions. If the Asserted
Defect is (1) a Defect described in clause (A) of Section 7(b)(i) or
(11) a Defect which otherwise
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affects a portion of Seller's net revenue interest in a well, or unit,
or PDNP or PUD location listed on Schedule 1: a downward adjustment
equal to the amount determined by multiplying the Allocated Property
Value for such Property by a fraction (A) the numerator of which is an
amount equal to the "Net Revenue Interest" shown on Schedule I for
such Property less the decimal share to which Seller is entitled to as
a result of its ownership interest in such Property which is
unaffected by such Defect and (B) the denominator of which is the "Net
Revenue Interest" shown for such Property on Schedule 1; provided,
however, if the Working Interest set forth on Schedule I for such
Property is not reduced in the same proportion that the Net Revenue
set forth on Schedule I for such Property is reduced because of such
Defect then such Defect shall be resolved pursuant to the procedures
set forth in Section 8(a).
(ii) Liens/Payoff Amount. If the Asserted Defect is a Defect described
in Section 7(b)(ii): a downward adjustment equal to the amount of the
debt secured by such lien.
(iii) Overproduced Position/Per Mcf Amount. If the Asserted Defect is
a Defect described in Section 7(b)(iv) for gas: a downward adjustment
in an amount equal to $1.50/Mcf multiplied by the overproduced
position which is actually determined to exist or, in the case of a
well or unit for where an overproduced position is disclosed on
Exhibit 7(b)(iv), $1.50/Mcf multiplied by the amount by which the
overproduced position which is actually determined to exist exceeds I
00% of the overproduced position shown on such exhibit.
(iv) N. Robertson Unit. Notwithstanding anything contained herein to
the contrary, with respect to the overproduced position described on
Exhibit 7(b)(iv) for oil under the heading N. Robertson Unit (NRU) Oil
Pipeline Imbalance (the "NRU Oil Imbalance"), Seller agrees that prior
to Closing it will offer one or more of the underproduced parties with
claims to the NRU Oil Imbalance a cash settlement of $333,190, which
is based upon 17,642.69 barrels and an average price of $18.89 per
barrel received during the period of overdelivery to Seller's
predecessor. If settlement of the NRU Oil Imbalance does not occur
before Closing, the Purchase Price will be reduced by $333,190. To the
extent a partial settlement of the NRU Oil Imbalance occurs before
Closing, the Purchase Price will be reduced by $18.89 times the
barrels by which the overproduced position is actually reduced by any
such settlements.
(v) Overproduced Position/Per BBL Amount. If the Asserted Defect is a
Defect described in Section 7(b)(iv) for oil: a downward adjustment in
an amount equal to the average price per barrel based upon actual
price history for the time period affected multiplied by the
overproduced position which is actually determined to exist or, in the
case of a well or unit for where an overproduced position is disclosed
on Exhibit 7(b)(iv), the average price per barrel based upon actual
price history for the time period affected multiplied by the amount by
which the overproduced
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position which is actually determined to exist exceeds 100% of the
overproduced position described in Section 8(a)(iv) or shown on such
exhibit.
(c) Possible Upward Adjustments. Should Seller determine (or should Buyer,
in the course of its due diligence reviews contemplated by Section 7 above,
determine) that (i)the ownership of the Properties by Seller entitles
Seller to a decimal share of the production from a well, or unit, or PDNP
or PUD location listed on Schedule I greater than the decimal share shown
for such well, or unit, or PDNP or PUD location under the column headed Net
Revenue Interest on such Schedule 1, or (ii) with respect to any well or
unit listed on Schedule 1, Seller and its predecessors in title have
collectively taken less gas from such well or unit than the ownership of
such well or unit would entitle them to take (underproduced position) or
with respect to any well or unit for which an ovemroduced position (e.g. a
situation where Seller and its predecessors in title have collectively
taken more gas from such well or unit than the ownership of such well or
unit would entitle them to receive) is disclosed on Exhibit 7(b)(iv) an
overproduced position exists that is less than 100% of that so disclosed on
the exhibit, then Seller may propose an upward adjustment to the Purchase
Price to account for such fact, in which case such adjustment shall be
handled in the same manner as provided in (A) Section 8(b)(iii) above with
respect to underproduced positions and (B) Section 8(a) above with respect
to all other such matters. The party making such determination shall notify
the other party no later than three (3) days before Closing.
(d) Limitations on Adjustments. If the Purchase Price reduction with
respect to a particular Asserted Defect (other than Asserted Defects
pursuant to Section 7(b)(iii) or (iv)) which would result from the above
provided for procedure does not exceed $15,000, no adjustment shall be made
for such Asserted Defect. If the Purchase Price reduction which would
result from the above provided for procedure, as applied to all Asserted
Defects asserted under Section 7(b)(i), (ii), (v) or (vi) for which an
adjustment is to be made does not exceed 1% of the Base Purchase Price,
then no adjustment of the Purchase Price shall occur, and none of the
Properties which would be excluded by such procedure shall be excluded. If
the Purchase Price reduction which would result from the above provided for
procedure, as applied to all Asserted Defects asserted under Sections
7(b)(i), (ii), (v) and (vi) for which an adjustment is to be made exceeds
1% of the Base Purchase Price, the Purchase Price shall be adjusted by the
amount by which such reduction exceeds I% of the Base Purchase Price.
9. Conditions Precedent to the Obligations of Buyer. The obligations of Buyer
under this Agreement are subject to each of the following conditions being met:
(a) Representations True and Correct. Each of the representations and
warranties of Seller contained in Sections 4(a)(i), (ii) and (iv) shall
have been true and correct in all respects at and as of the date made and,
except as contemplated by or permitted by this Agreement, at and as of the
Closing Date as if made at and as of such time. Each of the representations
and warranties of Seller in this Agreement (other than in Sections 4(a)(i),
(ii) and (iv)) shall have been true and correct at and as of such date made
and at and as of the
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Closing Date as if made at and as of such time, except (i) to the extent
that a breach of such representation or warranty is made the basis of a
Defect or (ii) any such inaccuracies or breaches which, in the aggregate,
have not materially adversely affected or could not reasonably be expected
to materially adversely affect the value, operation or ownership of the
Properties. Buyer shall have received a certificate dated as of the Closing
Date, executed by a duly authorized officer of Seller to that effect.
(b) Compliance with Covenants and Agreements. Seller shall have performed
and complied in all material respects with (or compliance therewith shall
have been waived by Buyer) each and every covenant and agreement required
by this Agreement to be performed or complied with by Seller prior to or at
the Closing (exclusive of Seller's covenant and agreement contained in the
first sentence of Section 19, for which a breach thereof shall be dealt
with in the manner provided in such Section.). Buyer shall have received a
certificate dated as of the Closing Date, executed by a duly authorized
officer of Seller to that effect.
(c) Price Adjustment Limitations. The aggregate downward adjustment (if
any) of the Purchase Price which results from the procedures set forth in
Sections 6(c) and 8 does not exceed 10% of the Base Purchase Price;
provided, however, such 10% of the Base Purchase Price shall have no
bearing on the determination of whether a matter is material for any
purposes of this Agreement.
(d) Litigation. No suit, action or other proceedings by any governmental
entity or third party shall, on the date of Closing, be pending or
threatened before any court or governmental agency seeking to restrain,
prohibit, or obtain material damages or other material relief in connection
with the consummation of the transactions contemplated by this Agreement.
(e) No Material Adverse Change. From the date of this Agreement to the
Closing Date, there shall not have been any change in any of the Properties
which has or could reasonably be expected to have a material adverse effect
on the value, use or operation of any of the Properties, taken as a whole;
provided, however, that any of the following changes or effects shall not
be considered as a change in any of the Properties for purposes of
construing this provision: (i) changes or effects relating to the economy
in general; (ii) changes or effects relating to oil, gas or other
hydrocarbon commodity prices or other changes affecting the oil and gas
industry generally; or (iii) changes to law or regulatory policy.
(f) Documents Regarding Operator Status. Seller shall have received written
documentation reasonably satisfactory to Buyer (i) evidencing the agreement
of working interest owners (other than Seller) in the North Robertson Unit,
whose working interest in such property aggregate not less than 15.5%, to
consent to Buyer succeeding Seller as operator of such property upon
consummation of the transactions contemplated hereby and (ii) evidencing
the agreement of working interest owners (other than Seller) in the East
Penwell San Andres Unit, whose working interest in such property aggregate
not less than
-23-
3%, to consent to Buyer succeeding Seller as operator of such property upon
consummation of the transactions contemplated hereby.
(g) Stockholders' Agreement. Each Member shall have executed and delivered
to Buyer and Energen the Stockholders' Agreement in substantially the form
of Exhibit 18 attached hereto (the "Stockholders' Agreement"), or Seller
and Buyer shall have entered into an agreement reasonably satisfactory to
Buyer assuring that Seller will distribute the Shares only to Members who
have signed the Stockholders' Agreement.
If (i) any such condition on the obligations of Buyer under this Agreement
is not met as of the Closing Date, or (ii) in the event the Closing does
not occur on or before the Closing Date for any reason other than Buyer's
breach of this Agreement, this Agreement may, at the option of Buyer, be
ten-ninated. In the event such a ten-nination by Buyer occurs the parties
shall have no further obligations to one another hereunder (other than the
obligations under Sections 3, 6(a)(iii), 14, 20(c), 20(e) and 20(g) hereof
all of which will survive such termination). If Buyer proceeds to Closing
with knowledge of any condition precedent above not being met by Seller,
such condition precedent will be deemed waived by Buyer as a condition to
Close and Buyer hereby waives all claims for a breach of representation and
warranty related thereto.
10. Conditions Precedent to the Obligations of Seller. The obligations of Seller
under this Agreement are subject to the each of the following conditions being
met:
(a) Representations True and Correct. Each and every representation of
Buyer under this Agreement shall be true and accurate in all material
respects as of the date when made and shall be deemed to have been made
again at and as of the time of Closing and shall at and as of such time of
Closing be true and accurate in all material respects except as to changes
specifically contemplated by this Agreement or consented to by Seller.
Seller shall have received a certificate dated as of the Closing Date,
executed by a duly authorized officer of Buyer, to that effect.
(b) Compliance With Covenants and Agreements. Buyer shall have performed
and complied in all material respects with (or compliance therewith shall
have been waived by Seller) each and every covenant and agreement required
by this Agreement to be performed or complied with by Buyer prior to or at
the Closing. Seller shall have received a certificate dated as of the
Closing Date, executed by a duly authorized officer of Buyer, to that
effect.
(c) Price Adjustment Limitations. The aggregate downward adjustment (if
any) to the Base Purchase Price which results from the procedures set forth
in Sections 6(c) and 8 does not exceed IO% of the Base Purchase Price.
(d) Litigation. No suit, action or other proceedings by any governmental
entity or third party shall, on the date of Closing, be pending or
threatened before any court or
-24-
governmental agency seeking to restrain, prohibit, or obtain material
damages or other material relief in connection with the consummation of the
transactions contemplated by this Agreement
(e) Share Price. The Average Closing Share Price shall be greater than
$16.00 per share.
If (i) any such condition on the obligations of Seller under this Agreement
is not met as of the Closing Date or (ii) the Closing does not occur on or
before the Closing Date for any reason other than Seller's breach of this
Agreement, this Agreement may, at the option of Seller, be terminated, in
which case the parties shall have no further obligations to one another
hereunder (other than the obligations under Sections 3, 6(a)(iii), 14,
20(c), 20(e) and 20(g) hereof, all of which will survive such termination).
If Seller proceeds to Closing with knowledge of any condition precedent
above not being met by Buyer, such condition precedent will be deemed
waived by Seller as a condition to close and Seller hereby waives all
claims for a breach of representation and warranty related thereto.
11. Closing.
(a) Actions At Closing. The closing (herein called the Closing) of the
transaction contemplated hereby shall take place in the offices of Seller
at the address set forth in Section 16 on or before April 8, 2002, or at
such other date and time as the Buyer and Seller may mutually agree upon
(such date and time, as may be changed as provided above, being herein
called the "Closing Date"). At the Closing:
(i) Delivery of Conveyance. Seller shall execute, acknowledge and
deliver to Buyer a conveyance of the Properties (the "Conveyance"), in
a sufficient number of counterparts to facilitate recording in all
applicable jurisdictions in the form attached hereto as Exhibit 11
(and with Exhibit A hereto, with such modifications as may be mutually
agreed to by Buyer and Seller, being attached thereto), effective as
to runs of oil and deliveries of gas and for all other purposes as of
7 o'clock a.m., local time at the locations of the Properties,
respectively, on January 1, 2002 (herein called the "Effective Date").
(ii) Letters in Lieu. Seller shall, if requested by Buyer, execute and
deliver to Buyer letters in lieu of transfer orders (or similar
documentation), in form acceptable to both parties.
(iii) Turn Over Possession. Seller shall, turn over possession of the
Properties to Buyer.
(iv) Payment to Seller. Buyer shall deliver to the Seller, by wire
transfer of immediately available funds to an account designated by
Seller in a bank located in
-25-
the United States, an amount equal to (A) the cash portion of the
Purchase Price, less or plus (as the case may be) (B) any adjustments
under Section 12 which are to be made at Closing, less (C) the
Deposit. Buyer shall also deliver to Seller certificates evidencing
the shares of Energen Common Stock constituting the remaining portion
of the Purchase Price. Upon delivery to Buyer and Energen of the
Stockholders' Agreement executed by the Selling Members (as
hereinafter defined), Seller shall have the right to instruct Buyer in
writing to issue the Energen Common Stock constituting a portion of
the Purchase Price to the Selling Members.
(v) Succession by Buyer. Buyer shall (A) ftimish to Seller evidence
(including, without limitation, evidence of satisfaction of all
applicable bonding requirements) that Buyer is qualified with the
applicable authorities to succeed Seller as the owner and, where
applicable, operator of the Properties and (B) with respect to
properties operated by Seller where Buyer is to succeed Seller as
operator, execute and deliver to Seller Form P-4 to be filed with the
Railroad Commission of Texas.
(vi) Affidavit. Seller will execute and deliver to Buyer an affidavit
or other certification (as permitted by the Internal Revenue Code of
1986, as amended (the "Code")) that Seller is not a foreign person
within the meaning of Section 1445 (or similar provisions) of the
Code(i.e., Seller is not a non-resident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate as those terms
are defined in the Code and regulations promulgated thereunder).
(vii) Transition Services. Buyer and Seller shall execute the
Transition Services Agreement attached hereto as Exhibit II (b)(vii).
(b) Post Closing Actions.
(i) Transfer of Files. Seller will deliver to Buyer, at Buyer's
expense, at Closing, all of the Records. Seller may, at its election,
make and retain copies of any or all such Records. Buyer shall
preserve all Records so delivered by Seller for a period of four (4)
years following Closing and will allow Seller access (including,
without limitation, the right to make copies at Seller's expense) to
such Records at all reasonable times; provided, however, in the event
that Buyer desires to dispose of any such Records prior to the
expiration of such four (4) year period, Buyer shall provide notice to
Seller thereof, and Seller shall have a period of ten (IO) days to
deliver written notice to Buyer that Seller elects to have such
Records delivered to Seller. If Seller fails to deliver such notice to
Buyer within such ten (10) day period, Buyer shall have the right to
dispose of such Records without liability to Seller. Such access by
Seller is in part to accommodate audits that may be requested by non-
operated partners for the periods prior to the Effective Date.
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(ii) Notifications by Buyer. Immediately after the Closing, Buyer
shall notify all applicable operators, non-operators, oil and gas
purchasers, and government agencies that it has purchased the
Properties.
12. Certain Accounting Adjustments.
(a) Adjustments for Revenues and Expenses. Appropriate adjustments shall be
made between Buyer and Seller so that (i) Buyer will bear all operating
expenses which are incurred in the operation of the Properties after the
Effective Date, including Seller operated overhead charges equal to
$100,000.00 per month for the months of January through March, 2002, (ii)
Buyer will bear all overhead charges actually charged by third parties,
(iii) Buyer will receive all proceeds (net of applicable production,
severance, and similar taxes) from sales of oil, gas and/or other minerals
which are produced from (or attributable to) the Properties and which are
produced after the Effective Date and all other proceeds or revenues
allocable or attributable to the Properties from and after the Effective
Date including the third party share of operated overheads, (iv) except as
provided in clauses (C) and (D) below, Section 12(d) below, and Section 13
below Seller will bear all expenses which are incurred in the operation of
the Properties before the Effective Date and Seller will receive all
proceeds (net of applicable production, severance, and similar taxes) from
the sale of oil, gas and/or other minerals which were produced from (or
attributable to) the Properties and which were produced before the
Effective Date, (v) Buyer will bear any single capital expenditure not
exceeding $25,000 net to the Seller's interest incurred on or after the
Effective Date; before the Closing Date, Buyer will bear capital
expenditures exceeding $25,000 net to the Seller's interest incurred prior
to the Closing Date only if (i) those capital expenditures are set forth on
the AFEs listed on Exhibit 12(a)(iii) whether paid by Buyer or Seller
before or after the Effective Date, (ii) such expenditures are incurred by
Buyer in accordance with Section 6(b), or (iii) in connection with a third
party operated property, Seller is required to incur such expenditures as a
result of the approval of such expenditures by working interest owners in
such property other than Seller in accordance with the terms of the
applicable operating agreement governing such property, and (vi) Buyer will
bear all lease bonuses set forth on Exhibit 12(a)(iv) whether paid before
or after the Effective Date. It is agreed that, in making such adjustments:
(A) oil which was produced from the Oil and Gas Properties and which was,
on the Effective Date, stored in tanks located on the Oil and Gas
Properties (or located elsewhere but used by Seller to store oil produced
from, or attributable to, the Oil and Gas Properties prior to delivery to
oil purchasers) and above pipeline connections shall be deemed to have been
produced before the Effective Date, (B) ad valorem and similar taxes
assessed for periods prior to the Effective Date shall be borne by Seller
and ad valorem taxes assessed for periods on or after the Effective Date
shall be home by Buyer, (C) ad valorem and similar taxes assessed with
respect to a period which the Effective Date splits shall be prorated based
on the number of days in such period which fall on each side of the
Effective Date (with the day on which the Effective Date falls being
counted in the period after the Effective Date), (D) the provisions of
Section 20(b) shall be given effect as if the same had taken effect on the
Effective Date, (E) casualty losses shall be handled in accordance with
-27-
Section 15 and (F) no consideration shall be given to the local, state or
federal income tax liabilities of any party.
(b) Initial Adjustment at Closing. At least 5 days before the Closing Date,
Seller shall provide to Buyer a statement showing its computations of the
amount of the adjustments provided for in subsection (a) above based on
amounts which prior to such time have actually been paid or received by
Seller. Buyer and Seller shall attempt to agree upon such adjustments prior
to Closing, provided that if agreement is not reached, Seller's computation
shall be used at Closing, subject to further adjustment under subsection
(c) below. If the amount of adjustments so determined which would result in
a credit to Buyer exceed the amount of adjustments so determined which
would result in a credit to Seller, Buyer shall, as provided in Section I I
above, receive a credit at Closing for the amount of such excess, and if
the converse is true, then, as provided in Section I I above, the amount to
be paid by Buyer to Seller at Closing shall be increased by the amount of
such excess.
(c) Adjustment Post Closing. On or before 120 days after Closing, Buyer and
Seller shall review any additional information which may then be available
pertaining to the adjustments provided for in subsection (a) above, shall
determine if any additional adjustments should be made beyond those made at
Closing (whether the same be made to account for expenses or revenues not
considered in making the adjustments made at Closing, or to correct effors
made in the adjustments made at Closing), and shall make any such
adjustments by appropriate payments from Seller to Buyer or from Buyer to
Seller within I 0 days after such determination. Seller is responsible for
preparing the post-closing statement regarding the adjustments under this
subsection. During the period between Closing and the point in time when
such post closing adjustment has been agreed to, Buyer shall, on a monthly
basis, pay over to Seller any revenue received by it with respect to the
Properties which was, under subsection (a) above, to be reserved by Seller
net of any expenses paid by Buyer which, under such subsection, were to be
home by Seller; such payments shall be considered in making such post
closing adjustment.
(d) No Further Adjustments. Following the adjustments under subsection (c)
above, no further adjustments shall be made under this Section 12. Should
any revenues or expenses with regard to the Properties be charged to (or
received by) Seller or Buyer after the earlier of (i) the conclusion of
such adjustments under subsection (c) or (ii) 120 days after Closing, the
same shall be bome by (or, in the case of revenues, received by) Buyer,
regardless of the periods to which the same relate, and any bills (or
payments) received by Seller will be forwarded to Buyer except for any
revenues related to claims identified by Seller before the end of such 120
day period (and of which Seller notifies Buyer before the end of such 120
day period), which revenues shall belong to Seller.
13. Assumption and Indemnification.
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(a) Buyer shall, on the date of Closing, agree (and, upon the delivery to
Buyer of the Conveyance, shall be deemed to have agreed) (i) to assume, and
to timely pay and perform, all duties, obligations and liabilities relating
to the ownership and/or operation of the Properties after the Effective
Date (including, without limitation, those arising under the Contracts),
and (ii) to indemnify and hold Seller (and its affiliates, and the
respective directors, officers, employees, attorneys, contractors and
agents of such parties) harmless from and against any and all claims,
actions, causes of action, liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorneys' fees) of any
kind or character arising out of or otherwise relating to the ownership
and/or operation of the Properties before or after the Effective Date for
which Seller does not indemnify Buyer as provided in Section 13(b)
including but not limited to, those related to joint venture audits
initiated one year or more after Closing. Notwithstanding the provisions of
Section 13(b), it is specifically understood and agreed that such duties,
obligations and liabilities arising out or otherwise relating to the
ownership and/or operation of the Properties after the Effective Date shall
be deemed to include all matters arising out of the condition of the
Properties on the Effective Date (including, without limitation, within
such matters all obligations to properly plug and abandon, or replug and
re-abandon, wells located on the Properties, to restore the surface of the
Properties and to comply with, or to bring the Properties into compliance
with, Environmental Laws, rules, regulations and orders, including
conducting any remediation activities which may be required on or otherwise
in connection with activities on the Properties), regardless of whether
such condition or the events giving rise to such condition arose or
occurred before or after the Effective Date, and the assumptions and
indemnifications by Buyer provided for in the first sentence of this
section shall expressly cover and include such matters. Should any conflict
exist or appear to exist between this Section and Section 12 above, this
Section shall control. THE FOREGOING ASSUMPTIONS AND INDEMNIFICATIONS SHALL
APPLY WHETHER OR NOT SUCH DUTIES, OBLIGATIONS OR LIABILITIES, OR SUCH
CLAIMS, ACTIONS, CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR
EXPENSES ARISE OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE
NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT
EXPRESSLY NOT INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii)
STRICT LIABILITY.
(b) Subject to Sections 12 and 13(a), Seller shall, as of the date of
Closing, agree (i) to assume, and to timely pay and perform, all duties,
obligations and liabilities arising from third party claims and relating to
Seller's ownership and/or operation of the Properties before the Effective
Date (including, without limitation, those arising under the Contracts) and
(ii) to indemnify and hold Buyer (and its affiliates, and the respective
directors, officers, employees, attorneys, contractors and agents of such
parties) harmless from and against any and all claims, actions, causes of
action, liabilities, damages, losses, costs or expenses (including, without
limitation, court costs and attorneys' fees) of any kind or character
arising from (A) Seller's breach of any of the representations or
warranties contained in Section 4(a) hereof (the "Warranty Indemnities"),
(B) Seller's ownership and/or operation of the
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Properties before the Effective Date (which shall include third party
claims for nonpayment or incorrect payment on royalty under the Leases or
incorrect payment or nonpayment by Seller of severance taxes (such third
party claims with respect to royalty and severance taxes being called the
"Royalty and Tax Indemnities")) and (C) the litigation listed on Exhibit
4(a)(v) (the "Litigation Indemnities"). Should any conflict exist or appear
to exist between this Section and Section 12 above, this Section shall
control. THE FOREGOING ASSUMPTIONS AND INDEMNIFICATIONS SHALL APPLY WHETHER
OR NOT SUCH DUTIES, OBLIGATIONS OR LIABILITIES, OR SUCH CLAIMS, ACTIONS,
CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT
OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT
NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING GROSS
NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT LIABILITY.
14. No Commissions Owed. Seller agrees to indemnify and hold Buyer (and its
affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of such parties) harmless from and against any and all
claims, actions, causes of action, liabilities, damages, losses, costs or
expenses (including, without limitation, court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Seller with any
broker or finder in connection with this Agreement or the transaction
contemplated hereby. Buyer agrees to indemnify and hold Seller (and its
affiliates and the respective officers, directors, employees, attorneys,
contractors and agents of such parties) harmless from and against any and all
claims, actions, causes of action, liabilities, damages, losses, costs or
expenses (including, without limitation, court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Buyer with any
broker or finder in connection with this Agreement or the transaction
contemplated hereby.
15. Casualty Loss. In the event of damage by fire or other casualty to the
Properties prior to the Closing, this Agreement shall remain in full force and
effect, and in such event:
(a) Oil and Gas Properties. As to each such Property so dwnaged which is an
Oil and Gas Property, that Seller does not repair such damage prior to
Closing, which Seller shall have no obligation to do, in which case all
rights to insurance proceeds, and claims against third parties, related
thereto shall belong to Seller), then (i) at the election of either Buyer
or Seller, such Property shall be treated as if it had an Asserted Defect
associated with it and the procedure provided for in Section 8 shall be
applicable thereto and for the purposes of this Section 15 only, such
Defect must be asserted before Closing (in which case, unless Buyer and
Seller agree to the contrary, all rights to insurance proceeds, and claims
against third parties, related thereto shall belong to Seller), or, (ii) if
no such election is made by Buyer or Seller, the Purchase Price will not be
adjusted, and Seller shall, at Seller's election,
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either collect (and when collected pay over to Buyer) any insurance claims
related to such damage, or assign to Buyer such insurance claims, and, in
either event, Buyer shall take title to the Property affected by such loss
without reduction of the Purchase Price.
(b) Other Properties. As to each such Property so damaged which is other
than an Oil and Gas Property, Seller shall, repair such damage or replace
such Property.
Seller has no obligation to carry insurance coverage (or, if it carries
insurance, to keep such insurance in force or to carry any particular types or
amounts of coverage), and in the event of a loss which is not covered by
insurance, Seller shall have no obligation to Buyer with respect thereto;
provided that, if Buyer so requests, and if Seller has not repaired the damage
or replaced the Property and if Buyer has not elected option (i) in subsection
(a) above, Seller will assign any rights it may have against third parties with
respect to such damage.
16. Notices. All notices and other communications required under this Agreement
shall (unless otherwise specifically provided herein) be in writing and be
delivered personally, by recognized commercial courier or delivery service which
provides a receipt, by telecopier (with receipt acknowledged), or by registered
or certified mail (postage prepaid), at the following addresses:
If to Buyer: Energen Resources Corporation
605 Richard Arrington Jr. Blvd. North
Birmingham, Alabama 35203-2707
Attention: Vice President - Legal & Land
Telephone: 205-326-8129
Facsimile: 205-326-2599
With copy to: Locke Liddell & Sapp LLP
600 Travis Street, Suite 2400
Houston, Texas 77002-3095
Attention: David Patton
Telephone: 713-226-1254
Fax: 713-229-2539
If to Seller: First Permian, L.L.C.
110 W. Louisiana, Suite 500
Midland, Texas 79701
Attention: Steven H. Pruett
Telephone: 915-688-0605
Fax: 915-685-4098
With copy to: Thompson & Knight LLP
1200 Smith Street, Suite 3600
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Houston, Texas 77002-4313
Attention: Michael K. Pierce
Telephone: 713-654-81 11
Fax: 713-654-1871
and shall be considered delivered on the date of receipt. Either Buyer or Seller
may specify as its proper address any other post office address within the
continental limits of the United States by giving notice to the other party, in
the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.
17. Survival of Provisions. All representations and warranties made herein by
Buyer and Seller shall be continuing and shall be true and correct on and as of
the date of Closing with the same force and effect as if made at that time and
shall inure to the benefit of Buyer and Seller but not to their respective
successors and assigns). The representations and warranties of Sections 4 and 5
shall survive the Closing and the delivery of the Conveyance for a period of one
year. The obligations of the parties under Section I I (to the extent the same
are, by mutual agreement, not performed at Closing), and Sections l(c), 3,
6(a)(iii), 6)(c), 12, 13(a), 14, 16, 17, 18, 19 and 20 shall (subject to any
limitations set forth therein) survive the Closing and the delivery of the
Conveyance. The obligations of the Seller under Section 13(b) shall survive
Closing and the delivery of the Conveyance for a period of one year, except the
Royalty and Severance Tax Indemnities and the Litigation Indemnities which shall
survive Closing and the delivery of the Conveyance indefinitely.
18. Registration of Energen Common Stock. It is the understanding of Buyer and
Energen that Seller intends to distribute to the members of Seller as of Closing
(the "Members") the Energen Common Stock constituting a portion of the Purchase
Price. The provisions of this Section shall be effective only as to those
Members that have received a distribution of the Energen Common Stock and have
executed and delivered to Energen the Stockholders' Agreement (the "Selling
Members") prior to the filing of the registration statement described below.
(a) Registration.
(i) Filing of Registration Statement. As soon as reasonably
practicable after the Closing, and in no event longer than two
business days after Seller has advised Buyer in writing at or after
the Closing the Selling Members have completed their review of a draft
of the registration statement pursuant to subsection (b)(i) and
furnished to Energen all required information pursuant to subsection
(c)(i), Energen shall use its reasonable best efforts to prepare and
cause to be filed with the Securities and Exchange Commission ("SEC")
a registration statement on Form S-3 (or any successor form or, if
Form S-3 or a successor form is not available, on any other
appropriate form as may then be available to Energen under the
Securities Act) relating to the resale of the Registrable Shares (as
defined herein). Energen shall also use its reasonable best efforts
(y) to cause such registration statement to be declared effective by
the SEC as soon as reasonably practicable after the filing of such
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registration statement, and (z) to maintain the effectiveness of such
registration statement (and maintain the current status of the
prospectus or prospectuses contained therein) for the duration of the
applicable Registration Period (as defined herein). Energen will pay
all registration and filing fees, all fees and expenses of legal
counsel, accountants and other persons retained by Energen, all other
expenses incurred by Energen in connection with Energen's performance
of or compliance with the provisions of this Section 18 (excluding
underwriting discounts and fees, selling commissions and transfer
taxes applicable to the sale of Registrable Shares and excluding the
cost of any separate legal counsel or other advisors retained by the
Seller or any Selling Member). In no event shall Energen be required
to file more than one registration statement under this Section 18,
and Energen shall not be required to amend or supplement any
registration statement or prospectus included therein to add any
additional selling stockholders after the initial filing of the
registration statement.
(ii) Defined Terms. The term "Registrable Shares" shall mean the
Shares and any Energen Common Stock issued as stock dividends thereon
or stock splits thereof, provided, that the term "Registrable Shares"
shall not include any Shares which (i) have been sold or otherwise
transferred by a Selling Member or (ii) shall have ceased to be
outstanding. The term "Registration Period" with respect to the
registration statement filed pursuant to this Section shall mean a,
period that shall run from the date on which such registration
statement has been declared effective by the SEC and shall expire on
the earlier of (x) the first date on which the Selling Members are
permitted to sell all of the Registrable Shares pursuant to the
provisions of Rule 144 promulgated under the Securities Act or (y) the
date upon which there shall cease to be any Registrable Shares covered
by such registration statement.
(b) Registration Procedure. Upon the terms and subject to the conditions of
this Section, Energen shall, in effecting any registration of Registrable
Shares pursuant to this Section:
(i) Pre-Filing Draft of Registration Statement. Prior to the initial
filing of a registration statement with the SEC, furnish to one law
firm selected by the Selling Members copies of all such documents
proposed to be filed (other than the exhibits to the registration
statement), and such counsel shall be given the reasonable opportunity
to communicate any comments it may have on such documents (which
comments will be primarily limited to information concerning the
Selling Members and their plans of distribution and other issues
reasonably related to a Selling Member as a selling stockholder);
(ii) Filing of Amendments. Use its reasonable best efforts to prepare
and file with the SEC such amendments and supplements to the
registration statement, and the prospectus used in connection with the
registration statement, as may be
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reasonably necessary to keep the registration statement effective for
the applicable Registration Period;
(iii) Furnishing Copies of Filings. Furnish to the Selling Members
copies of the registration statement, each amendment and supplement
thereto and the prospectus included in the registration statement
(including each preliminary prospectus) as Selling Members shall
reasonably request;
(iv) Changes to Registration Statement, Etc. Notify the Selling
Members whose Shares are being registered, at any time when a
prospectus relating to the registration statement is required to be
delivered under the Securities Act, as soon as reasonably practicable
after such time as Energen discovers any facts or circumstances which
cause the prospectus included in the registration statement to contain
an untrue statement of a material fact or to omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of circumstances then
existing; after the date of such notification to the Selling Members,
Energen will use its reasonable best efforts (subject to the
provisions of subsection (c)(iii) below) to, within five business
days, make filings under the Exchange Act and, to the extent required,
prepare and fumish to the Selling Members a supplement or amendment to
such prospectus and to cause the prospectus and registration statement
to be appropriately supplemented and amended so that such prospectus
and registration statement will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of circumstances then existing;
(v) Stop Orders. Notify the Selling Members of any stop order issued
or threatened by the SEC and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
(c) Certain Additional Covenants of Energen, Seller and the Selling
Members.
(i) Furnishing Information to Energen. The Seller and the Selling
Members whose Shares are being registered shall furnish to Energen
such information regarding the Seller, the Selling Members, the
distribution by the Selling Members of the Registrable Shares and such
other matters related thereto as Energen may from time to time
reasonably request. The Seller, the Selling Members and their
representatives shall cooperate with Energen and its representatives
to the extent reasonably required, and shall take such other actions
as may be reasonably necessary or appropriate or as may be reasonably
requested by Energen (at Energen's cost), in connection with the
performance by Energen of its obligations under this Section. The
Seller or Selling Members shall notify Energen as soon as reasonably
practicable after such time as the Seller or Selling Members obtain
actual knowledge of any facts
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or circumstances which cause the prospectus included in a registration
statement to contain an untrue statement of a material fact or to omit
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in light of
circumstances then existing.
(ii) Discontinuing Sales Until Prospectus is Corrected. The Selling
Members agree that, upon receipt of any notice from Energen of the
happening of any event of the kind described in subsection (b)(iv)
above or upon the delivery of a similar notice to Energen by a Selling
Member pursuant to subsection (c)(i) above, the Selling Members will
forthwith discontinue disposition of Registrable Shares pursuant to
the registration statement covering such Registrable Shares until
receipt by the Selling Members of the copies of the supplemented or
amended prospectus contemplated by such subsection (b)(iv) and (c)(i)
above, and, if so directed by Energen, the Selling Members will
deliver to Energen (at Energen's cost) all copies, other than
permanent file copies then in the Selling Members' possession, of the
prospectus covering such Registrable Shares current at the time of
receipt of such notice.
(iii) Discontinuing Sales Due to Disadvantageous Condition. With
respect to the registration statement filed or to be filed pursuant to
this Section, if Energen determines that, in its good faith judgment,
it would (because of the existence of, or in anticipation of, (A) any
acquisition or disposition transaction which is proposed or entered
into involving Energen or any subsidiary of Energen, (B) any financing
activity involving Energen or any subsidiary of Energen, or (C) any
other event or condition of material significance to Energen or any
subsidiary of Energen) be significantly disadvantageous (any of the
events described in clauses (A) through (C) above, hereinafter
referred to as a "Disadvantageous Condition") to Energen or any of its
subsidiaries for such registration statement to become effective or to
be maintained effective or for sales of Registrable Shares to continue
pursuant to such registration statement, Energen shall,
notwithstanding any other provisions of this Agreement, be entitled,
upon the giving of a written notice (a "Delay Notice") to such effect
to the Selling Members, (x) to cause offers and sales of Registrable
Shares by the Selling Members pursuant to such registration statement
to cease, or (y) in the event no such registration statement has yet
been filed, to delay filing any such registration statement, until, in
the good faith judgment of Energen, such Disadvantageous Condition no
longer exists. In no event shall any Delay Notices given by Energen be
effective for an aggregate of more than 60 days in any three month
period or an aggregate of more than 90 days in any twelve month
period.
(d) Indemnification.
(i) Indemnification by Energen. In connection with the registration of
the Registrable Shares under the Securities Act pursuant to this
Agreement, Energen will, and it hereby does, indemnify and hold
harmless, to the fullest extent permitted by law, the Selling Members,
each director, officer, manager, controlling person (within
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the meaning of the Securities Act) and affiliate of a Selling Member
and each other person who acts on a Selling Member's behalf in the
offering or sale of such securities (collectively, the "Member
Indemnitees"), against any and all losses, claims, fines, penalties,
damages or liability, joint or several, and expenses (including any
amounts paid in any settlement effected with Energen's prior consent
and reasonable attorneys fees and disbursements) to which such Member
Indemnitees may become subject under the Securities Act, common law or
otherwise, insofar as such losses, claims, fines, penalties, damages
or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (A) any untrue statement or
alleged untrue statement of any material fact contained in any
registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, or (B) any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and Energen will reimburse such Member Indemnitees for any
legal or any other expense reasonably incurred by them in connection
with investigating or defending such loss, claim, liability, action or
proceeding as they are incurred; provided that Energen shall not be
liable in any such case to any Member Indemnitee or group of Member
Indemnitees to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expenses arose out of
or was based upon any untrue statement or alleged untrue statement or
omission or alleged omission which was made or done in any such
registration statement, any such preliminary, final or summary
prospectus contained therein or any amendment or supplement thereto,
in reliance upon and conformity with information furnished to Energen
or its representatives in writing specifically for use therein by or
at the direction of any Member Indemnitee or group of Member
Indemnitees or by any of their respective representatives; provided
further that Energen will not be liable to any such Member Indemnitees
with respect to any preliminary prospectus as then amended or
supplemented, as the case may be, to the extent that any such loss,
claim, damage or liability of such Member Indemnitees results from the
fact that such Member Indemnitees sold Registrable Shares to a person
to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final prospectus (including
any documents incorporated by reference therein), as then amended or
supplemented, if Energen has previously furnished copies thereof to
such Member Indemnitees and such final prospectus, as then amended and
supplemented, has corrected any such misstatement or omission. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any Member Indemnitee and shall
survive the transfer of the Registrable Shares by the Selling Members.
(ii) Indemnification by the Selling Members. In connection with the
registration of the Registrable Shares under the Securities Act
pursuant to this Section, each Selling Member whose Shares are being
registered hereby agrees that it will severally, but not jointly,
indemnify and hold harmless, to the fullest extent permitted
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by law, Energen, each director, officer, controlling person (within
the meaning of the Securities Act) and affiliate of Energen and each
other person who acts on Energen's behalf in the offering or sale of
such securities (collectively, the "Energen Indemnitees"), against any
and all losses, claims, fines, penalties, damages or liabilities, and
expenses (including any amounts paid in any settlement effected with
such Selling Member's prior consent and reasonable attorneys fees and
disbursements) to which Energen or any Energen Indemnitee may become
subject under the Securities Act, common law or otherwise, insofar as
such losses, claims, fines, penalties, damages or liabilities (or
actions or proceedings in respect thereof) or expenses arise out of or
are based upon (A) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement, any
preliminary, final or summary prospectus contained therein, or any
amendment or supplement thereto, or (B) any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading
(but only to the extent that such misstatements or omissions referred
to in clauses (A) and (B) above were made, done or omitted in any such
registration statement, any such preliminary, final or summary
prospectus or any amendment or supplement thereto in reliance upon and
in conformity with information furnished to Energen or its
representatives in writing specifically for use therein by or at the
direction of such Selling Member or any of its representatives). Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of Energen or any Energen
Indemnitee and shall survive the transfer of the Registrable Shares by
the Selling Member.
(iii) Notices of Claims, Etc. Promptly after receipt by an indemnified
party hereunder of notice of any demand or the commencement of any
action or proceeding with respect to which a claim for indemnification
may be made pursuant to this subsection (d), such indemnified party
will, if a claim in respect thereof is to be made against an
indemnifying party, promptly give written notice to the latter of the
commencement of such action-, provided that the failure of any
indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under the preceding
subsections of this Section, except to the extent that the
indemnifying party is prejudiced by such failure to give notice. In
case any action is brought against an indemnified party, the
indemnifying party will be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying parties
similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party. After notice from
the indemnifying party to such indemnified party of its election so to
assume the defense of any such action, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense
thereof (unless in such indemnified party's reasonable judgment any
meaningful conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the
assumption of the defense thereof) and the indemnifying party will not
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be subject to any liability for any settlement made without its
reasonable consent. No indemnifying party will consent to entry of
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect to
such claim or litigation. An indemnifying party who elects not to
assume the defense of a claim will not be obligated to pay the fees
and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim (unless in the
reasonable judgment of the indemnified parties additional counsel are
necessary to address conflicts of interest between the indemnified
parties, in which case the indemnifying party shall be responsible for
the fees and expenses of such additional counsel).
(iv) Contribution. If the indemnification provided for in this
subsection (d) from the indemnifying party is unavailable to an
indemnified party for any loss, claim, fines, penalties, damage,
liability or expense covered thereby, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, claim, fine, penalty, damage, liability or expense. The
contribution of such indemnifying party shall be limited to the
proportionate share of the amount paid or payable that reflects the
relative fault of the indemnifying party with respect to such loss,
claim, damage, liability, or expense; provided that the maximum amount
to be contributed by any Selling Member indemnifying party shall not
exceed the net amount of proceeds received by such Selling Member
pursuant to the sale of securities in connection with the registration
set forth in this Section. The relative fault shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or any omission or alleged omission of a
material fact was made by or relates to information supplied by the
indemnifying party and the intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission of
the indemnifying party. The indemnifying and indemnified parties agree
that it would not be just and equitable to determine contribution
under this subsection (d) by pro rata allocation or by any other
method which does not take into account the equitable considerations
referred to above.
19. Certain Agreements Regarding Westbrook Southeast Unit. Seller covenants and
agrees with Buyer that it will obtain, on or before the Closing Date, the
execution and delivery of that certain Ratification of Ninth Amendment to Unit
Agreement Westbrook Southeast Unit, Mitchell County, Texas (the "Ratification"),
by (i) working interest owners in the Westbrook Southeast Unit (the "Westbrook
Unit") whose aggregate working interests committed to the Westbrook Unit equal
at least 85% of the working interests in the lands covered by the Westbrook Unit
and (ii) royalty interest owners committed to the Westbrook Unit whose aggregate
royalty interests equal at least 65% of the total royalty interest in the lands
covered by the Westbrook Unit. If Seller fails to comply with its covenant and
agreement as set forth above in this Section 19, the parties hereto do hereby
agree as follows: (a) at Closing, Buyer shall be permitted to withhold from the
Purchase Price payable at closing 217,391 shares of Energen Common Stock (the
"Holdback Shares"); (b) subject to clause (c) below, within two business days
after the date on which the requisite working interest owners in the Westbrook
Unit and royalty interest owners in the Westbrook Unit execute and deliver the
Ratification as provided above, Buyer shall deliver to Seller certificates
evidencing the Holdback
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Shares; and (c) if the requisite working interest owners in the Westbrook Unit
and royalty interest owners in the Westbrook Unit fail to execute and deliver
the Ratification on or before one year from the date of Closing as provided
above, Buyer shall be entitled to retain the Holdback Shares and the Purchase
Price shall be deemed reduced.
20. Miscellaneous Matters.
(a) Further Assurances. After the Closing, Seller shall execute and
deliver, and shall otherwise cause to be executed and delivered, from time
to time, such further instruments, notices, division orders, transfer
orders and other documents, and do such other and further acts and things,
as may be reasonably necessary to more fully and effectively grant, convey
and assign the Properties to Buyer.
(b) Gas Imbalances, Makeup Obligations. Subject to Section 4 and without
limitation on any other provision of this Agreement, it is expressly
understood and agreed that, upon the occurrence of Closing, but effective
as of the Effective Date, Buyer shall succeed to and assume the position of
Seller with respect to all gas imbalances and makeup obligations related to
the Properties (regardless of whether such imbalances or makeup obligations
arise at the wellhead, pipeline, gathering system or other level, and
regardless of whether the same arise under contract or otherwise), to the
extent, and only to the extent, such production imbalances and make-up
obligations are disclosed on Exhibit 4(a)(xvi). As a result of such
succession, Buyer shall (i) be entitled to receive any and all benefits
which Seller would have been entitled to receive by virtue of such position
(including, without limitation, rights to produce and receive volumes of
production in excess of volumes which it would otherwise be entitled to
produce and receive by virtue of ownership of the Properties and rights to
receive cash balancing payments), and (ii) be obligated to suffer any
detriments which Seller would have been obligated to suffer by virtue of
such position (including, without limitation, the obligation to deliver to
others production volumes which would have otherwise been attributable to
its ownership of the Properties, to deliver production to purchasers hereof
without receiving full payment therefor, or to make cash balancing payments
or to repay take or pay payments) and (iii) shall be responsible for any
and all future royalty obligations with respect to future production
attributable to such imbalances (including, without limitation, any of the
same arising out of royalties having been paid on an entitlement basis
rather than a receipts basis).
(c) Parties Bear Own Expenses/No Special Damages. Each party shall bear and
pay all expenses (including, without limitation, legal fees) incurred by it
in connection with the transaction contemplated by this Agreement.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY NEITHER PARTY SHALL HAVE
ANY OBLIGATIONS WITH RESPECT TO THIS AGREEMENT, OR OTHERWISE IN CONNECTION
HEREWITH, FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.
(d) No Sales Taxes. No sales, transfer or similar tax will be collected at
Closing from Buyer in connection with this transaction. If, however, this
transaction is later deemed to be subject to sales, transfer or similar
tax, for any reason, Buyer agrees to be solely responsible, and shall
indemnify and hold Seller (and its affiliates, and its and their directors,
officers, employees, attorneys, contractors and agents) harmless, for any
and all sales, transfer or other
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similar taxes (including related penalty, interest or legal costs) due by
virtue of this transaction on the Properties transferred pursuant hereto
and the Buyer shall remit such taxes at that time. Seller and Buyer agree
to cooperate with each other in demonstrating that the requirements for
exemptions from such taxes have been met.
(e) Entire Agreement. This Agreement and its Exhibits contains the entire
understanding of the parties hereto with respect to subject matter hereof
and supersedes all prior agreements, understandings, negotiations, and
discussions among the parties with respect to such subject matter; provided
that any Confidentiality Agreement executed by Buyer and Seller, or any
representative of Seller, in connection with the transaction contemplated
hereby remains in full force and effect and is not superseded or modified
by this Agreement.
(f) Amendments, Waivers. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived)
only by an instrument in writing signed by the party against whom
enforcement of the amendment, modification, supplement, restatement or
discharge (or waiver) is sought.
(g) Choice of Law. Without regard to principles of conflicts of law, this
Agreement shall be construed and enforced in accordance with and governed
by the laws of the state of Texas applicable to contracts made and to be
performed entirely within such state and the laws of the United States of
America, except that, to the extent that the law of a state in which a
portion of the Properties is located (or which is otherwise applicable to a
portion of the Properties) necessary governs, the law of such state shall
apply as to that portion of the property located in (or otherwise subject
to the laws of) such state.
(h) Headings, Time of Essence etc. The descriptive headings contained in
this Agreement are for convenience only and shall not control or affect the
meaning or construction of any provision of this Agreement. Within this
Agreement words of any gender shall be held and construed to cover any
other gender, and words in the singular shall be held and construed to
cover the plural, unless the context otherwise requires. Time is of the
essence in this Agreement.
(i) No Assignment. Neither party shall have the right to assign its rights
under this Agreement, without the prior written consent of the other party
first having been obtained.
(j) Successors and Assigns. Subject to the limitation on assignment
contained in subsection (i) above, the Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective successors
and assigns.
(k) No Press Releases. Except as may be required under applicable law,
Seller shall not make any public announcement with respect to the
transaction contemplated hereby without the consent of the Buyer. If Buyer
makes any such public announcement, it will provide Seller with a copy
prior thereto.
(l) Counterpart Execution. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute
one and the same instrument. It shall not be necessary for Buyer and
Seller to sign the same counterpart.
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(m) Recording. Buyer agrees to promptly record all conveyances to
effectuate this transaction at its expense.
(n) Conversion. The parties hereto acknowledge and affirm that Seller has
advised Buyer that Seller intends to convert from a Delaware limited
liability company to a Delaware limited partnership (the "Conversion") on
or prior to the Closing. The parties hereto agree that the Conversion shall
in no way affect this Agreement or their respective rights and obligations
hereunder, provided, that immediately upon the Conversion, the references
in Section 4(a)(i) to "limited liability company" shall be deemed deleted
and there shall be substituted therefor references to "limited
partnership," and the references in the first sentence of Section 18 to
"members" shall be deemed deleted and "partners" shall be substituted
therefor.
(o) Energen Covenants. All covenants and agreements of Energen herein shall
also be deemed to be covenants and agreements of Buyer for purposes hereof
(including, without limitation, Section 10).
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IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
FIRST PERMIAN, L.L.C.
By: /s/ Steven H. Pruett
Steven H. Pruett
President & Chief Executive Officer
ENERGEN RESOURCES CORPORATION
By: /s/ J. T. McManus
J. T. McManus
President
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