Document:

Exhibit 10.14

 

 

 

Execution Version

 

SERIES A CONVERTIBLE PREFERRED UNIT

 

PURCHASE AGREEMENT

 

among

 

SOUTHCROSS ENERGY PARTNERS, L.P.

 

and

 

SOUTHCROSS ENERGY LLC

 

dated as of April 12, 2013

 

 

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I
    
	
 
    
	
DEFINITIONS
    
	
 
    	
 
    	
 
    
	
Section 1.01
    	
Definitions
    	
1
    
	
Section 1.02
    	
Accounting Procedures and Interpretation
    	
5
    
	
 
    	
 
    	
 
    
	
ARTICLE II
    
	
 
    
	
AGREEMENT TO SELL AND PURCHASE
    
	
 
    	
 
    	
 
    
	
Section 2.01
    	
Sale and Purchase
    	
6
    
	
Section 2.02
    	
Closing
    	
6
    
	
Section 2.03
    	
Southcross Closing Deliverables
    	
6
    
	
Section 2.04
    	
Purchaser Closing Deliverables
    	
7
    
	
 
    
	
ARTICLE III
    
	
 
    
	
REPRESENTATIONS AND WARRANTIES OF SOUTHCROSS
    
	
 
    	
 
    	
 
    
	
Section 3.01
    	
Formation and Qualification
    	
8
    
	
Section 3.02
    	
Ownership of Subsidiaries
    	
8
    
	
Section 3.03
    	
No Other Subsidiaries
    	
8
    
	
Section 3.04
    	
Authorization; Enforceability; Valid Issuance
    	
9
    
	
Section 3.05
    	
No Preemptive Rights, Registration Rights or Options
    	
9
    
	
Section 3.06
    	
Capitalization
    	
10
    
	
Section 3.07
    	
No Breach
    	
10
    
	
Section 3.08
    	
No Approvals
    	
10
    
	
Section 3.09
    	
No Default
    	
10
    
	
Section 3.10
    	
Southcross SEC Documents; Southcross Financial Statements
    	
11
    
	
Section 3.11
    	
No Material Adverse Change
    	
11
    
	
Section 3.12
    	
Title to Real Property
    	
11
    
	
Section 3.13
    	
Rights-of-Way
    	
12
    
	
Section 3.14
    	
Insurance
    	
12
    
	
Section 3.15
    	
Litigation
    	
12
    
	
Section 3.16
    	
No Labor Dispute
    	
13
    
	
Section 3.17
    	
Tax Returns
    	
13
    
	
Section 3.18
    	
Environmental Compliance
    	
13
    
	
Section 3.19
    	
Permits
    	
13
    
	
Section 3.20
    	
NYSE Listing
    	
14
    
	
Section 3.21
    	
Investment Company
    	
14
    
	
Section 3.22
    	
Certain Fees
    	
14
    

 

i

 

	
ARTICLE IV
    
	
 
    
	
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
    
	
 
    	
 
    	
 
    
	
Section 4.01
    	
Existence
    	
14
    
	
Section 4.02
    	
Authorization; Enforceability
    	
14
    
	
Section 4.03
    	
No Breach
    	
15
    
	
Section 4.04
    	
Certain Fees
    	
15
    
	
Section 4.05
    	
Unregistered Securities
    	
15
    
	
Section 4.06
    	
Short Selling
    	
16
    
	
Section 4.07
    	
Southcross Information
    	
17
    
	
 
    
	
ARTICLE V
    
	
 
    
	
COVENANTS
    
	
 
    
	
Section 5.01
    	
Transfer of Purchased Units
    	
17
    
	
Section 5.02
    	
Further Assurances; NYSE Listing
    	
17
    
	
Section 5.03
    	
Use of Proceeds
    	
17
    
	
 
    
	
ARTICLE VI
    
	
 
    
	
INDEMNIFICATION,   COSTS AND EXPENSES
    
	
 
    
	
Section 6.01
    	
Indemnification by Southcross
    	
18
    
	
Section 6.02
    	
Indemnification by the Purchaser
    	
18
    
	
Section 6.03
    	
Indemnification Procedure
    	
19
    
	
Section 6.04
    	
Tax Matters
    	
20
    
	
 
    
	
ARTICLE VII
    
	
 
    
	
MISCELLANEOUS
    
	
 
    
	
Section 7.01
    	
Fees and Expenses
    	
20
    
	
Section 7.02
    	
Interpretation
    	
20
    
	
Section 7.03
    	
Survival of Provisions
    	
21
    
	
Section 7.04
    	
No Waiver; Modifications in Writing
    	
21
    
	
Section 7.05
    	
Binding Effect; Assignment
    	
22
    
	
Section 7.06
    	
Communications
    	
22
    
	
Section 7.07
    	
Removal of Legend
    	
23
    
	
Section 7.08
    	
No Third Party Beneficiaries
    	
24
    
	
Section 7.09
    	
Entire Agreement
    	
24
    
	
Section 7.10
    	
Governing Law; Submission to Jurisdiction
    	
24
    
	
Section 7.11
    	
Waiver of Jury Trial
    	
25
    
	
Section 7.12
    	
Execution in Counterparts
    	
25
    
	
 
    	
 
    	
 
    
	
Schedule   I
    	
-
    	
Subsidiaries
    	
 
    
				

 

ii

 

SERIES A CONVERTIBLE PREFERRED UNIT PURCHASE AGREEMENT

 

This SERIES A CONVERTIBLE PREFERRED UNIT PURCHASE AGREEMENT, dated as of April 12, 2013 (this “Agreement”), is entered into by and between Southcross Energy Partners, L.P., a Delaware limited partnership (“Southcross”), and Southcross Energy LLC, a Delaware limited liability company (the “Purchaser”).

 

WHEREAS, Southcross desires to sell to the Purchaser, and the Purchaser desires to purchase from Southcross, (i) $33,516,000 of Series A Preferred Units (as defined below) at the Initial Closing (as defined below) and (ii) $5,684,000 of Series A Preferred Units at the Follow-On Closing (as defined below), in each case in accordance with the provisions of this Agreement; and

 

WHEREAS, Southcross has agreed to provide the Purchaser with certain registration rights with respect to the Conversion Units (as defined below) underlying the Series A Preferred Units acquired pursuant to this Agreement (including Conversion Units underlying any Series A Preferred Units issued to the Purchaser as payment in-kind distributions pursuant to the terms of the Series A Preferred Units).

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01                             Definitions.  As used in this Agreement, the following terms have the meanings indicated:

 

“Affiliate” means, with respect to a specified Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question.  As used herein, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise; provided, however, that the Southcross Entities and the Purchaser shall not be considered Affiliates for purposes of this Agreement.

 

“Agreement” has the meaning set forth in the introductory paragraph of this Agreement.

 

“Basic Documents” means, collectively, this Agreement, the Registration Rights Agreement and the Southcross Partnership Agreement.

 

“Board” means the Board of Directors of the General Partner.

 

“Business Day” means any day other than a Saturday, Sunday, any federal holiday or day on which banking institutions in the State of New York or State of Texas are authorized or required by Law or other governmental action to close.

 

 

“CERCLA” shall have the meaning specified in Section 3.18.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Unitholders” means holders of Common Units.

 

“Common Units” means common units representing limited partner interests in Southcross.

 

“consent” shall have the meaning specified in Section 3.08.

 

“Contract” means any contract, agreement, indenture, note, bond, mortgage, deed of trust, loan, instrument, lease, license, commitment or other arrangement, understanding, undertaking, commitment or obligation, whether written or oral.

 

“Conversion Units” means the Common Units issuable upon conversion of the Purchased Units in accordance with the Southcross Partnership Agreement.

 

“Delaware LP Act” shall have the meaning specified in Section 3.02.

 

“Environmental Law” means any Law, Environmental Permit, and other legally enforceable requirements applicable to the Southcross Entities or the operation of their business in any way relating to the protection of human health and safety (to the extent such health or safety relate to exposure to Hazardous Materials), the environment and natural resources (including, without limitation, any natural resource damages, any generation, manufacture, processing, use, storage, treatment, disposal, release, threatened release, discharge, or emission of Hazardous Materials into the environment, and any exposure to Hazardous Materials), including, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Occupational Safety and Health Act (29 C.F.R. part 24 et seq.), and the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136 et seq.).

 

“Environmental Permits” means all permits, approvals, identification numbers, registrations, consents, licenses, exemptions, variances and authorizations required under or issued pursuant to any applicable Environmental Law.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

 

“Follow-On Closing” shall have the meaning specified in Section 2.02.

 

“Follow-On Closing Date” shall have the meaning specified in Section 2.02.

 

“Follow-On Purchase Price” means $5,684,000.

 

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“General Partner” means Southcross Energy Partners GP, LLC, a Delaware limited liability company and the general partner of Southcross.

 

“GAAP” means generally accepted accounting principles in the United States of America as of the date hereof; provided, however, that for the Southcross Financial Statements prepared as of a certain date, GAAP referenced therein shall be GAAP as of the date of such Southcross Financial Statements.

 

“Governmental Authority” means, with respect to a particular Person, any state, county, city and political subdivision of the United States in which such Person or such Person’s Property is located or which exercises valid jurisdiction over any such Person or such Person’s Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them and any monetary authority that exercises valid jurisdiction over any such Person or such Person’s Property.  Unless otherwise specified, all references to Governmental Authority herein with respect to Southcross means a Governmental Authority having jurisdiction over Southcross, its Subsidiaries or any of their respective Properties.

 

“governmental permits” shall have the meaning specified in Section 3.19.

 

“Hazardous Material” shall have the meaning specified in Section 3.18.

 

“Indemnified Party” shall have the meaning specified in Section 6.03(b).

 

“Indemnifying Party” shall have the meaning specified in Section 6.03(b).

 

“Initial Closing” shall have the meaning specified in Section 2.02.

 

“Initial Closing Date” shall have the meaning specified in Section 2.02.

 

“Initial Purchase Price” means $33,516,000.

 

“Law” means any applicable federal, state, tribal or local order, writ, injunction, judgment, settlement, award, decree, statute, law (including common law), rule or regulation.

 

“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.  For the purpose of this Agreement, a Person shall be deemed to be the owner of any Property that it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing.

 

“NYSE” means the New York Stock Exchange.

 

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“Operating Agreements” means, collectively, the Southcross Entity Operating Agreements, the Southcross Partnership Agreement and the Certificate of Limited Partnership of Southcross, each as amended to date.

 

“Person” means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization, Governmental Authority or any agency, instrumentality or political subdivision thereof or any other form of entity.

 

“Property” or “Properties” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible (including intellectual property rights).

 

“Purchase Price” means, collectively, the Initial Purchase Price and the Follow-On Purchase Price.

 

“Purchased Units” shall have the meaning specified in Section 2.01(b).

 

“Purchaser” has the meaning set forth in the introductory paragraph of this Agreement.

 

“Purchaser Related Parties” shall have the meaning specified in Section 6.01.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the Initial Closing Date, between Southcross and the Purchaser.

 

“Representatives” means, with respect to a specified Person, the officers, directors, managers, members, employees, agents, counsel, accountants, investment bankers, and other representatives of such Person.

 

“rights-of-way” shall have the meaning specified in Section 3.13.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

 

“Series A Preferred Units” means Southcross’ Series A Convertible Preferred Units.

 

“Short Sales” means, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and forward sale contracts, options, puts, calls, short sales, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements, and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

 

“Simmons” means Simmons & Company International.

 

“Southcross” has the meaning set forth in the introductory paragraph of this Agreement.

 

“Southcross Credit Agreement” shall have the meaning specified in Section 3.02.

 

“Southcross Credit Agreement First Amendment” means the First Amendment, dated as of March 27, 2013, to the Southcross Credit Agreement.

 

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“Southcross Credit Agreement Second Amendment” means the Limited Waiver and Second Amendment, dated as of April 12, 2013, to the Southcross Credit Agreement.

 

“Southcross Entities” means, collectively, the entities listed on Schedule I to this Agreement.

 

“Southcross Entity Operating Agreements” means the certificate of incorporation, certificate of formation, bylaws, limited liability company agreement, limited partnership agreement or other organizational documents, as applicable, of the Southcross Entities (excluding Southcross).

 

“Southcross Financial Statements” shall have the meaning specified in Section 3.10.

 

“Southcross Material Adverse Effect” means any material adverse change (a) on the condition, financial or otherwise, earnings, business or properties of the Southcross Entities, taken as a whole, whether or not arising from transactions in the ordinary course of business; or (b) that could reasonably be expected to have a material adverse effect on the performance of this Agreement or any other Basic Document or the consummation of any of the transactions contemplated hereby or thereby.

 

“Southcross Partnership Agreement” means the Second Amended and Restated Agreement of Limited Partnership of Southcross, dated as of April 12, 2013, as may be amended through the date hereof.

 

“Southcross Related Parties” shall have the meaning specified in Section 6.02.

 

“Southcross SEC Documents” shall have the meaning specified in Section 3.10.

 

“Subsidiary” means, as to any Person, any corporation or other entity of which:  (i) such Person or a Subsidiary of such Person is a general partner or manager; (ii) at least a majority of the outstanding equity interest having by the terms thereof ordinary voting power to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether or not at the time any equity interest of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries; or (iii) any corporation or other entity as to which such Person consolidates for accounting purposes.

 

“Third Party Claim” shall have the meaning specified in Section 6.03(b).

 

“Transfer” shall have the meaning specified in Section 5.01.

 

“Unitholders” means holders of limited partner interests in Southcross.

 

Section 1.02                             Accounting Procedures and Interpretation.  Unless otherwise specified in this Agreement, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters under this Agreement shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Purchaser under

 

5

 

this Agreement shall be prepared, in accordance with GAAP applied on a consistent basis during the periods involved (except, in the case of unaudited financial statements, as permitted by Form 10-Q promulgated by the Commission) and in compliance as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto.

 

ARTICLE II

 

AGREEMENT TO SELL AND PURCHASE

 

Section 2.01                             Sale and Purchase.

 

(a)                                 Pursuant to the terms of this Agreement, at the Initial Closing: (i) Southcross hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from Southcross, 1,466,325 Series A Preferred Units (the “Initial Purchased Units”) on the Initial Closing Date and (ii) as consideration for the issuance and sale of the Initial Purchased Units to the Purchaser, the Purchaser hereby agrees to pay Southcross the Initial Purchase Price.

 

(b)                                 Pursuant to the terms of this Agreement, at the Follow-On Closing: (i) Southcross hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from Southcross, 248,675 Series A Preferred Units (the “Follow-On Purchased Units” and, together with the Initial Purchased Units, the “Purchased Units”) on the Follow-On Closing Date and (ii) as consideration for the issuance and sale of the Follow-On Purchased Units to the Purchaser, the Purchaser hereby agrees to pay Southcross the Follow-On Purchase Price.

 

Section 2.02                             Closing.  Pursuant to the terms of this Agreement, the consummation of the purchase and sale of (i) the Initial Purchased Units (the “Initial Closing”) is taking place concurrently with the execution and delivery of this Agreement and (ii) the Follow-On Purchased Units (the “Follow-On Closing”) will take place on or before June 30, 2013 (the “Follow-On Closing Date”).  The Initial Closing and the Follow-On Closing shall take place at the offices of Gardere Wynne Sewell LLP, Thanksgiving Tower, Suite 3000, 1601 Elm Street, Dallas, Texas 75201.  The parties agree that each of the Initial Closing and the Follow-On Closing may occur via delivery of facsimiles or photocopies of the Basic Documents and the closing deliverables contemplated hereby and thereby. Unless otherwise provided herein, all proceedings to be taken and all documents to be executed and delivered by all parties at each of the Initial Closing and the Follow-On Closing will be deemed to have been taken and executed simultaneously, and no proceedings will be deemed to have been taken nor documents executed or delivered until all have been taken. The date on which the Initial Closing occurs and the transactions contemplated by this Agreement become effective is referred to as the “First Closing Date.”

 

Section 2.03                             Southcross Closing Deliverables.  Upon the terms and subject to the conditions of this Agreement, at the Initial Closing and the Follow-On Closing, Southcross is delivering (or causing to be delivered) the following:

 

(a)                                 a certificate or certificates (bearing the legend set forth in Section 4.05(e) of this Agreement) representing the Initial Purchased Units and the Follow-On Purchased

 

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Units, as the case may be, and meeting the requirements of the Southcross Partnership Agreement, registered in such name(s) as the Purchaser has designated (which shall be limited to Purchaser and its Affiliates);

 

(b)                                 a certificate of the Secretary or Assistant Secretary of the General Partner, dated as of the Initial Closing Date or the Follow-On Closing Date, as the case may be, certifying as to and attaching: (i) the Certificate of Limited Partnership of Southcross, as filed with the Delaware Secretary of State, (ii) the Southcross Partnership Agreement, (iii) the resolutions of the Board authorizing the Basic Documents and the transactions contemplated thereby, including the issuance of the Purchased Units, and (iv) the incumbency of the officers executing the Basic Documents;

 

(c)                                  a certificate from the Delaware Secretary of State evidencing that Southcross is in good standing and dated as of a recent date;

 

(d)                                 certificates of the Secretary of State (or corresponding state official) of each of the jurisdictions listed on Schedule I to this Agreement, dated as of a recent date, evidencing the qualification and good standing of Southcross as a foreign limited partnership;

 

(e)                                  a cross-receipt executed by Southcross and delivered to the Purchaser certifying that it has received the Initial Purchase Price or the Follow-On Purchase Price, as the case may be;

 

(f)                                   the Registration Rights Agreement with respect to the Purchased Units, which shall have been duly executed by Southcross and delivered on the Initial Closing Date;

 

(g)                                  the Southcross Partnership Agreement, which shall be delivered on the Initial Closing Date as duly adopted and in full force and effect;

 

(h)                                 the Southcross Credit Agreement Second Amendment, which shall have been duly executed by Southcross and delivered on the Initial Closing Date; and

 

(i)                                     all other documents, instruments and writings required to be delivered by Southcross at the Initial Closing or the Follow-On Closing under the Basic Documents.

 

Section 2.04                             Purchaser Closing Deliverables.  Upon the terms and subject to the conditions of this Agreement, at the Initial Closing and the Follow-On Closing, Purchaser is delivering (or causing to be delivered) the following:

 

(a)                                 the Initial Purchase Price or the Follow-On Purchase Price, as the case may be, in immediately available funds;

 

(b)                                 the Registration Rights Agreement with respect to the Purchased Units, which shall have been duly executed by the Purchaser and delivered on the Initial Closing Date;

 

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(c)                                  a cross-receipt executed by the Purchaser and delivered to Southcross certifying that it has received the Initial Purchased Units or the Follow-On Purchased Units, as the case may be; and

 

(d)                                 all other documents, instruments and writings required to be delivered by the Purchaser at the Initial Closing or the Follow-On Closing, as the case may be, under the Basic Documents.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF SOUTHCROSS

 

Southcross represents and warrants to the Purchaser, on and as of the date of this Agreement and as of the Follow-On Closing Date, as follows:

 

Section 3.01                             Formation and Qualification.  Each of the Southcross Entities has been duly formed and is validly existing as a limited partnership or limited liability company, as applicable, in good standing under the laws of the jurisdiction in which it is organized or formed, as applicable, with full limited partnership or limited liability company, as applicable, power and authority to enter into and perform its obligations under the Basic Documents to which it is a party, to own or lease, as the case may be, and to operate its Properties currently owned or leased and to conduct its business as currently conducted, in each case in all material respects as described in the Southcross SEC Documents. Each of the Southcross Entities is duly qualified to do business as a foreign limited partnership or limited liability company, as applicable, and is in good standing under the laws of each jurisdiction that requires such qualification, except where the failure so to register or qualify would not, individually or in the aggregate, be reasonably likely to have a Southcross Material Adverse Effect.

 

Section 3.02                             Ownership of Subsidiaries.  Southcross owns, directly or indirectly, 100% of the limited liability company interests, general partner interests or limited partnership interests, as applicable, in the Southcross Entities (other than the General Partner and Southcross); such equity interests have been duly authorized and validly issued in accordance with the Operating Agreements of each Subsidiary and are fully paid (to the extent required under such Operating Agreements) and nonassessable (except as such nonassessability may be affected by Sections 18-303, 18-607 and 18-804 of the Delaware Limited Liability Company Act, Section 153.210 of the Texas Business Organizations Code and Sections 17-303, 17-607 and 17-804 of the Delaware Revised Uniform Limited Partnership Act (the “Delaware LP Act”); and Southcross owns such equity interests free and clear of all Liens, except for those liens securing obligations under the Second Amended and Restated Credit Agreement, dated as of November 7, 2012, by and among the Partnership, as borrower, Wells Fargo Bank, N.A., as Administrative Agent, and the lenders named therein, as amended by the Southcross Credit Agreement First Amendment and the Southcross Credit Agreement Second Amendment (the “Southcross Credit Agreement”).

 

Section 3.03                             No Other Subsidiaries.  Other than its ownership interests in the other Southcross Entities, Southcross does not own, directly or indirectly, any equity or long-term debt

 

8

 

securities of any other Person that, individually or in the aggregate, would be deemed to be a “significant subsidiary” as such term is defined in Rule 405 of the Securities Act.

 

Section 3.04                             Authorization; Enforceability; Valid Issuance.

 

(a)                                 Southcross has all requisite power and authority to issue and sell the Purchased Units, in accordance with and upon the terms and conditions set forth in the Basic Documents, and no further consent or authorization is required.

 

(b)                                 The Basic Documents to which Southcross is a party have been duly authorized and validly executed and delivered by Southcross and, assuming due authorization, execution and delivery by the Purchaser or its Affiliates, as applicable (if either the Purchaser or its Affiliates is a party thereto), constitute, valid and binding obligations of Southcross; provided, that the enforceability thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws relating to or affecting creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (ii) public policy, applicable law relating to fiduciary duties and indemnification and contribution and an implied covenant of good faith and fair dealing.

 

(c)                                  The Purchased Units and the limited partner interests represented thereby have been duly authorized in accordance with the Southcross Partnership Agreement and, when issued and delivered against payment therefor in accordance with this Agreement, will be validly issued, fully paid (to the extent required under the Southcross Partnership Agreement) and non-assessable (except as such non-assessability may be affected by matters described in Sections 17-303, 17-607 and 17-804  of the Delaware LP Act) and will be free of any and all Liens and restrictions on transfer, other than (i) restrictions on transfer under the Southcross Partnership Agreement or this Agreement and under applicable state and federal securities laws, (ii) such Liens as are created by the Purchaser and (iii) such Liens as arise under the Southcross Partnership Agreement or the Delaware LP Act.

 

(d)                                 Upon issuance in accordance with this Agreement and the Southcross Partnership Agreement, the Conversion Units will be duly authorized, validly issued, fully paid (to the extent required by the Southcross Partnership Agreement) and non-assessable (except as such non-assessability may be affected by matters described in Sections 17-303, 17-607 and 17-804 of the Delaware LP Act) and will be free of any and all Liens and restrictions on transfer, other than (i) restrictions on transfer under the Southcross Partnership Agreement or this Agreement and under applicable state and federal securities laws, (ii) such Liens as are created by the Purchaser and (iii) such Liens as arise under the Southcross Partnership Agreement or the Delaware LP Act.

 

Section 3.05                             No Preemptive Rights, Registration Rights or Options.  Except as described in the Southcross SEC Documents or as set forth in the Southcross Partnership Agreement, the Limited Liability Company Agreement of the General Partner, dated as of November 7, 2012, or the Limited Liability Company Agreement of Southcross Delta Pipeline LLC, dated as of January 29, 2009, there are no (i) preemptive rights or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any equity interests in any of the Southcross Entities or (ii) outstanding options or warrants to purchase any securities of any

 

9

 

of the Southcross Entities. Except as contemplated by the Basic Documents, the issuance and sale of the Purchased Units as contemplated by this Agreement does not give rise to any rights for or relating to the registration of any Common Units or other securities of Southcross other than as have been waived or deemed waived.

 

Section 3.06                             Capitalization. As of the date of this Agreement, immediately prior to the issuance and sale of the Initial Purchased Units, the issued and outstanding partnership interests of Southcross consist of 12,213,713 Common Units, 12,213,713 Subordinated Units (as defined in the Southcross Partnership Agreement), the General Partner’s 2.0% general partner interest in Southcross and the Incentive Distribution Rights (as defined in the Southcross Partnership Agreement). All outstanding Common Units and Subordinated Units and the limited partner interests represented thereby have been duly authorized and validly issued in accordance with the Southcross Partnership Agreement and are fully paid (to the extent required under the Southcross Partnership Agreement) and non-assessable (except as such non-assessability may be affected by matters described in Sections 17-303, 17-607 and 17-804 of the Delaware LP Act).

 

Section 3.07                             No Breach.  None of (i) the issuance or sale of the Purchased Units or (ii) the execution, delivery and performance of the Basic Documents or the consummation of the transactions contemplated hereby or thereby, (A) conflicts or will conflict with or constitutes or will constitute a violation of the Operating Agreements, (B) conflicts or will conflict with or constitutes or will constitute a breach or violation of, or a default (or an event which, with notice or lapse of time or both, would constitute such a default) under, any Contract to which any of the Southcross Entities is a party or by which any of them or any of their respective Properties may be bound (other than conflicts, breaches, violations or defaults that have been waived or cured), (C) violates or will violate any Law of any Governmental Authority directed to any of the Southcross Entities or any of their respective Properties in a proceeding to which any of them or their respective Property is a party or (D) results or will result in the creation or imposition of any Lien upon any Property of any of the Southcross Entities (other than Liens arising under the Southcross Credit Agreement), which conflicts, breaches, violations, defaults or Liens, in the case of clauses (B), (C) or (D), would reasonably be expected to have a Southcross Material Adverse Effect.

 

Section 3.08                             No Approvals. No permit, consent, approval, authorization, order, registration, filing or qualification (“consent”) of or with any Governmental Authority having jurisdiction over any of the Southcross Entities or any of their respective Properties or assets is required in connection with (i) the issuance or sale by Southcross of the Purchased Units, (ii) the execution, delivery and performance of each of the Basic Documents to which it is a party, or (iii) the consummation by Southcross of the transactions contemplated by the Basic Documents except, in the case of clauses (i) through (iii), (A) consents required under applicable state securities or blue sky laws, (B) for such consents that have been obtained or made, and (C) for such consents that, if not obtained, would not reasonably be expected to have, individually or in the aggregate, a Southcross Material Adverse Effect.

 

Section 3.09                             No Default.  None of the Southcross Entities (i) is in violation of its applicable Operating Agreement, (ii) is in default (and no event has occurred which, with notice or lapse of time or both, would constitute such a default) in the due performance or observance of any term, covenant or condition contained in any Contract to which it is a party or by which it

 

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is bound or to which any of its Properties is subject or (iii) is in violation of any Law of any Governmental Authority, which default or violation in the case of clause (ii) or (iii), could reasonably be expected to have, individually or in the aggregate, a Southcross Material Adverse Effect.

 

Section 3.10                             Southcross SEC Documents; Southcross Financial Statements.  Southcross has filed or furnished with the Commission all reports, schedules, forms, statements and other documents (including exhibits and other information incorporated therein) required to be filed or furnished by it under the Exchange Act or the Securities Act since November 7, 2012 (all such documents, collectively, the “Southcross SEC Documents”).  The Southcross SEC Documents, including any audited or unaudited financial statements and any notes thereto or schedules included therein (the “Southcross Financial Statements”), at the time filed or furnished (except to the extent corrected by a subsequently filed or furnished Southcross SEC Document filed or furnished prior to the date hereof) (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein (in the light of the circumstances under which they were made in the case of any prospectus) not misleading, (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as applicable, (iii) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, (iv) in the case of the Southcross Financial Statements, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and (v) in the case of the Southcross Financial Statements, fairly present (subject in the case of unaudited statements to normal, recurring and year-end audit adjustments) in all material respects the financial condition, results of operations and cash flows of Southcross and its Subsidiaries as of the dates and for the periods indicated.  Deloitte & Touche LLP is an independent registered public accounting firm with respect to Southcross and has not resigned or been dismissed as independent registered public accountants of Southcross as a result of or in connection with any disagreement with Southcross on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures.

 

Section 3.11                             No Material Adverse Change.  Except as expressly set forth in or contemplated by the Southcross SEC Documents furnished or filed with the Commission after January 1, 2013 and prior to the date hereof, since December 31, 2012, and except as contemplated by the Basic Documents, there has not been (i) any material adverse change in the condition, financial or otherwise, earnings, business or properties of the Southcross Entities, taken as a whole, whether or not arising from transactions in the ordinary course of business, (ii) any transaction that is material to the Southcross Entities taken as a whole, or (iii) any dividend or distribution of any kind declared, paid or made by Southcross on any class of its partnership interests.

 

Section 3.12                             Title to Real Property.  Each of the Southcross Entities has indefeasible title to all real property (excluding easements or rights-of-way) and good title to all personal property described in the Southcross SEC Documents as being owned by each of them, which real and personal property shall be free and clear of all Liens, except (i) as described, and subject to the limitations contained, in the Southcross SEC Documents, (ii) that arise under or are

 

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expressly permitted by the Southcross Credit Agreement or (iii) as do not materially interfere with the use of such Properties individually or in the aggregate as they have been used in the past and are proposed to be used in the future as described in the Southcross SEC Documents. All the real and personal property described in the Southcross SEC Documents, if any, as being held under lease by any of the Southcross Entities is held thereby under valid, subsisting and enforceable leases and with such exceptions as do not materially interfere with the use of such properties in the manner in which such properties are used in the business of any of the Southcross Entities as described in the Southcross SEC Documents.

 

Section 3.13                             Rights-of-Way.  Each of the Southcross Entities has such consents, easements, rights-of-way, permits or licenses from each Person (collectively, “rights-of-way”) as are necessary to conduct its respective business in the manner described, and subject to the limitations contained, in the Southcross SEC Documents, if any, except for (i) qualifications, reservations and encumbrances that would not have a Southcross Material Adverse Effect and (ii) such rights-of-way that, if not obtained, would not have, individually or in the aggregate, a Southcross Material Adverse Effect; other than as set forth, and subject to the limitations contained, in the Southcross SEC Documents, each of the Southcross Entities has fulfilled and performed, in all material respects, its respective obligations with respect to such rights-of-way and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or would result in any impairment of the rights of the holder of any such rights-of-way, except for such revocations, terminations and impairments that individually or in the aggregate, would not have a Southcross Material Adverse Effect; and, except as described in the Southcross SEC Documents, if any, none of such rights-of-way contains any restriction that is materially burdensome to the Southcross Entities, individually or in the aggregate.

 

Section 3.14                             Insurance.  The Southcross Entities carry, or are entitled to the benefits of, insurance relating to the business of the Southcross Entities, with reputable insurers, in such amounts and covering such risks as is commercially reasonable, and all such insurance is in full force and effect; the Southcross Entities are in compliance with the terms of such policies and instruments in all material respects; and there are no claims by any of the Southcross Entities under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; none of the Southcross Entities has been refused any insurance coverage sought or applied for. Neither the General Partner nor Southcross has received notice from such insurers that Southcross will not be able to (i) renew its existing insurance coverage relating to the business of the Southcross Entities as and when such policies expire or (ii) obtain comparable coverage relating to the business of the Southcross Entities as may be necessary or appropriate to conduct such business as now conducted and at a cost that would not be reasonably expected to have a Southcross Material Adverse Effect.

 

Section 3.15                             Litigation.  There are no legal or governmental proceedings pending or, to the knowledge of Southcross, threatened, against any of the Southcross Entities, or to which any of the Southcross Entities is a party, or to which any of their respective Properties is subject, that (i) would individually or in the aggregate have a Southcross Material Adverse Effect or (ii) are required to be described in the Southcross SEC Documents that are not described as required by the Exchange Act.

 

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Section 3.16                             No Labor Dispute.  No labor problem or dispute with the employees of any of the Southcross Entities exists or is threatened or imminent, and Southcross is not aware of any existing or imminent labor disturbance by the employees of any of the Southcross Entities’ principal suppliers, contractors or customers, that could have a Southcross Material Adverse Effect, except as set forth in or contemplated in the Southcross SEC Documents.

 

Section 3.17                             Tax Returns.  Each of the Southcross Entities has filed (or has obtained extensions with respect to) all material federal, state and local income and franchise tax returns required to be filed through the date of this Agreement, which returns are complete and correct in all material respects, and has timely paid all taxes shown to be due pursuant to such returns. No tax deficiency has been determined adversely to any of the Southcross Entities, and Southcross is not aware of any tax deficiency or related assessment, fine or penalty that, individually or in the aggregate, would reasonably be expected to have a Southcross Material Adverse Effect, except those that are being contested in good faith and for which adequate reserves have been established in accordance with GAAP.

 

Section 3.18                             Environmental Compliance.  Each of the Southcross Entities (i) is in compliance with any and all Environmental Laws, (ii) has received and is in compliance with all Environmental Permits required of them under applicable Environmental Laws to conduct their respective businesses as they are currently being conducted, (iii) has not received written or oral notice of any actual or potential liability under any Environmental Law, and (iv) is not a party to or affected by any pending or, to the knowledge of Southcross, threatened action, suit or proceeding relating to any alleged violation of any Environmental Law or any actual or alleged release or threatened release or cleanup at any location of any Hazardous Material, except where such noncompliance or deviation from that described in (i)-(iv) above would not, individually or in the aggregate, reasonably be expected to have a Southcross Material Adverse Effect. The term “Hazardous Material” means (A) any “hazardous substance” as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), (B) any “hazardous waste” as defined in the Resource Conservation and Recovery Act, as amended, (C) any petroleum or petroleum product, (D) any polychlorinated biphenyl and (E) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under any applicable Environmental Law. None of the Southcross Entities has received written notice that they are currently named as a “potentially responsible party” under CERCLA.

 

Section 3.19                             Permits.  Each of the Southcross Entities has such permits, consents, licenses, franchises, certificates and authorizations of Governmental Authorities (“governmental permits”) as are necessary to own or lease its Properties and to conduct its business in the manner described in the Southcross SEC Documents, subject to such qualifications set forth in the Southcross SEC Documents and except for such governmental permits that, if not obtained, would not reasonably be expected to have, individually or in the aggregate, a Southcross Material Adverse Effect; each of the Southcross Entities has all such governmental permits, except where the failure so to comply would not reasonably be expected to result in, individually or in the aggregate, a Southcross Material Adverse Effect; and no event has occurred that would prevent the governmental permits from being renewed or reissued or which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any impairment of the rights of the holder of any such governmental permit, except for such non-

 

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renewals, non-issuances, revocations, terminations and impairments that would not reasonably be expected to have, individually or in the aggregate, a Southcross Material Adverse Effect.

 

Section 3.20                             NYSE Listing.  The Common Units are listed on the NYSE, and Southcross has not received any notice of delisting.  The issuance and sale of the Purchased Units and the issuance of Conversion Units does not contravene the NYSE’s rules and regulations.

 

Section 3.21                             Investment Company.  None of the Southcross Entities is nor, after giving effect to the issuance and sale of the Purchased Units and the application of the proceeds thereof, will be an “investment company” or a company “controlled by” an “investment company” as defined in the Investment Company Act of 1940, as amended.

 

Section 3.22                             Certain Fees.  Except for (i) the fees contemplated by Section 7.01 of this Agreement to be paid by Southcross to the Purchaser or its designee and (ii) fees to be paid by Southcross to Simmons for a fairness opinion in connection with this Agreement and the transactions contemplated hereby, no fees or commissions are or will be payable by Southcross to brokers, finders or investment bankers with respect to the sale of any of the Purchased Units or the consummation of the transactions contemplated by this Agreement.  Southcross agrees that it will indemnify and hold harmless the Purchaser from and against any and all claims, demands or liabilities for broker’s, finder’s, placement or other similar fees or commissions incurred by Southcross or alleged to have been incurred by Southcross in connection with the sale of the Purchased Units or the consummation of the transactions contemplated by the Basic Documents.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser hereby represents and warrants to Southcross with respect to itself, on and as of the date of this Agreement and the Follow-On Closing Date, as follows:

 

Section 4.01                             Existence.  The Purchaser is duly organized and validly existing and in good standing under the laws of its state of formation, with all necessary power and authority to own properties and to conduct its business as currently conducted.

 

Section 4.02                             Authorization; Enforceability.

 

(a)                                 The Purchaser has all necessary legal power and authority to purchase the Purchased Units, in accordance with and upon the terms and conditions set forth in the Basic Documents, and no further consent or authorization of the Purchaser is required.

 

(b)                                 The Basic Documents to which the Purchaser is a party have been duly authorized and validly executed and delivered by the Purchaser and, assuming due authorization, execution and delivery by Southcross, constitute valid and binding obligations of the Purchaser; provided, that the enforceability thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws relating to or affecting creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a

 

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proceeding in equity or at law) and (ii) public policy, applicable law relating to fiduciary duties and indemnification and contribution and an implied covenant of good faith and fair dealing.

 

Section 4.03                             No Breach.  The execution, delivery and performance of the Basic Documents by the Purchaser and the consummation by the Purchaser of the transactions contemplated thereby will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any material agreement to which the Purchaser is a party or by which the Purchaser is bound or to which any of the property or assets of the Purchaser is subject, (ii) conflict with or result in any violation of the provisions of the organizational documents of the Purchaser, or (iii) violate any statute, order, rule or regulation of any court or Governmental Authority, except in the case of clauses (i) and (iii), for such conflicts, breaches, violations or defaults as would not prevent the consummation of the transactions contemplated by the Basic Documents.

 

Section 4.04                             Certain Fees.  No fees or commissions are or will be payable by the Purchaser to brokers, finders or investment bankers with respect to the purchase of any of the Purchased Units or the consummation of the transactions contemplated by this Agreement.  The Purchaser agrees that it will indemnify and hold harmless Southcross from and against any and all claims, demands or liabilities for broker’s, finder’s, placement or other similar fees or commissions incurred by the Purchaser or alleged to have been incurred by the Purchaser in connection with the purchase of the Purchased Units or the consummation of the transactions contemplated by the Basic Documents.

 

Section 4.05                             Unregistered Securities.

 

(a)                                 Accredited Investor Status; Sophisticated Purchaser.  The Purchaser is an “accredited investor” within the meaning of Rule 501 under the Securities Act and is able to bear the risk of its investment in the Purchased Units and the Conversion Units.  The Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Purchased Units and the Conversion Units.

 

(b)                                 Information.  The Purchaser or its Representatives have been furnished with materials relating to the business, finances and operations of Southcross and relating to the offer and sale of the Purchased Units and Conversion Units that have been requested by the Purchaser.  The Purchaser or its Representatives has been afforded the opportunity to ask questions of Southcross or its Representatives.  Neither such inquiries nor any other due diligence investigations conducted at any time by the Purchaser or its Representatives shall modify, amend or affect the Purchaser’s right (i) to rely on Southcross’ representations and warranties contained in Article III or (ii) to indemnification or any other remedy based on, or with respect to the accuracy or inaccuracy of, or compliance with, the representations, warranties, covenants and agreements in this Agreement.  The Purchaser understands and acknowledges that its purchase of the Purchased Units involves a high degree of risk and uncertainty.  The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its investment in the Purchased Units.

 

(c)                                  Cooperation.  The Purchaser shall cooperate reasonably with Southcross to provide any information necessary for any applicable securities filings.

 

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(d)                                 Purchaser Representation.  The Purchaser is purchasing the Purchased Units for its own account and not with a view to distribution in violation of any securities laws.  The Purchaser understands and acknowledges that there is no public trading market for the Purchased Units and that none is expected to develop.  The Purchaser has been advised and understands and acknowledges that neither the Purchased Units nor the Conversion Units have been registered under the Securities Act or under the “blue sky” laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the Securities Act (or if eligible, pursuant to the provisions of Rule 144 promulgated under the Securities Act or pursuant to another available exemption from the registration requirements of the Securities Act).  The Purchaser has been advised of and is aware of the provisions of Rule 144 promulgated under the Securities Act.

 

(e)                                  Legends.  The Purchaser understands and acknowledges that, until such time as the Purchased Units and the Conversion Units have been registered pursuant to the provisions of the Securities Act, or the Purchased Units and the Conversion Units are eligible for resale pursuant to Rule 144 promulgated under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Purchased Units and Conversion Units will bear the following restrictive legend:  “NEITHER THE OFFER NOR SALE OF THESE SECURITIES HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER AND, IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT OR THE PARTNERSHIP HAS RECEIVED DOCUMENTATION REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER SUCH ACT. THIS SECURITY IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF THE PARTNERSHIP, DATED AS OF APRIL 12, 2013, A COPY OF WHICH MAY BE OBTAINED FROM THE PARTNERSHIP AT ITS PRINCIPAL EXECUTIVE OFFICES.”

 

(f)                                   Reliance Upon the Purchaser’s Representations and Warranties.  The Purchaser understands and acknowledges that the Purchased Units are being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities laws, and that Southcross is relying in part upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth in this Agreement in (i) concluding that the issuance and sale of the Purchased Units is a “private offering” and, as such, is exempt from the registration requirements of the Securities Act, and (ii) determining the applicability of such exemptions and the suitability of the Purchaser to purchase the Purchased Units.

 

Section 4.06                             Short Selling.  The Purchaser represents and warrants that it (i) has not entered into any Short Sales of the Common Units owned by it between the time it first began discussions with Southcross about the transactions contemplated by this Agreement and the date hereof and (ii) will not enter into any Short Sales of the Common Units owned by it from the date hereof and such time as the Shelf Registration Statement (as defined in the Registration Rights Agreement) is declared or deemed effective by the Commission.

 

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Section 4.07                             Southcross Information.  The Purchaser acknowledges and agrees that Southcross has provided or made available to the Purchaser (through EDGAR, Southcross’ website or otherwise) all Southcross SEC Documents, as well as all press releases issued by Southcross through the date of this Agreement that are included in a filing by Southcross on Form 8-K or clearly posted on Southcross’ website.

 

ARTICLE V

 

COVENANTS

 

Section 5.01                             Transfer of Purchased Units. The Purchaser shall have the right to transfer the Purchased Units, in whole or in part, to an Affiliate or a third party at any time after the date of this Agreement (any such transaction, a “Transfer”); provided, however, that any such transferee (i) agrees to be bound by all of the terms and conditions of this Agreement, including this Section 5.01, (ii) expressly assumes a proportionate share (based on the number of Series A Preferred Units being Transferred relative to the total number of Purchased Units) of the Purchaser’s obligations in respect of indemnification pursuant to Section 6.02 of this Agreement, and (iii) the Purchaser acknowledges and agrees that it shall remain the primary obligor under this Agreement, and as such, the Purchaser further acknowledges and agrees that any claims for indemnity pursuant to Section 6.02 of this Agreement shall be satisfied first by the Purchaser, and if the Purchaser does not have sufficient assets to satisfy claims for indemnity pursuant to Section 6.02 of this Agreement, then the transferee shall be liable to Southcross for up to the balance due on any such claims pursuant to Section 6.02 of this Agreement (based on the number of Series A Preferred Units Transferred relative to the total number of Purchased Units).

 

Section 5.02                             Further Assurances; NYSE Listing.  From time to time after the date hereof, without further consideration, Southcross and the Purchaser shall use their commercially reasonable efforts to take, or cause to be taken, all actions necessary or appropriate to consummate the transactions contemplated by this Agreement and the other Basic Documents.  Without limiting the foregoing, Southcross shall (i) file with the NYSE the proper form or other notification and required supporting documentation, and provide to the NYSE any other requested information, related to the Conversion Units and (ii) ensure that the issuance of the Series A Preferred Units and Conversion Units is in compliance with applicable NYSE rules and regulations.

 

Section 5.03                             Use of Proceeds.  Promptly after the Initial Closing and the Follow-On Closing, Southcross shall repay borrowings outstanding under the Southcross Credit Agreement in an amount equal to the Initial Purchase Price or the Follow-On Purchase Price, as the case may be, less the expenses contemplated by Section 7.01 and any other reasonable out-of-pocket expenses incurred by Southcross in connection with the transactions contemplated by this Agreement, including the preparation and execution of the Basic Documents and the fees to be paid by Southcross to Simmons for a fairness opinion in connection with this Agreement and the transactions contemplated hereby.

 

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ARTICLE VI

 

INDEMNIFICATION, COSTS AND EXPENSES

 

Section 6.01          Indemnification by Southcross.  Southcross agrees to indemnify the Purchaser, its Affiliates and their officers, directors, members, managers, employees and agents (collectively, “Purchaser Related Parties”) from, and hold each of them harmless against, any and all losses, actions, suits, proceedings (including any investigations, litigation or inquiries), demands and causes of action, and, in connection therewith, and promptly upon demand, pay or reimburse each of them for all reasonable costs, losses, liabilities, damages or expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them), whether or not involving a Third Party Claim, as a result of, arising out of, or in any way related to (i) the failure of any of the representations or warranties made by Southcross contained herein to be true and correct in all material respects as of the date hereof (except with respect to any provisions including the word “material” or words of similar import, with respect to which such representations and warranties must have been true and correct) or (ii) the breach of any of the covenants of Southcross contained herein; provided, that in the case of the immediately preceding clause (i), such claim for indemnification relating to a breach of any representation or warranty is made prior to the expiration of such representation or warranty; provided, however, that for purposes of determining when an indemnification claim has been made, the date upon which a Purchaser Related Party shall have given notice (stating in reasonable detail the basis of the claim for indemnification) to Southcross shall constitute the date upon which such claim has been made; provided, further, that the liability of Southcross shall not be greater in amount than the Purchase Price.

 

Section 6.02          Indemnification by the Purchaser.  The Purchaser agrees to indemnify Southcross, its Affiliates and their officers, directors, members, managers, employees and agents (collectively, “Southcross Related Parties”) from, and hold each of them harmless against, any and all losses, actions, suits, proceedings (including any investigations, litigation or inquiries), demands and causes of action, and, in connection therewith, and promptly upon demand, pay or reimburse each of them for all reasonable costs, losses, liabilities, damages or expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them), whether or not involving a Third Party Claim, as a result of, arising out of, or in any way related to (i) the failure of any of the representations or warranties made by the Purchaser contained herein to be true and correct in all material respects as of the date hereof or (ii) the breach of any of the covenants of the Purchaser contained herein; provided, that in the case of the immediately preceding clause (i), such claim for indemnification relating to a breach of any representation or warranty is made prior to the expiration of such representation or warranty; provided, however, that for purposes of determining when an indemnification claim has been made, the date upon which a Southcross Related Party shall have given notice (stating in reasonable detail the basis of the claim for indemnification) to the Purchaser shall constitute the date upon which such claim has been made; provided, further, that the liability of the Purchaser (and its Affiliates, if the

 

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Purchaser Transfers a portion or all of the Purchased Units to an Affiliate as permitted by Section 5.02) shall not be greater in amount than the Purchase Price.

 

Section 6.03          Indemnification Procedure.

 

(a)           A claim for indemnification for any matter not involving a Third Party Claim may be asserted by notice to the party from whom indemnification is sought; provided, however, that failure to so notify the indemnifying party shall not preclude the indemnified party from any indemnification that it may claim in accordance with this Article VI, except as otherwise provided in Sections 6.01 and 6.02.

 

(b)           Promptly after any Southcross Related Party or Purchaser Related Party (hereinafter, the “Indemnified Party”) has received notice of any indemnifiable claim hereunder, or the commencement of any action, suit or proceeding by a third person, which the Indemnified Party believes in good faith is an indemnifiable claim under this Agreement (each, a “Third Party Claim”), the Indemnified Party shall give the indemnitor hereunder (the “Indemnifying Party”) written notice of such Third Party Claim but failure to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability it may have to such Indemnified Party hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure.  Such notice shall state the nature and the basis of such Third Party Claim to the extent then known.  The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel, any such matter as long as the Indemnifying Party pursues the same diligently and in good faith.  If the Indemnifying Party undertakes to defend or settle such Third Party Claim, it shall promptly, and in no event later than five (5) days, notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in all commercially reasonable respects in the defense thereof and/or the settlement thereof.  Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records and other information reasonably requested by the Indemnifying Party and in the Indemnified Party’s possession or control.  Such cooperation of the Indemnified Party shall be at the cost of the Indemnifying Party.  After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability; provided, however, that the Indemnified Party shall be entitled (i) at its expense, to participate in the defense of such asserted liability and the negotiations of the settlement thereof and (ii) if (A) the Indemnifying Party has, within ten (10) Business Days of when the Indemnified Party provides written notice of a Third Party Claim, failed (y) to assume the defense or settlement of such Third Party Claim and employ counsel and (z) notify the Indemnified Party of such assumption, or (B) if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and counsel to the Indemnified Party shall have concluded that there may be reasonable defenses available to the Indemnified Party that are different from or in addition to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, then the Indemnified Party shall have the right to select a separate counsel and to assume such settlement or legal defense and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the

 

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Indemnifying Party as incurred.  Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not settle any indemnified claim without the consent of the Indemnified Party, unless the settlement thereof imposes no liability or obligation on, and includes a complete release from liability of, and does not contain any admission of wrongdoing by, the Indemnified Party.

 

Section 6.04          Tax Matters.  All indemnification payments under this Article VI shall be adjustments to the Purchase Price, except as otherwise required by applicable Law.

 

ARTICLE VII

 

MISCELLANEOUS

 

Section 7.01          Fees and Expenses.  Southcross shall pay out of the proceeds received from the consummation of the transactions contemplated by this Agreement the reasonable out-of-pocket fees and expenses incurred by the Purchaser in connection the transactions contemplated by the Basic Documents, including without limitation, legal, accounting, advisory and other reasonable out-of-pocket fees and expenses; provided, that the expenses of the Purchaser paid out of such proceeds shall not exceed $50,000 in the aggregate.

 

Section 7.02          Interpretation.  Article, Section and Schedule references in this Agreement are references to the corresponding Article, Section and Schedule to this Agreement, unless otherwise specified.  All Schedules to this Agreement are hereby incorporated and made a part hereof as if set forth in full herein and are an integral part of this Agreement.  All references to instruments, documents, Contracts and agreements are references to such instruments, documents, Contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified.  The word “including” shall mean “including but not limited to” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.  Whenever Southcross has an obligation under the Basic Documents, the expense of complying with that obligation shall be an expense of Southcross unless otherwise specified.  Any reference in this Agreement to $ shall mean U.S. dollars.  Whenever any determination, consent or approval is to be made or given by the Purchaser, such action shall be in the Purchaser’s sole discretion, unless otherwise specified in this Agreement.  If any provision in the Basic Documents is held to be illegal, invalid, not binding or unenforceable, (i) such provision shall be fully severable and the Basic Documents shall be construed and enforced as if such illegal, invalid, not binding or unenforceable provision had never comprised a part of the Basic Documents, and the remaining provisions shall remain in full force and effect and (ii) the parties hereto shall negotiate in good faith to modify the Basic Documents so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.  When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to the Basic Documents, the date that is the reference date in calculating such period shall be excluded.  If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.  Any words imparting the singular number only shall include the plural and vice versa.  The words such as “herein,” “hereinafter,” “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such

 

20

 

words appear unless the context otherwise requires.  The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement.

 

Section 7.03          Survival of Provisions.  The representations and warranties set forth in Sections 3.01, 3.02, 3.04, 3.06, 3.22, 4.01, 4.02, 4.04 and 4.05 hereunder shall survive the execution and delivery of this Agreement indefinitely, the representations and warranties set forth in Sections 3.17 shall survive for a period of thirty (30) days following the applicable statute of limitations regardless of any investigation made by or on behalf of Southcross or the Purchaser, and the other representations and warranties set forth herein shall survive for a period of twelve (12) months following the date hereof regardless of any investigation made by or on behalf of Southcross or the Purchaser.  The covenants made in this Agreement or any other Basic Document shall survive the Initial Closing and the Follow-On Closing and remain operative and in full force and effect regardless of acceptance of any of the Purchased Units and payment therefor and repayment, conversion or repurchase thereof.  Regardless of any purported general termination of this Agreement, the provisions of Article VI and all indemnification rights and obligations of Southcross and the Purchaser thereunder, and this Article VII shall remain operative and in full force and effect as between Southcross and the Purchaser, unless Southcross and the Purchaser execute a writing that expressly (with specific references to the applicable Section or subsection of this Agreement) terminates such rights and obligations as between Southcross and the Purchaser.

 

Section 7.04          No Waiver; Modifications in Writing.

 

(a)           Delay.  No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to a party at law or in equity or otherwise.

 

(b)           Specific Waiver.  Except as otherwise provided herein, no amendment, waiver, consent, modification or termination of any provision of this Agreement or any other Basic Document (except in the case of the Southcross Partnership Agreement for amendments adopted pursuant to Section 13.1 thereof) shall be effective unless signed by each of the parties hereto or thereto affected by such amendment, waiver, consent, modification or termination.  Any amendment, supplement or modification of or to any provision of this Agreement or any other Basic Document, any waiver of any provision of this Agreement or any other Basic Document and any consent to any departure by Southcross from the terms of any provision of this Agreement or any other Basic Document shall be effective only in the specific instance and for the specific purpose for which made or given.  Except where notice is specifically required by this Agreement, no notice to or demand on Southcross in any case shall entitle Southcross to any other or further notice or demand in similar or other circumstances.  Any investigation by or on behalf of any party shall not be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein.

 

21

 

Section 7.05          Binding Effect; Assignment.

 

(a)           Binding Effect.  This Agreement shall be binding upon Southcross, the Purchaser and their respective successors and permitted assigns.  Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and permitted assigns.

 

(b)           Assignment of Rights.  The Purchaser’s rights and obligations hereunder (including the right to seek indemnification) may be transferred or assigned in whole or in part by the Purchaser to any Affiliate of the Purchaser without the consent of Southcross.  Upon any such permitted transfer or assignment, references in this Agreement to the Purchaser (as they apply to the transferor or assignor, as the case may be) shall thereafter apply to such transferee or assignee of the Purchaser unless the context otherwise requires.  Without the written consent of Southcross, which consent shall not be unreasonably withheld, no portion of the rights and obligations of the Purchaser under this Agreement may be assigned or transferred by the Purchaser or such a transferee of Purchased Units to a Person that is not an Affiliate of the Purchaser.  No portion of the rights and obligations of Southcross under this Agreement may be transferred or assigned without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld.

 

Section 7.06          Communications.  All notices and demands provided for hereunder shall be in writing and shall be given by hand delivery, electronic mail, registered or certified mail, return receipt requested, regular mail, facsimile or air courier guaranteeing overnight delivery to the following addresses:

 

(a)           If to the Purchaser:

 

Southcross Energy LLC

1700 Pacific Avenue, Suite 2900

Dallas, Texas 75201

Attention:  David W. Biegler

Facsimile:  (214) 979-3710

E-mail: biegler@southcrossenergy.com

 

with a copy to:

 

Charlesbank Equity Fund VI, Limited Partnership

200 Clarendon Street, 54th Floor

Boston, Massachusetts 02116

Attention:  Jon Biotti

Tami E. Nason

Facsimile:  (617) 619-5402

E-mail:  jbiotti@charlesbank.com and tnason@charlesbank.com

 

22

 

If to Southcross:

 

Southcross Energy Partners, L.P.

1700 Pacific Avenue, Suite 2900

Dallas, Texas 75201

Attention:  David W. Biegler

Facsimile:  (214) 979-3710

E-mail: biegler@southcrossenergy.com

 

with a copy to:

 

Latham & Watkins LLP

811 Main Street, 37th Floor

Houston, Texas 77002

Attention:  Ryan J. Maierson

Facsimile:  (713) 546-5401

E- mail:  ryan.maierson@lw.com

 

and

 

Akin Gump Strauss Hauer & Feld LLP

1111 Louisiana Street

Houston, Texas 77002

Attention:  John Goodgame

Facsimile:  (713) 236-0822

E- mail:  jgoodgame@akingump.com

 

or to such other address as Southcross or the Purchaser may designate in writing.  All notices and communications shall be deemed to have been duly given:  (i) at the time delivered by hand, if personally delivered; (ii) when notice is sent to the sender that the recipient has read the message, if sent by electronic mail; (iii) upon actual receipt if sent by registered or certified mail, return receipt requested, or regular mail, if mailed; (iv) when receipt is acknowledged, if sent by facsimile; and (v) upon actual receipt when delivered to an air courier guaranteeing overnight delivery.

 

Section 7.07          Removal of Legend.

 

(a)           The Purchaser may request Southcross to remove the legend set forth in Section 4.05(e) from the certificates evidencing the Purchased Units by submitting to Southcross such certificates, together with an opinion of counsel to the effect that such legend is no longer required under the Securities Act or applicable state laws as the case may be, as Southcross may request; provided, that, no opinion of counsel shall be required if the Purchaser is effecting a sale of Purchased Units pursuant to Rule 144 under the Securities Act (and the Purchaser delivers a Rule 144 Representation Letter to Southcross) or the Conversion Units have been registered under the Securities Act pursuant to an effective registration statement.  Southcross shall cooperate with the Purchaser to effect removal of such legend.  Subject to the provisions of the

 

23

 

Southcross Partnership Agreement, the legend described in Section 4.05(e) shall be removed and Southcross shall issue a certificate without such legend to the holder of Purchased Units upon which it is stamped, if, unless otherwise required by state securities Laws, (i) such Purchased Units are sold pursuant to an effective registration statement, (ii) in connection with a sale, assignment or other transfer, such holder provides Southcross with an opinion of a law firm reasonably acceptable to Southcross, in a generally acceptable form, to the effect that such sale, assignment or transfer of such Purchased Units may be made without registration under the applicable requirements of the Securities Act, or (iii) in connection with a sale, assignment of or other transfer of such Purchased Units, such holder provides Southcross with a representation letter that such Purchased Units will be sold, assigned or transferred pursuant to Rule 144 under the Securities Act.  Southcross shall bear all direct costs and expenses associated with the removal of a legend pursuant to this Section 7.07; provided, that the Purchaser shall be responsible for all legal fees and expenses of counsel incurred by the Purchaser with respect to matters addressed in this Section 7.07.

 

(b)           Certificates evidencing Conversion Units shall not contain any legend (including the legend set forth in Section 4.05(e)), (i) while a registration statement covering the resale of such security is effective under the Securities Act and the Purchaser delivers to Southcross a representation letter agreeing that such Conversion Units will be sold under such effective registration statement, (ii) following any sale of such Conversion Units pursuant to Rule 144, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission).

 

Section 7.08          No Third Party Beneficiaries. Except as provided in Section 6.01 and Section 6.02, nothing in this Agreement shall provide any benefit to any third Person or entitle any third Person to any claim, cause of action, remedy or right of any kind, it being the intent of the parties that this Agreement shall otherwise not be construed as a third Person beneficiary contract.

 

Section 7.09          Entire Agreement.  This Agreement, the other Basic Documents and the other agreements and documents referred to herein are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or the other Basic Documents with respect to the rights granted by Southcross or any of its Affiliates or the Purchaser or any of its Affiliates set forth herein or therein.  This Agreement, the other Basic Documents and the other agreements and documents referred to herein or therein supersede all prior agreements and understandings between the parties with respect to such subject matter.

 

Section 7.10          Governing Law; Submission to Jurisdiction.  This Agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement), will be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflicts of laws.  Any action against any party relating to the foregoing shall be brought in any federal or

 

24

 

state court of competent jurisdiction located within the State of Delaware, and the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within the State of Delaware over any such action.  The parties hereby irrevocably waive, to the fullest extent permitted by applicable Law, any objection that they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute.  Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

 

Section 7.11          Waiver of Jury Trial.  THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVES, AND AGREES TO CAUSE ITS AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  THE PARTIES TO THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

Section 7.12          Execution in Counterparts.  This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same agreement.

 

[Remainder of Page Left Intentionally Blank]

 

25

 

IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of the date first above written.

 

 

	
 
    	
SOUTHCROSS ENERGY PARTNERS, L.P.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
Southcross Energy Partners GP, LLC, its
    
	
 
    	
 
    	
general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SOUTHCROSS ENERGY LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

Signature Page to Purchase Agreement

 

 

Schedule I

 

Southcross Entities

 

	
Name
    	
 
    	
Jurisdiction in
   which
   registered
    	
 
    	
Jurisdiction(s) in which
   qualified
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Energy Partners GP, LLC
    	
 
    	
Delaware
    	
 
    	
Texas
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Energy Operating, LLC
    	
 
    	
Delaware
    	
 
    	
Texas
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Energy Partners, L.P.
    	
 
    	
Delaware
    	
 
    	
Texas
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Energy GP LLC
    	
 
    	
Delaware
    	
 
    	
Alabama
   Mississippi
   Texas
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Energy LP LLC
    	
 
    	
Delaware
    	
 
    	
N/A
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Delta Pipeline LLC
    	
 
    	
Delaware
    	
 
    	
Mississippi
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Processing LLC
    	
 
    	
Delaware
    	
 
    	
Texas
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Mississippi Pipeline, L.P.
    	
 
    	
Delaware
    	
 
    	
Mississippi
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Mississippi Gathering, L.P.
    	
 
    	
Delaware
    	
 
    	
Mississippi
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Mississippi Industrial Gas Sales, L.P.
    	
 
    	
Delaware
    	
 
    	
Mississippi
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Alabama Gathering System, L.P.
    	
 
    	
Delaware
    	
 
    	
Alabama
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Alabama Pipeline LLC
    	
 
    	
Delaware
    	
 
    	
Alabama
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Midstream Services, L.P.
    	
 
    	
Delaware
    	
 
    	
Mississippi
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   CCNG Gathering Ltd.
    	
 
    	
Texas
    	
 
    	
N/A
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   CCNG Transmission Ltd.
    	
 
    	
Texas
    	
 
    	
N/A
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Gulf Coast Transmission Ltd.
    	
 
    	
Texas
    	
 
    	
N/A
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Marketing Company Ltd.
    	
 
    	
Texas
    	
 
    	
Mississippi
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   NGL Pipeline Ltd.
    	
 
    	
Texas
    	
 
    	
N/A
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Southcross   Gathering Ltd.
    	
 
    	
Texas
    	
 
    	
N/AExhibit 10.4

 

PURCHASE AND SALE AGREEMENT

 

VENOCO, INC.

 

(“SELLER”)

 

AND

 

VINTAGE PRODUCTION CALIFORNIA LLC

 

(“BUYER”)

 

DECEMBER 21, 2012

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE 1 DEFINITIONS
    	
 
    	
1
    
	
ARTICLE 2 SALE AND PURCHASE OF   PROPERTIES; EXCLUDED ASSETS
    	
 
    	
11
    
	
2.1
    	
Sale and Purchase of Properties
    	
 
    	
11
    
	
2.2
    	
Excluded Assets
    	
 
    	
13
    
	
ARTICLE 3 PURCHASE PRICE
    	
 
    	
13
    
	
3.1
    	
Purchase Price
    	
 
    	
13
    
	
3.2
    	
Increases in Purchase Price
    	
 
    	
13
    
	
3.3
    	
Decreases in Purchase Price
    	
 
    	
14
    
	
ARTICLE 4 TITLE MATTERS
    	
 
    	
15
    
	
4.1
    	
Buyer’s Title Review
    	
 
    	
15
    
	
4.2
    	
Title Defects and Title Benefits
    	
 
    	
15
    
	
4.3
    	
Notice of Title Defects and Benefits; Adjustment
    	
 
    	
15
    
	
4.4
    	
Cure
    	
 
    	
16
    
	
4.5
    	
Adjustment for Title Defects and Benefits
    	
 
    	
17
    
	
4.6
    	
Calculation of Title Defect Values and Title Benefit   Amounts
    	
 
    	
17
    
	
4.7
    	
Dispute Resolution
    	
 
    	
19
    
	
4.8
    	
Limitations on Applicability
    	
 
    	
20
    
	
4.9
    	
Escrow
    	
 
    	
20
    
	
ARTICLE 5 PREFERENTIAL RIGHTS AND   CONSENTS
    	
 
    	
21
    
	
5.1
    	
Preferential Purchase Rights
    	
 
    	
21
    
	
5.2
    	
Consents to Assign
    	
 
    	
22
    
	
ARTICLE 6 ENVIRONMENTAL MATTERS
    	
 
    	
23
    
	
6.1
    	
Presence of Wastes, NORM, Hazardous Substances and Asbestos
    	
 
    	
23
    
	
6.2
    	
Notice of Environmental Condition Defects
    	
 
    	
23
    
	
6.3
    	
Determination of Environmental Condition Defects and   Remediation Values
    	
 
    	
24
    
	
6.4
    	
Exclusive Environmental Remedy
    	
 
    	
24
    
	
6.5
    	
Cure
    	
 
    	
24
    
	
6.6
    	
Remediation Values
    	
 
    	
25
    
	
6.7
    	
Dispute Resolution
    	
 
    	
26
    
	
6.8
    	
Limitations on Applicability
    	
 
    	
26
    
	
ARTICLE 7 REPRESENTATIONS AND   WARRANTIES OF SELLER
    	
 
    	
27
    
	
7.1
    	
Organization; Authority; Enforceability
    	
 
    	
27
    
	
7.2
    	
No Conflict
    	
 
    	
27
    
	
7.3
    	
Consents and Preferential Rights
    	
 
    	
27
    
	
7.4
    	
Compliance with Laws
    	
 
    	
27
    
	
7.5
    	
Compliance with Environmental Laws
    	
 
    	
27
    
	
7.6
    	
Litigation and Claims
    	
 
    	
28
    
	
7.7
    	
Governmental Permits
    	
 
    	
28
    
	
7.8
    	
Contracts
    	
 
    	
28
    
	
7.9
    	
Title to Certain Properties
    	
 
    	
28
    
	
7.10
    	
No Encumbrances
    	
 
    	
29
    
	
7.11
    	
Take-or-Pay, Calls on Production or Bonus Payments
    	
 
    	
29
    
	
7.12
    	
Sufficient Rights to Operate
    	
 
    	
29
    

 

i

 

TABLE OF CONTENTS
 (CONTINUED)

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
7.13
    	
Pipeline Assets
    	
 
    	
29
    
	
7.14
    	
Payment of Royalties; Suspense Funds
    	
 
    	
30
    
	
7.15
    	
Imbalances
    	
 
    	
30
    
	
7.16
    	
Current Commitments
    	
 
    	
30
    
	
7.17
    	
Taxes
    	
 
    	
30
    
	
7.18
    	
Status of Seller
    	
 
    	
30
    
	
7.19
    	
Finder’s Fees
    	
 
    	
30
    
	
7.20
    	
Employees
    	
 
    	
30
    
	
7.21
    	
WARN Act
    	
 
    	
31
    
	
7.22
    	
Employee Benefits
    	
 
    	
31
    
	
7.23
    	
Limitations
    	
 
    	
31
    
	
ARTICLE 8 REPRESENTATIONS AND   WARRANTIES OF BUYER
    	
 
    	
32
    
	
8.1
    	
Organization; Authority; Enforceability
    	
 
    	
32
    
	
8.2
    	
No Conflicts
    	
 
    	
32
    
	
8.3
    	
Finder’s Fees
    	
 
    	
33
    
	
8.4
    	
Litigation and Claims
    	
 
    	
33
    
	
8.5
    	
Consents, Approvals or Waivers
    	
 
    	
33
    
	
8.6
    	
Financing
    	
 
    	
33
    
	
8.7
    	
Independent Investigation
    	
 
    	
33
    
	
ARTICLE 9 COVENANTS OF THE   PARTIES
    	
 
    	
33
    
	
9.1
    	
Access
    	
 
    	
33
    
	
9.2
    	
Conduct of Business Pending Closing
    	
 
    	
33
    
	
9.3
    	
Consents and Approvals
    	
 
    	
35
    
	
9.4
    	
Confidentiality
    	
 
    	
35
    
	
9.5
    	
Casualty Loss
    	
 
    	
36
    
	
9.6
    	
Casualty Loss Dispute
    	
 
    	
36
    
	
9.7
    	
Employees
    	
 
    	
37
    
	
9.8
    	
Indemnity Regarding Access
    	
 
    	
38
    
	
9.9
    	
Governmental Reviews
    	
 
    	
39
    
	
9.10
    	
Operatorship
    	
 
    	
39
    
	
9.11
    	
Public Announcements
    	
 
    	
39
    
	
ARTICLE 10 CONDITIONS PRECEDENT   TO THE OBLIGATIONS OF SELLER
    	
 
    	
39
    
	
10.1
    	
Representations and Warranties
    	
 
    	
39
    
	
10.2
    	
Covenants
    	
 
    	
39
    
	
10.3
    	
No Litigation or Orders
    	
 
    	
40
    
	
10.4
    	
Adjustments to Purchase Price
    	
 
    	
40
    
	
ARTICLE 11 CONDITIONS PRECEDENT   TO THE OBLIGATIONS OF BUYER
    	
 
    	
40
    
	
11.1
    	
Representations and Warranties
    	
 
    	
40
    
	
11.2
    	
Covenants
    	
 
    	
40
    
	
11.3
    	
No Litigation, Orders or Laws
    	
 
    	
40
    
	
11.4
    	
Release of Liens
    	
 
    	
40
    
	
11.5
    	
Consents and Approvals
    	
 
    	
41
    
	
11.6
    	
Adjustments to Purchase Price
    	
 
    	
41
    
	
ARTICLE 12 CLOSING
    	
 
    	
41
    

 

ii

 

TABLE OF CONTENTS
 (CONTINUED)

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
12.1
    	
The Closing
    	
 
    	
41
    
	
12.2
    	
Closing Deliveries
    	
 
    	
41
    
	
ARTICLE 13 TERMINATION AND   REMEDIES
    	
 
    	
42
    
	
13.1
    	
Termination
    	
 
    	
42
    
	
13.2
    	
Effect of Termination
    	
 
    	
43
    
	
ARTICLE 14 ACCOUNTING MATTERS
    	
 
    	
43
    
	
14.1
    	
Preliminary Settlement Statement
    	
 
    	
43
    
	
14.2
    	
Final Settlement Statement
    	
 
    	
43
    
	
14.3
    	
Post-Escrow Reconciliation
    	
 
    	
45
    
	
14.4
    	
Post-Closing Revenues and Expenses
    	
 
    	
46
    
	
14.5
    	
Procedures
    	
 
    	
46
    
	
ARTICLE 15 CERTAIN POST-CLOSING   COVENANTS
    	
 
    	
46
    
	
15.1
    	
Further Assurances
    	
 
    	
46
    
	
15.2
    	
Suspense Funds
    	
 
    	
47
    
	
15.3
    	
Delivery of Records by Seller
    	
 
    	
47
    
	
15.4
    	
Access
    	
 
    	
47
    
	
15.5
    	
Post-Closing Marketing
    	
 
    	
48
    
	
ARTICLE 16 INDEMNIFICATION
    	
 
    	
48
    
	
16.1
    	
Seller’s Indemnity; Retained Obligations
    	
 
    	
48
    
	
16.2
    	
Limitations on Seller’s Indemnity
    	
 
    	
49
    
	
16.3
    	
Survival of Seller’s Representations and Warranties
    	
 
    	
50
    
	
16.4
    	
Buyer’s Indemnity; Assumed Obligations
    	
 
    	
50
    
	
16.5
    	
Sole and Exclusive Remedy
    	
 
    	
51
    
	
16.6
    	
Application of Indemnities
    	
 
    	
52
    
	
ARTICLE 17 TAXATION
    	
 
    	
53
    
	
17.1
    	
Responsible Party
    	
 
    	
53
    
	
17.2
    	
Transfer Taxes
    	
 
    	
53
    
	
17.3
    	
Tax-Deferred Exchange Option
    	
 
    	
53
    
	
17.4
    	
Allocation of Values
    	
 
    	
54
    
	
17.5
    	
Section 754 Elections
    	
 
    	
54
    
	
ARTICLE 18 MISCELLANEOUS
    	
 
    	
54
    
	
18.1
    	
Notice
    	
 
    	
54
    
	
18.2
    	
Governing Law
    	
 
    	
54
    
	
18.3
    	
Waiver of Rights Under §1542 of the Civil Code of the State   of California
    	
 
    	
55
    
	
18.4
    	
Assignment
    	
 
    	
55
    
	
18.5
    	
Entire Agreement; Amendments
    	
 
    	
55
    
	
18.6
    	
Construction
    	
 
    	
55
    
	
18.7
    	
Counterparts
    	
 
    	
55
    
	
18.8
    	
Expenses and Fees
    	
 
    	
56
    
	
18.9
    	
Waivers
    	
 
    	
56
    
	
18.10
    	
No Third-Person Beneficiaries
    	
 
    	
56
    
	
18.11
    	
Severability
    	
 
    	
56
    
	
18.12
    	
Time of the Essence
    	
 
    	
56
    
	
18.13
    	
Limitation on Damages
    	
 
    	
56
    

 

iii

 

TABLE OF CONTENTS
 (CONTINUED)

 

EXHIBITS AND SCHEDULES:

 

	
Exhibit   A
    	
 
    
	
Part   1 — Leases, Mineral Interests, Surface Interests
    
	
Part   2 — Pipeline System
    
	
Exhibit   B
    	
Wells;   Working Interest/Net Revenue Interest; Allocated Values
    
	
Exhibit   C
    	
Pipeline   Surface Interests
    
	
Exhibit   D
    	
Certain   Excluded Assets
    
	
Exhibit   E
    	
Form   of Conveyance
    
	
Exhibit   F
    	
Form   of Non-foreign Affidavit
    
	
Exhibit   G
    	
Form   of California Form 593-C
    
	
Exhibit   H
    	
Form   of Consent
    
	
Exhibit   I
    	
Form   of Officer’s Certificate of Buyer
    
	
Exhibit   J
    	
Form   of Officer’s Certificate of Seller
    
	
Exhibit   K
    	
Form   of Gas Purchase Agreement
    
	
Exhibit   L
    	
Form   of Transitional Services Agreement
    
	
Exhibit   M
    	
Form   of Designation of Operator Agreement
    
	
Exhibit   N
    	
Form   of Escrow Agreement
    
	
Exhibit   O
    	
Form   of Secondment Agreement
    
	
 
    	
 
    
	
Schedule   2.1.16
    	
Vehicles
    
	
Schedule   7.3
    	
Consents   and Preferential Rights
    
	
Schedule   7.6
    	
Litigation
    
	
Schedule   7.8
    	
Material   Contracts
    
	
Schedule   7.10
    	
Encumbrances
    
	
Schedule   7.15
    	
Imbalances
    
	
Schedule   7.16
    	
Current   Commitments
    
	
Schedule   7.17
    	
Taxes
    
	
Schedule   7.23
    	
Seller’s   Knowledge Persons
    
	
Schedule   9.7
    	
Employees
    
	
Schedule   9.9
    	
Bonds,   Letters of Credit and Guarantees
    

 

iv

 

PURCHASE AND SALE AGREEMENT

 

This Purchase and Sale Agreement (this “Agreement”) is made and entered into on December 21, 2012, by and between Venoco, Inc., a Delaware corporation (“Seller”) and Vintage Production California LLC, a Delaware limited liability company (“Buyer”).

 

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Properties (as defined below) on the terms and conditions set forth herein;

 

NOW, THEREFORE, based on and in consideration of the mutual covenants and agreements contained herein, the Parties agree as follows:

 

ARTICLE 1
 DEFINITIONS

 

“3D Seismic Data” means the 3D seismic data acquired by the Parties pursuant to that certain Geophysical Operating Agreement dated November 3, 2009 and made between the Parties.

 

“Affiliate” means any Person which (a) controls either directly or indirectly a Party, or (b) is controlled directly or indirectly by such Party, or (c) is directly or indirectly controlled by a Person which directly or indirectly controls such Party, for which purpose “control” means the right to exercise more than fifty percent (50%) of the voting rights in the appointment of the directors or similar representation of a Person.

 

“Allocated Value” means, with respect to any Property, the value allocated to Seller’s interest in such Property as set forth on Exhibit B. Allocated Values are provided herein for purposes of ARTICLE 4, 5 and 6 only.

 

“Business Day” means any day other than a Saturday, a Sunday, or a day on which banks are closed for business in New York, New York or Houston, Texas, United States of America.

 

“Buyer Group” means Buyer, its Affiliates and its and their respective employees, officers, directors, agents, consultants and representatives.

 

“Casualty Loss” has the meaning specified in Section 9.5.2

 

“Casualty Loss Arbitrator” has the meaning specified in Section 9.6.2.

 

“Claim” means any and all claims, demands, suits, causes of action, losses, damages, liabilities, fines, penalties, costs and expenses (including attorneys’ fees and costs of litigation, arbitration and settlements), whether known or unknown.

 

“Closing” has the meaning specified in Section 12.1.

 

“Closing Date” has the meaning specified in Section 12.1.

 

“Code” means Internal Revenue Code of 1986, as amended.

 

 

“Confidentiality Agreements” has the meaning specified in Section 18.5.

 

“Contracts” has the meaning specified in Section 2.1.8.

 

“Debt Instrument” means any indenture, mortgage, loan, credit or sale-leaseback or similar financial contract.

 

“Defect Notification Deadline” has the meaning specified in Section 4.3.1.

 

“Designation of Operator Agreement” means a designation of operator agreement in, or substantially in, the form of Exhibit M attached hereto and made a part hereof.

 

“Effective Time” means 11:59 p.m. Los Angeles time on  December 31, 2012.

 

“Employed Assets” has the meaning specified in Section 7.12.

 

“Employment Commencement Date” has the meaning specified in Section 9.7.1.

 

“Environmental Arbitrator” has the meaning specified in Section 6.7.2.

 

“Environmental Condition Defect” means an individual existing condition of a Property or of the soil, sub-surface, surface waters, groundwaters,  atmosphere, natural resources or other environmental medium, wherever located, associated with the ownership or operation of the Property (including the presence or release of waste, hazardous substances or Hydrocarbons), that (in each case) (a) is not in compliance with Environmental Laws or (b) requires, if known, or will require, once discovered, reporting to a Governmental Authority, investigation, monitoring, removal, cleanup, remediation, restoration or correction in accordance with Environmental Laws.

 

“Environmental Condition Defect Notice” has the meaning specified in Section 6.2

 

“Environmental Laws” means all applicable Laws concerning or relating to (a) prevention of pollution or environmental damage, (b) removal or remediation of pollution or environmental damage, or (c) protection of the environment or health or safety, including the Clean Air Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), the Federal Water Pollution Control Act, the Safe Drinking Water Act, the Toxic Substance Control Act, the Hazardous and Solid Waste Amendments Act of 1984, the Superfund Amendments and Reauthorization Act of 1986, the Hazardous Materials Transportation Act, the Clean Water Act, the National Environmental Policy Act, the Endangered Species Act, the Fish and Wildlife Coordination Act, the National Historic Preservation Act and the Oil Pollution Act of 1990, as such Laws may be amended from time to time.

 

“Escrow Agent” means JP Morgan Chase (or, if such Person is unwilling or unable to serve, another nationally-recognized financial institution reasonably acceptable to the Parties), as escrow agent pursuant to a mutually agreeable escrow agreement among Buyer, Seller and such escrow agent.

 

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“Escrow Agreement” means an escrow agreement in, or substantially in, the form of Exhibit N attached hereto and made a part hereof.

 

“Excluded Assets” has the meaning specified in Section 2.2.

 

“Excluded Records” has the meaning specified in the definition of Records in Article 1.

 

“Facilities” has the meaning specified in Section 2.1.6.

 

“Fee Interests” has the meaning specified in Section 2.1.1.

 

“Final Settlement Statement” has the meaning specified in Section 14.2.1.

 

“Gas Purchase Agreement” means a gas purchase agreement in, or substantially in, the form of Exhibit K attached hereto and made a part hereof.

 

“Good Defensible Title” means with respect to those certain Properties described on Part 1 of Exhibit A, title that, subject to the Permitted Encumbrances:

 

(a)                                 is free and clear of all liens, charges, obligations (including contract obligations), defects and encumbrances, except for Permitted Encumbrances;

 

(b)                                 entitles Seller to receive not less than the Net Revenue Interest set forth in Exhibit B in all Hydrocarbons produced from the Properties described in Part 1 of Exhibit A without reduction at any time during the productive life thereof, except decreases in connection with those operations in which Seller may be a non-consenting co-owner, decreases resulting from reversion of interest to co-owners with respect to operations in which such co-owners elected not to consent, decreases resulting from the establishment or amendment of pools or units, decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries; and

 

(c)                                  obligates Seller to bear not more than the Working Interest set forth in Exhibit B in the Properties described in Part 1 of Exhibit A unless there is a corresponding proportionate increase in the Net Revenue Interest; or

 

(d)                                 with respect to such Properties described on Part 1 of Exhibit A that are Fee Interests, is perpetual and not subject to a limited term or reversion, except as specifically set forth on Part 1 of Exhibit A.

 

“Governmental Authority” means any federal, state, local, municipal, tribal or other government, any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, or any court or government tribunal.

 

3

 

“Hydrocarbons” means oil, gas, natural gas liquids, condensate, casinghead gas and other liquid or gaseous hydrocarbons (or any combination or constituents thereof), any other minerals of every kind or character, and carbon dioxide, sulfur, helium and nitrogen.

 

“Imbalances” means over-production or under-production subject to an imbalance or make-up obligation with respect to Hydrocarbons produced from or allocated to the Properties.

 

“Inventory Hydrocarbons” means, as of the Effective Time, the merchantable Hydrocarbons produced with respect to the Oil and Gas Properties prior to the Effective Time that are in pipelines, tanks or vessels located upstream of the pipeline sales connection. For the avoidance of doubt, the Line Fill is not included within the meaning of Inventory Hydrocarbons.

 

“Lands” has the meaning specified in Section 2.1.2.

 

“Laws” means any and all laws, statutes, codes, ordinances, permits, licenses, authorizations, agreements, decrees, writs, orders, judgments, principles of common law, rules or regulations (including, for the avoidance of doubt, Environmental Laws) that are promulgated, issued or enacted by a Governmental Authority having jurisdiction.

 

“Leases” has the meaning specified in Section 2.1.2.

 

“Liabilities” means all obligations for borrowed money, obligations evidenced by notes, bonds, debentures or similar instruments, obligations for the deferred purchase price of goods or services, obligations under capital leases, guarantees of any of the foregoing, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due).

 

“Line Fill” shall mean the aggregate amount of the Hydrocarbons owned by Seller in the gathering lines, pipelines, and crude oil tanks comprising the Pipeline System, such fill as of the date hereof and the Closing Date to be approximately one thousand eight hundred and fifty (1,850) mcf of gas.

 

“Marketing Agreements” means agreements for the purchase and sale of Hydrocarbons, including NAESB or GISB master agreements and any confirmations thereunder and any other production marketing arrangements applicable to the Properties.

 

“Material Adverse Effect” means a defect, condition, change, or effect on the ownership, operation, or financial condition of the Properties, taken as a whole; provided, however, that Material Adverse Effect shall not include material adverse effects resulting from general changes in oil and gas prices; general changes in markets or in industry, economic, or political conditions; changes in condition or developments generally applicable to the oil and gas industry generally or in any area or areas where the Properties are located; acts of God, including hurricanes and storms; acts or failures to act of Governmental Authorities (where not caused by the willful or grossly negligent acts of Seller); civil unrest or similar disorder; terrorist acts; changes in Laws or delays in issuing, the failure of any Governmental Authority to issue, or any change in requirements with respect to the issuance of, any licenses, permits, easements, or approvals, and increased costs relating to the foregoing; effects or changes that are cured or no longer exist by the earlier of the Closing and the termination of this Agreement pursuant to ARTICLE 13; and

 

4

 

changes resulting from any announcement of the transactions contemplated hereby or the performance of the covenants set forth in ARTICLE 9 hereof.

 

“Material Consents” has the meaning specified in Section 5.2.1.

 

“Material Contract” means, to the extent relating to or binding on the Properties, any Contract (i) which can reasonably be expected to result in gross revenue per fiscal year in excess of One Hundred Thousand Dollars ($100,000), net to the interests of Seller; (ii) which can reasonably be expected to result in expenditures per fiscal year in excess of One Hundred Thousand Dollars ($100,000), net to the interests of Seller; or (iii) which constitutes any of the following:

 

(a)                                 contracts or agreements with any Affiliate of Seller;

 

(b)                                 contracts or agreements for the sale, purchase, exchange, or other disposition of Hydrocarbons produced from the Oil and Gas Properties which are not cancelable without penalty to Seller, its Affiliates, or its or their permitted successors and assigns, on at least thirty (30) days prior written notice, without penalty, the payment of money, or delivery of other consideration;

 

(c)                                  to the extent currently pending, any contract or agreement for, or that contemplates, the sale, exchange or transfer of any of the Properties, other than (A) this Agreement, (B) contracts or agreements governing the sale of Hydrocarbons, (C) the disposition in the ordinary course of equipment no longer suitable for Hydrocarbons field operation, or (D) customary rights of reassignment upon intent to abandon an Oil and Gas Property; and

 

(d)                                 contracts or agreements for the gathering, treatment, processing, storage, or transportation of Hydrocarbons that require an annual payment of more than One Hundred Thousand Dollars ($100,000), net to the interests of Seller;

 

(e)                                  contracts or agreements related to the Pipeline System, including any pipeline interconnection agreements or leases related to LACT meters, that require an annual payment of more than One Hundred Thousand Dollars ($100,000), net to the interests of Seller;

 

(f)                                   leases for equipment or other personal property (1) located in the field or along the Pipeline System, or (2) that require an annual payment of more than One Hundred Thousand Dollars ($100,000), net to the interests of Seller;

 

(g)                                  all purchase or sale agreements (other than with respect to production of Hydrocarbons in the ordinary course), partnership agreements (other than tax partnerships), joint venture and exploration or development program agreements relating to the Properties or by which the Properties are bound;

 

(h)                                 contracts or agreements providing for a call upon, option to purchase or similar right under any agreements with respect to the Hydrocarbons from the Properties;

 

(i)                                     contracts or agreements with any labor union or employee association that relates to the Employees; and

 

5

 

(j)                                    unit agreements and any operating agreements applicable to the Properties;

 

provided, however, that “Material Contracts” shall not include the Leases and other instruments constituting Seller’s chain of title to the any of the Oil and Gas Properties or any swaps, derivatives or other hedge contracts and Debt Instruments.

 

“Net Reduction of Interests” means (a) a reduction of Seller’s Net Revenue Interest in a Property described in Part 1 of Exhibit A at any time during the productive life thereof, below the Net Revenue Interest for such Property set forth in Exhibit B, (b) an increase in Seller’s Working Interest in a Property described in Part 1 of Exhibit A at any time during the productive life or abandonment thereof, to more than the Working Interest for such Property set forth in Exhibit B unless there is a corresponding proportionate increase in the Net Revenue Interest, or (c) materially interfere with the operation or use of a Property as such Property is currently used.

 

“Net Revenue Interest” means Seller’s interest in and to all production of Hydrocarbons saved, produced and sold from any Property after giving effect to all royalties, overriding royalties, production payments, carried interests, net profits interests, reversionary interests and other burdens upon, measured by, or payable out of such production.

 

“NORM” means naturally occurring radioactive material.

 

“Offer Letters” has the meaning specified in Section 9.7.1.

 

“Oil and Gas Properties” means any or all of the Fee Interests, Leases, Lands, Wells or Units.

 

“Operative Documents” means, with regard to a Party, those documents listed or referred to in Section 12.2 or otherwise delivered at the Closing, in each case to the extent executed and delivered by a Party.

 

“Party” means either Buyer or Seller, as the case may be, and “Parties” means both of them.

 

“Permits” has the meaning specified in Section 2.1.10.

 

“Permitted Encumbrances” means:

 

(a)                                 royalties, overriding royalties, sliding scale royalties, production payments, reversionary interests, convertible interests, net profits interests and similar burdens if the cumulative effect of the burdens does not operate as a Net Reduction of Interest;

 

(b)                                 division orders and sales contracts terminable without penalty upon no more than thirty (30) days’ notice to the Buyer or as set forth on Schedule 7.8;

 

(c)                                  required third party consents to assignment that either have been obtained prior to Closing or are customarily obtained post-Closing;

 

6

 

(d)                                 materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s, tax, assessment and other similar liens or charges arising in the ordinary course of business for obligations (i) that are not delinquent (including any amounts being withheld as provided by Law) or (ii) that if delinquent, are being contested in good faith by appropriate actions and for which Seller indemnifies Buyer subsequent to Closing;

 

(e)                                  liens for Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions;

 

(f)                                   easements, rights-of-way, servitudes, permits, surface leases, and other rights in respect of the use of the surface that do not individually or in the aggregate materially interfere with the use and operation of such Property affected thereby for the purpose for which such Property is currently used;

 

(g)                                  all Leases, contracts, unit agreements, pooling agreements, operating agreements, production sales contracts, division orders, farmouts, exploration agreements, carried interests, sales agreements, royalty or overriding royalty agreements, and other contracts, agreements, and instruments applicable to the Properties, including provisions for penalties, suspensions, or forfeitures contained therein, to the extent that they do not, individually or in the aggregate, operate as a Net Reduction of Interest;

 

(h)                                 all Imbalances;

 

(i)                                     all rights to consent, by required notices to, filings with, or other actions by Governmental Authorities in connection with the sale or conveyance of oil and gas leases or rights or interests therein if they are customarily obtained subsequent to the sale or conveyance;

 

(j)                                    rights of reassignment arising upon final intention to abandon or release the Properties, or any of them;

 

(k)                                 failure to recite marital status in a document or omissions of successors or heirship or estate proceedings, unless Purchaser provides affirmative evidence that such failure or omission results in another Person’s superior claim of title to the relevant Property;

 

(l)                                     lack of a survey, unless a survey is required by Law;

 

(m)                             any failure of the records of any Person to reflect sufficient production or operations over any period of time unless the applicable lessor has alleged in writing that such failure has caused the applicable Lease to terminate or expire;

 

(n)                                 all rights reserved to, or vested in, any Governmental Authorities to control or regulate any of the Properties in any manner, and all obligations and duties under all applicable Laws of any such Governmental Authority or under any franchise, grant, license, or permit issued by any Governmental Authority;

 

7

 

(o)                                 lack of evidence of corporate or other entity authorization absent reasonable evidence of an actual claim of superior title from a third party attributable to such alleged lack of authorization;

 

(p)                                 matters for which the applicable statute of limitations for assertion thereof has expired (including title by limitations or adverse possession);

 

(q)                                 prior leases covering Hydrocarbons that are not surrendered of record unless it can be demonstrated that there is a reasonable possibility that such leases continue in force and effect and constitute a superior claim of title to a Property;

 

(r)                                    depth severances or any other change in Seller’s Working Interest or Net Revenue Interest with depth to the extent that they do not operate as a Net Reduction of Interest, in each case, with respect to Hydrocarbon production attributable to the applicable Well or Unit from the currently-producing formation for such Well or Unit;

 

(s)                                   any matters reflected on Exhibit A or Exhibit B if the cumulative effect of such matters do not, individually or in the aggregate, operate as a Net Reduction of Interest;

 

(t)                                    those claims, liens, security interests and encumbrances which will be released at Closing pursuant to Section 11.4; and

 

(u)                                 any other liens, charges, encumbrances, defects, or irregularities which do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of, the Properties subject thereto or affected thereby (as currently used or owned) and which would be accepted or waived by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties.

 

“Person” means an individual, partnership, limited liability company, corporation, trust, estate or other entity, including Governmental Authorities.

 

“Pipeline Assets” shall mean the Pipeline System, together with the Line Fill, Pipeline Surface Interests, and any Facilities, Contracts, Permits, Records or other assets held by Seller or its Affiliates primarily for use in connection with the ownership and operation of the Pipeline System.

 

“Pipeline Surface Interests” means those Surface Interests set forth on Exhibit C related to the Pipeline System.

 

“Pipeline System” shall mean the crude petroleum and natural gas pipelines and gathering lines that are described and generally depicted on Part 2 of Exhibit A.

 

“Post-Escrow Settlement Statement” has the meaning specified in Section 14.3.1.

 

8

 

“Preliminary Purchase Price” means the Purchase Price determined in accordance with Section 14.1.

 

“Preliminary Settlement Statement” has the meaning specified in Section 14.1.

 

“Properties” has the meaning specified in Section 2.1.

 

“Property Costs” means all operating expenses (including costs of insurance, rentals, shut-in payments, Property Taxes, and Severance Taxes attributable to production of Hydrocarbons from the Properties, but excluding other Taxes) and capital expenditures (including costs of drilling and completing wells, and costs of acquiring equipment) incurred in the ownership and operation of the Properties in the ordinary course of business, but excluding Liabilities that are the subject of a Claim for indemnification made by a Party pursuant to ARTICLE 16.

 

“Property Taxes” means all ad valorem, property, excise, and similar Taxes imposed on the Properties, excluding, however Severance Taxes, Transfer Taxes, and Taxes based upon, measured by, or calculated with respect to (i) net income, profits or similar measures, (ii) multiple bases (including corporate, franchise, business and occupation, business license, or similar Taxes) if one more of the bases on which such Tax is based, measured or calculated is described in the preceding clause (i) of this definition, in each case, together with interest, penalties or additions to such Tax.

 

“Purchase Price” has the meaning specified in Section 3.1.

 

“Records” means all books and records, files, data, correspondence, studies, surveys, reports, Hydrocarbon sales contract files, gas processing files, geologic, geophysical and seismic data (including raw data and any interpretative data or information relating to such geologic, geophysical and seismic data) and other data (in each case whether in written or electronic format) and relating to the operation of the Properties, including all title records, prospect information, title opinions, title insurance reports, abstracts, property ownership reports, customer lists, supplier lists, sales materials, well files, well logs, well tests, maps, engineering data and reports, health, environmental and safety information and records, third-party licenses, accounting and financial records, operational records, reserve estimates and economic estimates; production and processing records, division order, lease, land and right-of-way files, accounting files,  tax records (other than income tax), and contract files, but excluding, in each case: (a) all corporate, financial, income tax, and legal data and records of Seller that relate to Seller’s business generally (whether or not relating to the Properties) or to the Excluded Assets; (b) any data, software, and records to the extent disclosure or transfer is prohibited or subjected to payment of a fee or other consideration by any license agreement or other agreement, or by applicable Law, and for which no consent to transfer has been received or for which Buyer has not agreed in writing to pay the fee or other consideration, as applicable; (c) all legal records and legal files of Seller, including all work product of, and attorney-client communications with, Seller’s legal counsel (other than Leases, title opinions, and Contracts); (d) data and records relating to the sale of the Properties, including communications with the advisors or representatives of Seller or its Affiliates; and (e) any data and records relating to the Excluded Assets. (Clauses (a) through (e) shall hereinafter be referred to as the “Excluded Records”).

 

9

 

“Remediation Value” has the meaning specified in Section 6.3.

 

“Secondment Agreement” means a secondment agreement in, or substantially in, the form of Exhibit O attached hereto and made a part hereof.

 

“Seller Group” means Seller and its Affiliates and its and their respective employees, officers, directors, agents, consultants and representatives.

 

“Severance Taxes” means all federal, state or local Taxes which are imposed upon production from the Properties, including excise taxes on production, severance or gross production, as well as any interest, penalties and fines assessed or due in respect of any such Taxes, whether disputed or not, but excluding Property Taxes, and Taxes based upon, measured by, or calculated with respect to (i) net income, profits or similar measures, (ii) multiple bases (including corporate, franchise, business and occupation, business license, or similar Taxes) if one more of the bases on which such Tax is based, measured or calculated is described in the preceding clause (i) of this definition.

 

“Surface Interests” has the meaning specified in Section 2.1.4.

 

“Taxes” mean any and all taxes, levies or other like assessments, including but not limited to income tax, franchise tax, profits tax, windfall profits tax, surtax, gross receipts tax, capital gains tax, remittance tax, withholding tax, sales tax, use tax, value added tax, goods and services tax, presumptive tax, net worth tax, special contribution, production tax, pipeline transportation tax, severance tax, excise tax, ad valorem tax, property tax (real, personal or intangible), inventory tax, transfer tax, premium tax, environmental tax (including taxes under Section 59A of the Code), customs duty, stamp tax or duty, capital stock tax, margin tax, occupation tax, payroll tax, employment tax, social security tax, unemployment tax, disability tax, alternative or add-on minimum tax, estimated tax, and any similar tax or assessment imposed by any Governmental Authority or other taxing authority, together with any interest, fine or penalty, or addition thereto, whether disputed or not.

 

“Third Party” means, whether such term is capitalized or not, a Person other than Buyer and its Affiliates or Seller and its Affiliates.

 

“Third Party Hydrocarbons” has the meaning specified in Section 7.13.

 

“Title Arbitrator” has the meaning specified in Section 4.7.2.

 

“Title Benefit” has the meaning specified in Section 4.2.

 

“Title Benefit Amount” has the meaning specified in Section 4.5.2.

 

“Title Cure Deadline” has the meaning specified in Section 4.4.1.

 

“Title Defect” has the meaning specified in Section 4.2.

 

“Title Defect Value” means with respect to each Property that is agreed or determined to be subject to a Title Defect, the lesser of (a) the Allocated Value of the Property subject to such

 

10

 

Title Defect and (b) the amount determined in accordance with ARTICLE 4 with respect to such Title Defect.

 

“Transferred Employee” has the meaning specified in Section 9.7.1.

 

“Transitional Services Agreement” means a transitional services agreement in, or substantially in, the form of Exhibit L attached hereto and made a part hereof.

 

“Wells” has the meaning specified in Section 2.1.5.

 

“Working Interest” means the interest in and to a Property that is burdened with the obligation to bear and pay the costs and expenses associated with the exploration, drilling, development, operation and abandonment of such Property, but without regard to the effect of any royalties, overriding royalties, production payments, net profits interests and other similar burdens upon, measured by or payable out of the production of Hydrocarbons therefrom.

 

ARTICLE 2
 SALE AND PURCHASE OF PROPERTIES; EXCLUDED ASSETS

 

2.1                               Sale and Purchase of Properties.  Subject to the terms and conditions of this Agreement, Seller agrees to sell, assign, convey and deliver to Buyer, and Buyer agrees to purchase and acquire from Seller at the Closing, all of Seller’s right, title and interest in and to the following, except for the Excluded Assets:

 

2.1.1                     All fee interests to the surface and in Hydrocarbons, including under grant deeds, mineral deeds, conveyances or assignments, as described on Part 1 of Exhibit A (“Fee Interests”);

 

2.1.2                     All Hydrocarbon and mineral leases, and the surface and subsurface leasehold estates created thereby and subleases, described in Part 1 of Exhibit A (the “Leases”), and all of the lands covered by the Leases (“Lands”), together with corresponding surface and subsurface interests in and to all the property and rights incident thereto, including all rights in any pooled or unitized or communitized acreage by virtue of the Lands being a part thereof (“Units”); all production from the Units allocated to any such Lands; and all reversionary interests, carried interests, options, convertible interests and net profits interests attributable to the Oil and Gas Properties, together with all rights that arise by operation of Law or otherwise in all properties and land unitized, communitized or pooled with the Leases or Lands;

 

2.1.3                     The Pipeline System and the Line Fill;

 

2.1.4                     All surface fee interests, easements, rights-of-way, servitudes, licenses, authorizations, pass through rights, permits, rights of use and all other surface and other rights and interests applicable to, or used or useful in connection with, any or all of the Oil and Gas Properties and the Pipeline System (the “Surface Interests”), including the Pipeline Surface Interests;

 

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2.1.5                     All producing, non-producing, shut-in and other well bores including Hydrocarbon wells, disposal wells, injection wells, observations wells, co-op wells, plugged and abandoned wells and water wells located on the Lands or attributable to the Oil and Gas Properties, including the wells described in Exhibit B and the pro-ration units associated therewith (the “Wells”);

 

2.1.6                     All pipelines, plants, gathering and processing systems, buildings, stations, compressors, pumps, piping and pipe inventory, remote and other automation equipment (including SCADA equipment and transmitters, telecommunications equipment, field radio telemetry and associated frequencies and licenses, pressure transmitters and central processing equipment that is used primarily in connection with the ownership or operation of the Oil and Gas Properties or the Pipeline System), machinery, tools, utility lines, equipment, fixtures, and improvements and other appurtenances on or to the Oil and Gas Properties or the Pipeline System, insofar as they are used or used or held for use primarily in connection with the ownership, operation, maintenance or repair of the Oil and Gas Properties or the production, treatment, sale, transportation, or disposal of Hydrocarbons or water produced from the Oil and Gas Properties or the Pipeline System (subject to such exclusions, the “Facilities”);

 

2.1.7                     All Hydrocarbons (or the proceeds from the sale of Hydrocarbons) (a) produced from and after the Effective Time or (b) located as of the Effective Time in pipelines or in tanks upstream of the pipeline sales connection, in each case, attributable to the Oil and Gas Properties;

 

2.1.8                     All farmout and farmin agreements, operating agreements, production sales and purchase contracts, processing contracts, gathering contracts, transportation contracts, saltwater disposal agreements, surface leases, balancing contracts, and all other instruments covering or affecting any or all of the Oil and Gas Properties or the Pipeline System (the “Contracts”);

 

2.1.9                     All unitization, communitization and pooling declarations, orders and agreements to the extent they relate to the Oil and Gas Properties, or the production of Hydrocarbons therefrom;

 

2.1.10              To the extent assignable, (a) all environmental and other governmental (whether federal, state, local or tribal) certificates, consents, permits (including conditional use permits), licenses, orders, authorizations, franchises and related instruments or rights relating to the ownership, operation or use of the Oil and Gas Properties or the Pipeline System, and (b) emission reduction credits, RECLAIM Trading Credits associated with the South Coast Air Quality Management District, and any other credits or the right to create credits or other transferable rights relating to past or future emissions reductions, in each case that were generated from the ownership, use or operation of the Oil and Gas Properties or the Pipeline System (the “Permits”);

 

2.1.11              All royalties, overriding royalties, sliding scale royalties, shut-in royalties, rights to royalties in kind, or other interests in production of Hydrocarbons (other than working interests), as set forth on Exhibit B;

 

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2.1.12              All partnership interests (tax, state law or otherwise) affecting any Oil and Gas Properties or the Pipeline System;

 

2.1.13              To the extent assignable, all rights to indemnities (except with respect to Seller’s Retained Liabilities) and releases from third parties relating to the Oil and Gas Properties, the Pipeline System, Surface Interests, Wells or Facilities, in each case, to the extent relating to liabilities that Buyer has assumed or for which it owes an indemnification obligation hereunder;

 

2.1.14              To the extent assignable, all insurance proceeds under existing policies of insurance, if any, relating to the Oil and Gas Properties, the Pipeline System, Surface Interests, Wells or Facilities, in each case, to the extent relating to (i) liabilities that Buyer has assumed or for which it owes an indemnification obligation hereunder, or (ii) Casualty Losses as provided in Section 9.5;

 

2.1.15              The Records;

 

2.1.16              All vehicles held for use in connection with the Oil and Gas Properties, the production of Hydrocarbons attributable thereto, or the Pipeline System, a list of which is set forth on Schedule 2.1.16;

 

2.1.17              The 3D Seismic Data;

 

2.1.18              To the extent assignable, all Marketing Agreements; and

 

2.1.19              All other assets and properties of Seller used or held for use primarily in connection with the Oil and Gas Properties and the production of Hydrocarbons from the Oil and Gas Properties or the Pipeline System.

 

Except for the Excluded Assets, all of the real and personal properties, rights, titles, and interests described in Sections 2.1.1 through Section 2.1.19 subject to the limitations and terms expressly set forth herein and in Exhibits A and Exhibit B, are hereinafter referred to as the “Properties”.

 

2.2                               Excluded Assets.  Notwithstanding anything to the contrary in this Agreement, the “Properties” shall not include any rights, interests, obligations or liabilities with respect to the items and matters listed on Exhibit D (the “Excluded Assets”).

 

ARTICLE 3
 PURCHASE PRICE

 

3.1                               Purchase Price.  The purchase price for the Properties will be Two Hundred and Fifty Million Dollars ($250,000,000) (the “Purchase Price”), subject to any applicable adjustments as hereinafter provided.

 

3.2                               Increases in Purchase Price.  The Purchase Price will be increased by the following amounts (without duplication):

 

3.2.1                     the amount determined under Section 4.6.2 resulting from Title Benefits;

 

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3.2.2                     the amount of any Property Costs, including Severance Taxes and Property Taxes, that are paid or prepaid by or on behalf of Seller or any of its Affiliates and incurred in the ownership and operation of the Properties and that are fairly attributable to the period from and after the Effective Time (in the case of such Taxes, as determined pursuant to Section 17.1), except Taxes (other than Severance Taxes and Property Taxes);

 

3.2.3                     the value of all Inventory Hydrocarbons, less any applicable Severance Taxes, Property Taxes, and royalties, which shall have a value equal to the amount of proceeds received for such Hydrocarbons upon the first sale thereof or absent a sale, such value shall be based upon the average oil and gas prices received for the sale of similar Hydrocarbons from the Properties for the calendar month of December 2012;

 

3.2.4                     the amount of all proceeds, receipts (including producing receipts, drilling receipts and construction overhead receipts), reimbursements, credits, and income paid to or received by Buyer, including proceeds from the sale of Hydrocarbons (excluding the Inventory Hydrocarbons), in each case net of all applicable Severance Taxes and Property Taxes and royalties paid by Buyer, that are fairly attributable to the Properties for the period of time prior to the Effective Time (in the case of such Taxes, as determined pursuant to Section 17.1); and

 

3.2.5                     the amount of all other upward adjustments expressly provided for herein.

 

3.3                               Decreases in Purchase Price.  The Purchase Price will be decreased by the following amounts (without duplication):

 

3.3.1                     the amount of any Property Costs, including Severance Taxes and Property Taxes, that are paid by Buyer or any of its Affiliates that are incurred in the ownership and operation of the Properties and that are fairly attributable to the period prior to the Effective Time (in the case of such Taxes, as determined pursuant to Section 17.1), except Taxes (other than Severance Taxes and Property Taxes);

 

3.3.2                     the amount of all proceeds, receipts (including producing receipts, drilling receipts and construction overhead receipts), reimbursements, credits, and income paid to or received by Seller, including proceeds from the sale of Hydrocarbons, in each case net of all applicable Severance Taxes and Property Taxes and royalties paid by Seller, that are fairly attributable to the Properties for the period of time on or after the Effective Time (in the case of such Taxes, as determined pursuant to Section 17.1), or the Inventory Hydrocarbons;

 

3.3.3                     the amount of any suspended funds held by Seller and owed to third parties for which Buyer will assume responsibility pursuant to Section 15.2;

 

3.3.4                     the amount, if any, of the Title Defect Values under Section 4.6.1 and the Remediation Values under Section 6.3;

 

3.3.5                     the amount equal to the aggregate Allocated Values corresponding to Properties for which (i) a preferential purchase right has been exercised or (ii) a Material Consent to assign has not been obtained and not waived by Buyer; and

 

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3.3.6                     the amount of all other downward adjustments expressly provided for herein.

 

ARTICLE 4
 TITLE MATTERS

 

4.1                               Buyer’s Title Review.

 

4.1.1                     From and after the date of this Agreement, and pursuant and subject to the terms of Sections 9.1 and 9.8, Buyer shall have the right to conduct a review of Seller’s title to the Properties.  The provisions of this ARTICLE 4 and the special warranty of title in the Conveyance provide Buyer’s exclusive remedy with respect to any Title Defects or other deficiencies or defects in Seller’s title to the Oil and Gas Properties.

 

4.1.2                     Seller’s rights with respect to title to the Oil and Gas Properties pursuant to this ARTICLE 4 is limited to the Oil and Gas Properties shown on Part 1 of Exhibit A. Seller hereby expressly disclaims and negates any and all warranties of title whatsoever, whether express, implied, statutory, or otherwise, except as set forth herein and in the Conveyance.

 

4.1.3                     The Conveyance shall be in the form attached hereto as Exhibit E, and shall contain a special warranty of title to Properties as set forth therein.  Buyer shall not be entitled to protection under Seller’s special warranty of title in the Conveyance against any Title Defect reported by Buyer to Seller pursuant to this ARTICLE 4.

 

4.2                               Title Defects and Title Benefits.  As used in this Agreement, the term “Title Defect” means any lien, charge, encumbrance, obligation, or defect, including a discrepancy in Net Revenue Interest or Working Interest, that causes Seller’s title to any Oil and Gas Property to be less than Good Defensible Title.  As used in this Agreement, the term “Title Benefit” means any right, circumstance, or condition that operates to increase the Net Revenue Interest of Seller in any Oil and Gas Property above that shown on Exhibit B, without causing a greater than proportionate increase in Seller’s Working Interest above that shown in Exhibit B.

 

4.3                               Notice of Title Defects and Benefits; Adjustment.

 

4.3.1                     Buyer will provide Seller with written notice (a “Title Defect Notice”) at the same time as or before the execution and delivery by Buyer of this Agreement (“Defect Notification Deadline”).  Each Title Defect Notice must include, in reasonable detail, to the extent applicable, a description of (a) the Property with respect to which the claimed Title Defect(s) relate and the Allocated Value of such Property, (b) the nature of (and a description of) such claimed Title Defect(s), and (c) Buyer’s calculation of the value of each claimed Title Defect.  Upon Seller’s request, Buyer shall promptly provide Seller with such supporting documentation as is in Buyer’s possession with respect to the alleged Title Defect.  Buyer shall not be entitled to assert a Title Defect based solely upon the lack of information in Seller’s files (including the lack of title opinions). Buyer shall be deemed to have waived all Title Defects of which Seller has not been given notice pursuant to this Section 4.3.1 on or before the Defect Notification Deadline; provided, however, notwithstanding anything herein to the contrary, nothing in this Section 4.3 is intended to modify or limit Seller’s special warranty of title in the Conveyance, Seller’s

 

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representations and warranties in ARTICLE 7 or Seller’s indemnity and hold harmless obligations under Section 16.1.

 

4.3.2                     Buyer is under no obligation to identify Title Benefits and shall have no liability to Seller for the failure to identify any Title Benefits.  In the event Buyer has actual knowledge of a Title Benefit on or before the Defect Notification Deadline, Buyer shall, no later than the Defect Notification Deadline, deliver to Seller a notice including in reasonable detail, including a description of (a) the Property with respect to which the claimed Title Benefit(s) relate and the Allocated Value of such Property, (b) the nature of (and a description of) such Title Benefit(s) and (c) Buyer’s calculation of the value of each Title Benefit.  Seller shall have the right, but not the obligation, to deliver to Buyer a similar notice on or before the Defect Notification Deadline with respect to each Title Benefit discovered by Seller.  Seller shall be deemed to have waived all Title Benefits of which no Party has given notice on or before the Defect Notification Deadline, except to the extent Buyer has failed to give a notice of a Title Benefit which it was obligated to give under this Section 4.3.2.  For purposes hereof, the knowledge of Buyer means the knowledge of Brent Davenport, Mike Gooding and Russell Ledbetter.

 

4.4                               Cure.

 

4.4.1                     Seller shall have the right, but not the obligation, at Seller’s sole cost, risk, and expense, to cure or remove, on or before ninety (90) days after the Closing Date (the “Title Cure Deadline”), any alleged Title Defects of which Seller has been advised by Buyer pursuant to Section 4.3.1 if Seller provides written notice to Buyer of its intent to cure such alleged Title Defects on or before the Closing Date.  The election by Seller to cure one or more such alleged Title Defects shall not affect the Title Defect Values and Title Benefit Amounts used to determine the Preliminary Purchase Price pursuant to Section 14.1 or the rights and obligations of the Parties under Section 4.7 with respect to dispute resolution.  Seller’s election to cure an alleged Title Defect shall not constitute a waiver of any of the rights of Seller pursuant to this ARTICLE 4, including Seller’s right to dispute the existence, nature, or value of such Title Defect.

 

4.4.2                     Subject to the determination by the Title Arbitrator of the Title Defect Value with respect to a Title Defect which Seller has elected to cure, to the extent any such Title Defect is not cured on or prior to the Closing Date, the Preliminary Purchase Price shall be decreased as required under Section 4.5 and the Title Defect Value with respect to the asserted Title Defect shall be paid into the Escrow Account at closing and held by the Escrow Agent pursuant to the terms of the Escrow Agreement.

 

4.4.3                     Any dispute relating to whether and to what extent a Title Defect has been cured shall be resolved as set forth in Section 4.7, except that any such matter shall be submitted to the Title Arbitrator on or before ten (10) Business Days after the date described in Section 4.4.1; provided, however, that any prior or concurrent determination by a Title Arbitrator with respect to Title Defects (or factual or legal matters relating thereto, even if determined in connection with the resolution of an otherwise unrelated dispute) which Seller has elected to cure pursuant to this Section 4.4.3 shall be binding on

 

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the Parties with respect to such Title Defect (or factual or legal matters relating thereto, even if determined in connection with the resolution of an otherwise unrelated dispute).

 

4.5                               Adjustment for Title Defects and Benefits.

 

4.5.1                     With respect to each Oil and Gas Property affected by Title Defects reported under Section 4.3.1, such Oil and Gas Property shall not be assigned at Closing and the Preliminary Purchase Price shall be reduced by the Title Defect Value, as calculated pursuant to Section 4.6.1.

 

4.5.2                     With respect to each Oil and Gas Property affected by Title Benefits reported under Section 4.3.2, the Preliminary Purchase Price shall be increased by an amount (the “Title Benefit Amount”) equal to the increase in the Allocated Value for such Oil and Gas Property caused by such Title Benefits, as determined pursuant to Section 4.6.2.

 

4.5.3                     Section 4.5.1 shall, to the fullest extent permitted by applicable law, be the exclusive right and remedy of Buyer with respect to Title Defects; provided, however, notwithstanding anything herein to the contrary, nothing in this Section 4.5.3 is intended to modify or limit Seller’s special warranty of title in the Conveyance, Seller’s representations and warranties in ARTICLE 7 or Seller’s indemnity and hold harmless obligations under Section 16.1.

 

4.6                               Calculation of Title Defect Values and Title Benefit Amounts.

 

4.6.1                     The Title Defect Value resulting from a Title Defect shall be determined as follows:

 

(i)                                     if Buyer and Seller agree in writing upon the Title Defect Value, that amount shall be the Title Defect Value;

 

(ii)                                  if the Title Defect is a lien, encumbrance, or other charge which is liquidated in amount, then the Title Defect Value shall be the amount necessary to be paid to remove the Title Defect;

 

(iii)                               if a Title Defect exists because Seller owns a lesser Net Revenue Interest in an Oil and Gas Property and such Oil and Gas Property has an Allocated Value assigned specifically to it on Exhibit B, then the Title Defect Value will be the Allocated Value for such Property multiplied by a fraction (A) the numerator of which is (1) the net present value, as of the Effective Time, of Seller’s interest in the future net revenues from such Property based on the Net Revenue Interest set forth on Exhibit B (the “PV-NRI”) minus (2) the net present value as of the Effective Time, of Seller’s interest in the future net revenues from such Property taking into account the Title Defect, but otherwise calculated based upon the same production, cost, and assumed future price estimates and discount rate and such other methods, techniques and assumptions utilized, and (B) the denominator of which is the PV-NRI;

 

(iv)                              if the Title Defect represents an obligation, encumbrance, burden, or charge upon, or other defect in title to, the affected Oil and Gas Property of a type not described in subsections (i), (ii), or (iii), above, the Title Defect Value shall be determined by

 

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taking into account the Allocated Value of the Oil and Gas Property so affected, the portion of Seller’s interest in the Oil and Gas Property affected by the Title Defect, the legal effect of the Title Defect, the potential discounted economic effect of the Title Defect over the productive life of the affected Oil and Gas Property, the Allocated Values and such other factors as are necessary to make a proper evaluation;

 

(v)                                 the Title Defect Value with respect to a Title Defect shall be determined without duplication of any costs or losses included in another Title Defect Value hereunder or for which Buyer otherwise receives credit in the calculation of the Purchase Price; and

 

(vi)                              notwithstanding anything to the contrary in this ARTICLE 4:

 

(A)                               an individual claim for a Title Defect for which a claim notice is given prior to the Defect Notification Deadline shall only generate an adjustment to the Purchase Price under this ARTICLE 4 if the Title Defect Value with respect thereto exceeds Fifty Thousand Dollars ($50,000), provided that once such threshold has been met and subject to Section 4.6.1(vi)(C) below, the Purchase Price shall be adjusted for the full amount of such Title Defect Values and not just the excess above Fifty Thousand Dollars ($50,000);

 

(B)                               the aggregate Title Defect Values attributable to the effects of all Title Defects upon any given Oil and Gas Property shall not exceed the Allocated Value of such Oil and Gas Property; and

 

(C)                               there shall be no adjustment to the Purchase Price for Title Defects unless and until the aggregate of all Title Defect Values which would generate an adjustment to the Purchase Price pursuant to Section 4.6.1(vi)(A) exceeds two percent (2%) of the Purchase Price, and then only to the extent that such aggregate amount exceeds two percent (2%) of the Purchase Price.

 

4.6.2                     The Title Benefit Amount resulting from a Title Benefit shall be determined as follows:

 

(i)                                     if Buyer and Seller agree in writing upon the Title Benefit Amount, that amount shall be the Title Benefit Amount;

 

(ii)                                  if a Title Benefit exists because Seller owns a greater Net Revenue Interest in a Property and such Property has an Allocated Value assigned specifically to it on Exhibit B, then the Title Defect Value will be the Allocated Value for such Property multiplied by a fraction (A) the numerator of which is (1) the net present value, as of the Effective Time, of Seller’s interest in the future net revenues from such Property taking into account the Title Benefit minus (2) the net present value as of the Effective Time, of Seller’s interest in the future net revenues from such Property based on the Net Revenue Interest set forth on Exhibit B, but otherwise calculated based upon the same production, cost, and assumed future price estimates and discount rate and such other methods, techniques and assumptions utilized but not taking into account the Title Defect (the “NPV”), and (ii) the denominator of which is the NPV;

 

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(iii)                               if a Title Benefit represents a right, circumstance, or condition of a type not described in subsections (i) or (ii), the Title Benefit Amount shall be determined by taking into account the Allocated Value of the Oil and Gas Property so affected, the portion of Seller’s interest in the Oil and Gas Property so affected, the legal effect of the Title Benefit, the potential discounted economic effect of the Title Benefit over the productive life of any affected Oil and Gas Property, the values placed upon the Title Benefit by Buyer and Seller, and such other factors as are necessary to make a proper evaluation; and

 

(iv)                              notwithstanding anything to the contrary in this ARTICLE 4:

 

(A)                               an individual claim for a Title Benefit shall only generate an adjustment to the Purchase Price if the Title Benefit Amount with respect thereto exceeds Fifty Thousand Dollars ($50,000), provided that once such threshold has been met and subject to Section 4.6.2(iv)(B) below, the Purchase Price shall be adjusted for the full amount of such Title Benefit Amount and not just the excess above Fifty Thousand Dollars ($50,000); and

 

(B)                               there shall be no adjustment to the Purchase Price for Title Benefits unless and until the aggregate of all Title Benefit Amounts which would generate an adjustment to the Purchase Price pursuant to Section 4.6.2(iv)(A) exceeds two percent (2%) of the Purchase Price, and then only to the extent that such aggregate amount exceeds two percent (2%) of the Purchase Price.

 

4.7                               Dispute Resolution.

 

4.7.1                     Seller and Buyer shall attempt to agree upon all Title Defect Values and Title Benefit Amounts on or before two (2) days prior to the Closing Date.  If Seller and Buyer are unable to agree by that date, then the arithmetic average of Buyer’s estimate and Seller’s estimate of disputed Title Defect Values or Title Benefit Amounts (as applicable) shall be used to determine the Preliminary Purchase Price pursuant to Section 14.1, and the Title Defect Values and Title Benefit Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to Section 4.7.2.

 

4.7.2                     With respect to disputed Title Defect Values and Title Benefit Amounts, as soon as reasonably practicable after the determination by either Party that a dispute exists, and in no event later than the date that is five (5) Business Days following the Title Cure Deadline, a title attorney with at least ten (10) years’ experience in oil and gas titles in California shall be selected by mutual agreement of Buyer and Seller (the “Title Arbitrator”).  If Buyer and Seller have not agreed upon a Person to serve as Title Arbitrator during such ten (10) Business Day period, Buyer shall, within five (5) Business Days after the end of such initial ten (10) Business Day Period, formally apply to the Los Angeles, California office of the American Arbitration Association (the “AAA”) to choose the Title Arbitrator.  The Title Arbitrator shall not have worked as an employee or outside counsel for any Party or its Affiliates during the five (5) year period preceding the arbitration or have any financial interest in the dispute.  Either Buyer or Seller may submit the disputed Title Defect Values or Title Benefit Amounts within a reasonable period of time after the Title Arbitrator has been selected in accordance with the foregoing.

 

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4.7.3                     In each case above, the arbitration proceeding shall be held in Los Angeles, California and shall be conducted in accordance with the Commercial Arbitration Rules of the AAA, to the extent such rules do not conflict with the terms of this Section 4.7.  The Title Arbitrator’s determination shall be made within forty-five (45) days after submission of the matters in dispute and shall be final and binding upon the Parties, without right of appeal.  In making its determinations, the Title Arbitrator shall be bound by the provisions of this ARTICLE 4 and may consider such other matters as, in the opinion of the Title Arbitrator, are necessary or helpful to make a proper determination.  The Title Arbitrator may consult with and engage disinterested third parties to advise the arbitrator, including petroleum engineers.  The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Title Defect Values and Title Benefit Amounts submitted by any Party and may not award damages, interest, or penalties to any Party with respect to any matter.  Seller and Buyer shall each bear their own legal fees and other costs of presenting their respective cases.  Buyer shall bear fifty percent (50%) of the costs and expenses of the Title Arbitrator and the AAA, and Seller shall be responsible for the remaining fifty percent (50%) of the costs and expenses.

 

4.8                               Limitations on Applicability.  Buyer’s rights with respect to Title Defects shall terminate as of the Defect Notification Deadline and shall have no further force and effect thereafter, provided there shall be no termination of Buyer’s or Seller’s rights under this ARTICLE 4 with respect to any Title Defect and or Title Benefit claim properly reported on or before the Defect Notification Deadline. Notwithstanding anything herein to the contrary, nothing in this Section 4.8 is intended to modify or limit Seller’s special warranty of title in the Conveyance, Seller’s representations and warranties in ARTICLE 7 or Seller’s indemnity and hold harmless obligations under Section 16.1.

 

4.9                               Escrow.

 

4.9.1                     If the Preliminary Purchase Price is adjusted pursuant to Section 4.4.2 or 4.5, the amount of such decrease shall be paid by Buyer to Escrow Agent. In the event a Title Defect is cured after the Closing Date (but in no event later than the Title Cure Deadline), the Parties shall direct the Escrow Agent to pay to Seller the amount by which the Preliminary Purchase Price was decreased with respect to such Title Defect pursuant to Section 4.4.2 or 4.5 and Seller shall convey the affected Property to Buyer.  In the event that Seller is unable prior to the Title Cure Deadline to cure to the reasonable satisfaction of Buyer any Title Defect with respect to which the Preliminary Purchase Price was adjusted pursuant to Section 4.4.2 or 4.5, then on the second Business Day following the Title Cure Deadline the Parties shall direct the Escrow Agent to pay to Buyer the amounts by which the Preliminary Purchase Price was decreased with respect to such Title Defects pursuant to Section 4.4.2 or 4.5 and Seller shall have no further obligation to sell, transfer, assign or convey the affected Properties and Buyer shall have no further obligation to purchase the affected Properties.

 

4.9.2                     In the event that on June 30, 2013 there are any funds remaining in the Escrow with respect to Properties that were withheld from the Closing pursuant to ARTICLE 4, ARTICLE 5 or ARTICLE 6, the Parties shall direct the Escrow Agent to pay to Buyer the full amount of such funds and Seller shall have no further obligation to sell, transfer,

 

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assign or convey such Properties and Buyer shall have no further obligation to purchase such Properties.

 

ARTICLE 5
 PREFERENTIAL RIGHTS AND CONSENTS

 

5.1                               Preferential Purchase Rights.

 

5.1.1                     Seller shall use the Allocated Value to provide any required preferential right to purchase notifications. Seller shall provide such notifications promptly after the date of this Agreement with respect to each applicable Property and shall comply in all material respects with the agreement in which the applicable preferential purchase right arises insofar as it pertains to such preferential right.

 

5.1.2                     If, prior to the Closing Date, a holder of a preferential purchase right notifies Seller that it elects to exercise its rights with respect to a Property (in accordance with the agreement under which the preferential purchase right arises), such Property will not be sold to Buyer (subject to the remaining provisions in this ARTICLE 5), the Purchase Price will be reduced by the relevant Allocated Value, and the Parties will remove such Property (or portion thereof) from this Agreement.  Seller shall promptly notify Buyer of the exercise of any preferential purchase rights in respect of the Properties.  Notwithstanding the aforementioned, Buyer remains obligated to purchase the remainder of the Properties not affected by exercised preferential purchase rights in accordance with this Agreement.

 

5.1.3                     Should a third Person fail to exercise or waive its preferential right to purchase as to any portion of the Property prior to Closing, and the time for exercise or waiver has not yet expired, (i) the affected Property (or part thereof) shall not be included in the Properties conveyed to Buyer at Closing, (ii) the Purchase Price shall be decreased by an amount determined in accordance with Section 4.6, as though the affected Property (or part thereof) were subject to a Title Defect (excluding, however, the application of Section 4.6.1(vi)), (iii) the amount of such decrease shall be paid by Buyer to Escrow Agent, and (iv) the affected Properties (or portions thereof), and the funds paid to the Escrow Agent, shall be subject to Sections 5.1.4, 5.1.5 and 4.9.2.

 

5.1.4                     In the event that a preferential right to purchase with respect to a Property deleted from the transaction at Closing pursuant to Section 5.1.3 is validly exercised after Closing, Seller shall convey the affected Properties (or portion thereof) to the holder on the terms and provisions set out in the applicable preferential right provision and shall be entitled to any consideration for the sale of such Property (or portion thereof), and the Parties shall direct the Escrow Agent to pay any amounts held in escrow with respect to the affected Property to Buyer, free of any claims by Seller.

 

5.1.5                     In the event that a preferential right to purchase with respect to a Property (or portion thereof) not conveyed to Buyer at Closing pursuant to Section 5.1.3 is waived or the time for the exercise of such right has expired pursuant to its terms, then:

 

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(i)                                     Buyer shall purchase the affected Property (or portion thereof) on the terms set forth in this Agreement at a delayed closing which shall occur within ten (10) days following the date on which Seller obtains such waiver, or the time period for exercising the applicable preferential purchase right has expired (which date shall, with respect to such Property, or portion thereof, be considered to be the Closing Date);

 

(ii)                                  subject to Section 5.1.5(iii), the Parties shall instruct the Escrow Agent to pay to Seller the amount by which the Purchase Price was decreased at Closing due to such preferential purchase right, together with any interest or income earned thereon or accrued with respect thereto;

 

(iii)                               Purchase Price adjustments calculated in the same manner as the adjustments in Sections 3.2 and 3.3 with respect to the affected Property (or portion thereof), if any, shall be calculated for the period from the Effective Time to the date of the conveyance, and the net amount of such adjustment, if positive and in excess of the amount paid to Seller pursuant to Section 5.1.5(ii), shall be paid by Buyer to Seller and, if negative, by Seller to Buyer; and

 

(iv)                              Buyer shall assume all Assumed Liabilities with respect to the affected Property (or portion thereof).

 

5.2                               Consents to Assign.

 

5.2.1                     Pursuant to Section 9.3, Seller shall use reasonable and prompt efforts to obtain prior to Closing any consents from third parties required to consummate the transactions contemplated hereby with respect to the Properties (“Material Consents”).  All forms of request for required consents shall be based on the form of consent request attached hereto as Exhibit H.  Seller shall not be required to make any payments or undertake any obligations for the benefit of the holders of such rights in order to obtain the Material Consents. Buyer shall cooperate with Seller in seeking to obtain such Material Consents.

 

5.2.2                     In no event shall there be transferred at Closing any Property for which a Material Consent has not been satisfied, other than Material Consents and approvals of Governmental Authorities customarily obtained after Closing.  In cases in which the Property subject to such a requirement is a Material Contract, and the Material Contract is not transferred to Buyer due to the unwaived Material Consent requirement, Seller shall continue after Closing to use commercially reasonable efforts to obtain the Material Consent so that such Material Contract can be transferred to Buyer upon receipt of the Material Consent.  In cases in which the Property subject to such a Material Consent requirement is an Oil and Gas Property or a part of the Pipeline System and the Material Consent to the transfer of the Oil and Gas Property or such part of the Pipeline System to Buyer is not obtained by Closing, the affected Oil and Gas Property or part of the Pipeline System and the Properties related to that Oil and Gas Property or part of the Pipeline System shall not be transferred to Buyer at Closing and the Preliminary Purchase Price shall be reduced by the Allocated Value of the Oil and Gas Property or part of the Pipeline System and related Properties.  If the Preliminary Purchase Price is adjusted

 

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pursuant to this Section 5.2.2 and Section 3.3.5, the amount of such decrease shall be paid by Buyer to Escrow Agent. If an unsatisfied Material Consent requirement with respect to which a Preliminary Purchase Price adjustment is made under Section 3.3.5 is subsequently satisfied prior to June 30, 2013, a separate closing shall be held within five (5) Business Days thereof at which (a) Seller shall convey the affected Properties to Buyer in accordance with this Agreement and (b) the Parties shall direct the Escrow Agent to pay to Seller the amount by which the Purchase Price was decreased with respect to such unsatisfied Material Consent.  If such Material Consent requirement is not satisfied by June 30, 2013, the Parties shall direct the Escrow Agent to pay to Buyer the amount by which the Preliminary Purchase Price was adjusted pursuant to this Section 5.2.2 and Section 3.3.5 with respect to the affected Properties and Seller shall have no further obligation to sell, transfer, assign or convey the affected Properties and Buyer shall have no further obligation to purchase the affected Properties.

 

ARTICLE 6
 ENVIRONMENTAL MATTERS

 

6.1                               Presence of Wastes, NORM, Hazardous Substances and Asbestos.  BUYER ACKNOWLEDGES THAT THE PROPERTIES HAVE BEEN USED TO EXPLORE FOR, DEVELOP AND PRODUCE HYDROCARBONS, AND THAT SPILLS OF WASTES, CRUDE OIL, PRODUCED WATER, HAZARDOUS SUBSTANCES AND OTHER MATERIALS MAY HAVE OCCURRED THEREON. ADDITIONALLY, THE PROPERTIES, INCLUDING PRODUCTION EQUIPMENT, MAY CONTAIN ASBESTOS, HAZARDOUS SUBSTANCES OR NORM. NORM MAY AFFIX OR ATTACH ITSELF TO THE INSIDE OF WELLS, MATERIALS AND EQUIPMENT AS SCALE OR IN OTHER FORMS, AND NORM-CONTAINING MATERIAL MAY HAVE BEEN BURIED OR OTHERWISE DISPOSED OF ON THE PROPERTIES. A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THE PROPERTIES BY REASON THEREOF.  SPECIAL PROCEDURES MAY BE REQUIRED FOR REMEDIATION, REMOVING, TRANSPORTING AND DISPOSING OF ASBESTOS, NORM, HAZARDOUS SUBSTANCES AND OTHER MATERIALS FROM THE PROPERTY.

 

6.2                               Notice of Environmental Condition Defects. Subject to Section 9.8, Buyer will have the opportunity to conduct at its sole risk and expense an environmental assessment of the Properties operated by Seller or its Affiliates, and Seller shall use commercially reasonable efforts to obtain permission for Buyer to conduct an environmental assessment of those Properties that are not operated by Seller or its Affiliates. The environmental assessment shall not include any sampling, boring, operation of equipment, or other invasive activity without the prior written consent of Seller. Buyer will provide Seller with written notice (an “Environmental Condition Defect Notice”) on or before the Defect Notification Deadline of any Environmental Condition Defect that Buyer identifies in good faith.  Each Environmental Condition Defect Notice must include, in reasonable detail, to the extent applicable, a description of (a) the Property with respect to which the claimed Environmental Condition Defect(s) relates and the Allocated Value of such Property, (b) the nature of (and a description of) such claimed Environmental Condition Defect(s), and (c) Buyer’s calculation of the value of each claimed Remediation Value.  Upon Seller’s request, Buyer shall promptly provide Seller with such supporting documentation as is in Buyer’s possession with respect to the alleged Environmental

 

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Condition Defect.  Without limiting or modifying Seller’s representations and warranties in ARTICLE 7 or Seller’s indemnity and hold harmless obligations under Section 16.1 with respect to the same, Buyer shall be deemed to have waived all Environmental Condition Defects of which Seller has not been given notice pursuant to this Section 6.2 on or before the Defect Notice Deadline; provided, however, notwithstanding anything herein to the contrary, nothing in this Section 6.2 is intended to modify or limit Seller’s representations and warranties in ARTICLE 7 or Seller’s indemnity and hold harmless obligations under Section 16.1.

 

6.3                               Determination of Environmental Condition Defects and Remediation Values.  Within five (5) days after Seller’s receipt of an Environmental Condition Defect Notice, Seller shall notify Buyer as to whether Seller agrees with the Environmental Condition Defect claimed therein and/or the Remediation Value proposed to be required for remediation of such Environmental Condition Defect (provided that, if Seller does not provide such notice, it shall be deemed to have agreed with the foregoing).  If Seller provides timely notice that it does not agree with any such claimed Environmental Condition Defect and/or any such proposed Remediation Value, then the Parties will promptly enter into good faith negotiations and will attempt to agree on such matters. With respect to each Oil and Gas Property affected by Environmental Condition Defects reported under Section 6.2 which Seller has not disputed or elected to remediate, such Oil and Gas Property shall be assigned at Closing subject to all uncured Environmental Condition Defects, and the Purchase Price shall be reduced by an amount determined pursuant to Section 6.6 (the “Remediation Value”). If Seller disputes the existence of any Environmental Condition Defect, then the Oil and Gas Property affected shall not be assigned at Closing and the applicable Remediation Value shall be deposited by Buyer with the Escrow Agent at Closing. Upon resolution of the dispute, the Parties shall direct the Escrow Agent to pay the amount by which the Purchase Price was decreased with respect to such Environmental Condition Defect to Seller and Buyer in accordance with the ruling of the Environmental Arbitrator and Seller shall convey the affected Properties to Buyer.

 

6.4                               Exclusive Environmental Remedy.  Without limiting or modifying Seller’s representations and warranties in ARTICLE 7 or Seller’s indemnity and hold harmless obligations under Section 16.1, (i) this ARTICLE 6 shall, to the fullest extent permitted by applicable law, be the exclusive right and remedy of Buyer with respect to any Environmental Condition Defects, and (ii) Buyer releases, remises, and forever discharges Seller Group from any and all Claims which Buyer might now or subsequently may have, based on, relating to, or arising out of, any Environmental Condition Defect.

 

6.5                               Cure.

 

6.5.1                     Seller shall have the right, but not the obligation, at Seller’s sole cost, risk, and expense, to cure, on or before the Closing Date, any alleged Environmental Condition Defects of which Seller has been advised by Buyer pursuant to Section 4.3.1 if Seller provides written notice to Buyer of its intent to cure such alleged Environmental Condition Defects on or before the Closing Date.  The election by Seller to cure one or more alleged Environmental Condition Defects shall not affect the Remediation Values used to determine the Preliminary Purchase Price pursuant to Section 14.1 or the rights and obligations of the Parties under Section 6.7 with respect to dispute resolution.  Seller’s election to cure an alleged Environmental Condition Defect shall not constitute a

 

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waiver of any of the rights of Seller pursuant to this ARTICLE 6, including Seller’s right to dispute the existence, nature, or value of such Environmental Condition Defect.

 

6.5.2                     Subject to the determination by the Environmental Arbitrator of the existence or Environmental Condition Defect Amount with respect to an Environmental Condition Defect which Seller has elected to cure, to the extent any such Environmental Condition Defect is not cured on or prior to the Closing Date, the adjustment required under Section 6.3 shall be made pursuant to ARTICLE 14.

 

6.5.3                     Any dispute relating to whether and to what extent an Environmental Condition Defect has been cured shall be resolved as set forth in Section 6.7, except that any such matter shall be submitted to the Environmental Arbitrator on or before ten (10) Business Days after the date described in Section 6.3; provided, however, that any prior or concurrent determination by an Environmental Arbitrator with respect to Environmental Condition Defects (or factual or legal matters relating thereto, even if determined in connection with the resolution of an otherwise unrelated dispute) which Seller has elected to cure pursuant to this Section 6.5.3 shall be binding on the Parties with respect to such Environmental Condition Defect (or factual or legal matters relating thereto, even if determined in connection with the resolution of an otherwise unrelated dispute).

 

6.6                               Remediation Values.  The Remediation Value resulting from an Environmental Condition Defect shall be determined as follows:

 

6.6.1                     if Buyer and Seller agree on the Remediation Value, that amount shall be the Remediation Value;

 

6.6.2                     the Remediation Value shall include, but shall not exceed, the reasonably estimated costs and expenses necessary to correct, monitor, remediate and/or remove an Environmental Condition Defect in the most cost-effective manner reasonably available to the extent required by applicable Environmental Laws;

 

6.6.3                     the Remediation Value with respect to an Environmental Condition Defect shall be determined without duplication of any costs or losses included in another Remediation Value or adjustment to the Purchase Price hereunder; and

 

6.6.4                     notwithstanding anything to the contrary in this ARTICLE 6:

 

(i)                                     an individual claim for an Environmental Condition Defect shall only generate an adjustment to the Purchase Price if the Remediation Value with respect thereto exceeds Fifty Thousand Dollars ($50,000); and

 

(ii)                                  there shall be no adjustment to the Purchase Price for Environmental Condition Defects unless and until the aggregate of all Remediation Values which would generate an adjustment to the Purchase Price pursuant to Section 6.6.4(i) exceeds two percent (2%) of the Purchase Price, and then only to the extent that such aggregate amount exceeds two percent (2%) of the Purchase Price.

 

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6.7                               Dispute Resolution.

 

6.7.1                     Seller and Buyer shall attempt to agree upon all Remediation Values on or before the Closing Date.  If Seller and Buyer are unable to agree by that date, then Seller’s reasonable estimate shall be used to determine the Preliminary Purchase Price pursuant to Section 14.1, and the Remediation Values in dispute shall be exclusively and finally resolved by arbitration pursuant to Section 6.7.2.

 

6.7.2                     With respect to Remediation Values, on or before a date that is ten (10) Business Days following the Closing Date, a reputable environmental consultant or engineer with at least ten (10) years’ experience in corrective environmental action regarding oil and gas properties in the state of California shall be selected by mutual agreement of Buyer and Seller (the “Environmental Arbitrator”).  If Buyer and Seller have not agreed upon a Person to serve as Environmental Arbitrator during such ten (10) Business Day period, Buyer shall, within ten (10) Business Days after the end of such initial ten (10) Business Day Period, formally apply to the Los Angeles, California office of the AAA to choose the Environmental Arbitrator.  The Environmental Arbitrator shall not have worked as an employee or outside counsel for any Party or its Affiliates during the five (5) year period preceding the arbitration or have any financial interest in the dispute.  Either Buyer or Seller may submit the disputed Remediation Values to the Environmental Arbitrator within a reasonable period of time after the Title Arbitrator has been selected in accordance with the foregoing.

 

6.7.3                     Such arbitration proceeding shall be held in Los Angeles, California and shall be conducted in accordance with the Commercial Arbitration Rules of the AAA, to the extent such rules do not conflict with the terms of this Section 6.7.  The Environmental Arbitrator’s determination, as applicable, shall be made within forty-five (45) days after submission of the matters in dispute and shall be final and binding upon the Parties, without right of appeal.  In making its determinations, the Environmental Arbitrator shall be bound by the provisions of this ARTICLE 6 and may consider such other matters as, in the opinion of the Environmental Arbitrator, are necessary or helpful to make a proper determination.  The Environmental Arbitrator may consult with and engage disinterested third party to advise the arbitrator, including petroleum engineers.  The Environmental Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Remediation Values submitted by any Party and may not award damages, interest, or penalties to any Party with respect to any matter.  Seller and Buyer shall each bear their own legal fees and other costs of presenting their respective cases.  Buyer shall bear fifty percent (50%) of the costs and expenses of the Environmental Arbitrator and AAA, and Seller shall be responsible for the remaining fifty percent (50%) of the costs and expenses.

 

6.8                               Limitations on Applicability.  Buyer’s rights with respect to Environmental Condition Defects shall terminate as of the Defect Notification Deadline and shall have no further force and effect thereafter, provided there shall be no termination of Buyer’s or Seller’s rights under this ARTICLE 6 with respect to any Environmental Condition Defect claim properly reported on or before the Defect Notification Deadline. Notwithstanding anything herein to the contrary, nothing herein shall limit or modify Seller’s representations and warranties in ARTICLE 7 or Seller’s indemnity and hold harmless obligations under Section 16.1.

 

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ARTICLE 7
 REPRESENTATIONS AND WARRANTIES OF SELLER

 

Subject to Section 7.23, Seller represents and warrants to Buyer that each of the statements made in Sections 7.1 through 7.22 are true and correct on the date hereof and will be true and correct as of the Closing Date.

 

7.1                               Organization; Authority; Enforceability.  Seller is a corporation duly organized, validly existing and in good standing under the laws of Delaware.  Seller is in good standing and duly qualified to do business in each other jurisdiction in which the conduct of its business or ownership or leasing of its properties makes such qualification or registration necessary.  Seller has all requisite corporate power and authority to execute and deliver this Agreement and the Operative Documents to which it is a party, to consummate the transactions contemplated by this Agreement and the Operative Documents to which it is a party and to perform all of its obligations under this Agreement and the Operative Documents to which it is a party.  This Agreement has been duly executed and delivered on behalf of Seller and constitutes (and the Operative Documents to which it is a party, when executed and delivered at Closing, will constitute) a legal, valid and binding obligation of Seller, enforceable against it in accordance with its and their respective terms, except as limited by bankruptcy or other similar Laws applicable generally to creditors’ rights and as limited by general equitable principles.

 

7.2                               No Conflict.  Seller’s execution and delivery of this Agreement and the Operative Documents to which it is a party and the consummation of the transactions contemplated by this Agreement or such Operative Documents by it will not (a) conflict with or result in a violation of or a default under (with or without notice or lapse of time or both) (i) any provisions of the certificate of incorporation or bylaws of Seller; (ii) any provision of any Laws applicable to Seller (except for consents and approvals of Governmental Authorities customarily obtained subsequent to transfer); (iii) any Debt Instrument to which Seller is a party or by which Seller is bound; (iv) any order, judgment or decree of any Governmental Authority; or (b) create any lien or encumbrance upon one or more of the Properties other than a Permitted Encumbrance.

 

7.3                               Consents and Preferential Rights.  Except as provided on Schedule 7.3, there are no preferential rights to purchase, options to purchase, consents to assign, confidentiality agreements or areas of mutual interest agreements affecting the Properties.

 

7.4                               Compliance with Laws.  Except with respect to Environmental Laws and Taxes (the latter of which is addressed exclusively in Sections 7.17 and 7.18), neither Seller nor any of its Affiliates has violated, and Seller and such Affiliates are in compliance with, all applicable Laws with respect to the ownership and operation of the Properties, except where such violation or noncompliance could not reasonably be expected to result in a liability, cost, expense or loss in excess of One Hundred Thousand Dollars ($100,000). Seller is not currently subject to any written notice of a violation of or default by it or its Affiliates with respect to any Law or any decision, ruling, order or award of any Governmental Authority or arbitrator applicable to the Properties.

 

7.5                               Compliance with Environmental Laws.  To the knowledge of Seller, neither Seller nor any of its Affiliates has violated, and Seller and such Affiliates are in compliance with, all

 

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applicable Environmental Laws with respect to the ownership and operation of the Properties, except where such violation or noncompliance could not reasonably be expected to result in a liability, cost, expense or loss in excess of One Hundred Thousand Dollars ($100,000). Seller is not currently subject to any written notice of a violation of or default by it or its Affiliates with respect to any Environmental Law or any decision, ruling, order or award of any Governmental Authority or arbitrator applicable to such Properties.

 

7.6                               Litigation and Claims.  Except as set forth on Schedule 7.6, there is no suit, action, demand, proceeding, lawsuit or other litigation pending or, to Seller’s knowledge, threatened against Seller with respect to the Properties.  There are no third party Claims, disputes pending or, to Seller’s knowledge, threatened against Seller in writing before any Governmental Authority or arbitrator that would reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement or the performance of its obligations hereunder.

 

7.7                               Governmental Permits.  Seller has obtained and is in compliance with all Permits, bonds, letters of credit, guarantees and other evidences of financial responsibility required to own or use and operate the Properties; all such Permits are in full force and effect; and no violations exist under such Permits.  No proceeding is pending or, to Seller’s knowledge, threatened relating to the challenging, revocation or limitation of any such Permits.

 

7.8                               Contracts.  Schedule 7.8 sets forth each Material Contract. The Material Contracts do not include any non-competition restrictions or other similar restrictions on doing business.  Except as disclosed on Schedule 7.3, the Material Contracts do not include any area of mutual interests obligations. Except as disclosed in Schedule 7.8 and except as could not, individually or in the aggregate, reasonably be expected to result in a liability, cost, expense or loss in excess of One Hundred Thousand Dollars ($100,000), Seller is not in breach or default under any Material Contract. Except as disclosed in Schedule 7.8 and except as could not, individually or in the aggregate, reasonably be expected to result in a liability, cost, expense or loss in excess of Five Hundred Thousand Dollars ($500,000), to Seller’s knowledge, no other party is in breach or default under any Material Contract. To Seller’s knowledge, each of the Material Contracts are in full force and effect and have not been modified or amended in any material respect, except as could not, individually or in the aggregate, reasonably be expected to result in a liability, cost, expense or loss in excess of One Hundred Thousand Dollars ($100,000).  Prior to the execution of this Agreement, Seller furnished to Buyer true and complete copies of each Material Contract.

 

7.9                               Title to Certain Properties.

 

7.9.1                     With respect to the Properties other than the Pipeline System and Facilities, any right, title and interest of Seller in and to such Properties is free and clear of all claims, liens, security interests or other encumbrances created by, through or under Seller or its Affiliates, but not otherwise, subject to Permitted Encumbrances.

 

7.9.2                     With respect to the Pipeline Assets, Seller owns good and valid title to such Properties free and clear of all claims, liens, security interests or other encumbrances, subject to Permitted Encumbrances.

 

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7.9.3                     As of Closing, Seller owns good and merchantable title to the Line Fill free and clear of all claims, liens, security interests or other encumbrances.

 

7.10                        No Encumbrances.  Other than the Permitted Encumbrances, except as set forth on Schedule 7.10, there are no liens, mortgages, security interests, deeds of trust, production payments, reversionary interests or other encumbrances burdening the Properties securing any Debt Instrument of Seller or any of its Affiliate.

 

7.11                        Take-or-Pay, Calls on Production or Bonus Payments. Seller is not obligated, under a take-or-pay or similar arrangement or (as of the date hereof) by virtue of an election to non-consent or not participate in a past or current operation on a Property pursuant to the applicable operating agreement (other than royalties, overriding royalties, similar arrangements established in the Leases or reflected on Part 1 of Exhibit A or Exhibit B), to produce Hydrocarbons, or allow Hydrocarbons to be produced, without receiving full payment at the time of delivery in an amount that corresponds to the Net Revenue Interest in the Hydrocarbons attributable to a Property on Exhibit B. No third party has any calls on production, options to purchase production, or other similar rights with respect to the Properties, other than calls on production that may be terminated without penalty on ninety days or less notice without the payment of a fee or other consideration.

 

7.12                        Sufficient Rights to Operate.  (i) the Properties include all of the assets (real, personal (tangible and intangible) or other) employed by Seller in its current ownership and operation of the Properties (“Employed Assets”); (ii) the Employed Assets are, taken as a whole, sufficient for the ownership and the operation of such Properties immediately following the Closing in substantially the same manner as on the date of this Agreement; and (iii) the Employed Assets are in a state of repair adequate for normal operations in accordance with standard industry practice in the areas in which they are operated.  The Properties include all the Surface Interests and other surface rights necessary for oil and gas operations as conducted by Seller with respect to the Properties in the twelve (12) month period preceding the execution of this Agreement. Notwithstanding the foregoing, no title defect or other deficiency in title to any Oil and Gas Property shall constitute a breach of this Section 7.12 (the special warranty of title in the Conveyance and Buyer’s rights and remedies under ARTICLE 4 and Section 16.1 being the sole and exclusive rights and remedies with respect thereto).

 

7.13                        Pipeline Assets.  Except with respect to Title Defects:

 

7.13.1              There are no Hydrocarbons owned by Persons other than Seller or its Affiliates located in the gathering lines, main lines and crude oil tanks comprising the Pipeline Assets (“Third Party Hydrocarbons”).

 

7.13.2              The Pipeline Assets have not been used in common carrier service or for the transmission or storage for compensation of Third Party Hydrocarbons.

 

7.13.3              None of the Pipeline Surface Interests have been obtained through condemnation or eminent domain.

 

7.13.4              Seller has established an integrity management plan and HCA baseline assessment testing schedule in compliance in all material respects with all applicable

 

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Laws, and Seller is in compliance in all material respects with such Integrity Management Plan.

 

7.14                        Payment of Royalties; Suspense Funds.  All delay rentals, royalties, shut-in royalties, overriding royalties, compensatory royalties and other payments due with respect to the Properties (other than royalties held in suspense and in good faith by Seller), which are payable by Seller have been properly and correctly paid, and to Seller’s knowledge, if payable by third parties, have been properly and correctly paid. The amount of suspended funds held by Seller and owed to third parties for royalties with respect to the Properties is not greater than Seven Hundred Thousand Dollars ($700,000).

 

7.15                        Imbalances.  Schedule 7.15 sets forth all Imbalances existing as of the date or dates reflected thereon.

 

7.16                        Current Commitments.  Schedule 7.16 contains a true and complete list of all authorizations for expenditures for all drilling operations applicable to the Properties in excess of one hundred thousand Dollars ($100,000) or for capital expenditures to such Properties in excess of one hundred thousand Dollars ($100,000) that, as of the date hereof, have been proposed by any Person to Seller or its Affiliates after the Effective Time or have not been completed on or prior to the Effective Time.

 

7.17                        Taxes.  All Property Taxes and Severance Taxes that are due have been timely paid or are being contested in good faith. Seller has timely filed or caused to be timely filed all material Tax returns, reports, statements and similar filings required by applicable Law with respect to the Properties.  There are no extensions or waivers of any statute of limitations with respect to such Taxes or Tax liens burdening the Properties except for Permitted Encumbrances.  Except as provided in Schedule 7.17, none of the Properties are subject to tax partnership reporting requirements under applicable provisions of the Code.

 

7.18                        Status of Seller.  Seller is not a “foreign person” within the meaning of Code Section 1445.

 

7.19                        Finder’s Fees.  Seller has not incurred any liability, contingent or otherwise, for brokers’ or finders’ fees with respect to this transaction for which Buyer will have any responsibility whatsoever.

 

7.20                        Employees. There is no collective bargaining agreement or agreement with any union, or similar body that is binding on Seller involving employees who are employed with respect to the ownership and operation of the Properties and, to Seller’s knowledge, there is no union organizing effort underway, pending or threatened, involving the employees of Seller who are employed with respect to the ownership and operation of the Properties.  To Seller’s knowledge, there are no strikes, slowdowns or work stoppages pending between Seller and any of its employees who are employed with respect to the ownership and operation of the Properties. To Seller’s knowledge, there are no material unfair labor practices charges, complaints or claims pending between Seller and any employee of Seller who is employed with respect to the ownership and operation of the Properties.

 

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7.21                        WARN Act. During the last two years, Seller has not effectuated (1) a “plant closing” (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of Seller, or (2) a “mass layoff” (as defined in the WARN Act) affecting any site of employment or facility of Seller, except, in either case, in material compliance with the requirements of the WARN Act.

 

7.22                        Employee Benefits.  Seller does not currently, nor has it in the past six years, maintained, sponsored, contributed to or been required to contribute to (1) a “multiemployer plan” as defined in Section 3(37) of ERISA, (2) a plan subject to Title IV of ERISA, or (3) a plan subject to the minimum funding standards of Section 412 of the Code or Section 302 of ERISA, nor does it reasonably expect to incur any liability as to any such plan.

 

7.23                        Limitations.

 

7.23.1              Except as and to the extent expressly set forth in this ARTICLE 7 or the Conveyance, (i) Seller makes no representations or warranties, express or implied, and (ii) Seller expressly disclaims all liability and responsibility for any representation, warranty, statement, or information made or communicated (orally or in writing) to Buyer or any of its Affiliates, employees, agents, consultants, or representatives (including any opinion, information, projection, or advice that may have been provided to Buyer by any officer, director, employee, agent, consultant, representative, or advisor of Seller or any of its or their Affiliates).

 

7.23.2              Except as expressly represented otherwise in this ARTICLE 7 or in the Conveyance, and subject to Seller’s indemnification obligations in Section 16.1, Seller makes no, and hereby expressly disclaims, any representation or warranty, express, implied, or statutory as to (i) title to any of the Properties, (ii) the contents, character, or nature of any descriptive memorandum, or any report of any petroleum engineering consultant of seller, or any geological or seismic data or interpretation, relating to the Properties, (iii) the quantity, quality, or recoverability of petroleum substances in or from the Properties, (iv) the existence of any prospect, recompletion, infill, or step-out drilling opportunities, (v) any estimates of the value of the Properties or future revenues generated by the Properties, (vi) the production of petroleum substances from the Properties, or whether production has been continuous, or in paying quantities, or any production or decline rates, (vii) the maintenance, repair, condition, quality, suitability, design or marketability of the Properties, (viii) infringement of any intellectual property right, (ix) any other materials or information that may have been made available or communicated to buyer or its affiliates, or its or their employees, agents, consultants, representatives, or advisors in connection with the transactions contemplated by this agreement or any discussion or presentation relating thereto, and (x) compliance with any Environmental Law, and further disclaims any representation or warranty, express, implied, or statutory, of merchantability, fitness for a particular purpose, or conformity to models or samples of materials of any equipment, it being expressly understood and agreed by the parties that the Properties are being transferred “as is, where is,” with all faults and defects, and that Buyer has made or caused to be made such inspections as Buyer deems appropriate to enter into this agreement.

 

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7.23.3              Any representation “to the knowledge of Seller” or “to Seller’s knowledge” is limited to matters within the actual knowledge of the individuals identified on Schedule 7.23 after a reasonable inquiry of the relevant employees, files, and records of, or maintained by Seller, but without any duty of investigation of the employees, files, and records of any third party, including the operator of the applicable Oil and Gas Properties.

 

7.23.4              Schedules may include matters not required by the terms of the Agreement to be listed on the Schedule, which additional matters are disclosed for purposes of information only, and inclusion of any such matter does not mean that all such matters are included.

 

7.23.5              In the event that a schedule or exhibit to this Agreement is amended or supplemented prior to Closing, any reference to such schedule or exhibit in this Agreement shall be deemed to be a reference to such schedule or exhibit as so amended or supplemented to the extent (i) Buyer does not object to such amendment or supplement prior to Closing or (ii) such amendment or supplement is made pursuant to a written agreement of the Parties.

 

ARTICLE 8
 REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Seller that each of the statements made in this ARTICLE 8 is true and correct on the date hereof and will be true and correct as of the Closing Date.

 

8.1                               Organization; Authority; Enforceability. Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware.  Buyer is in good standing and duly qualified to do business in each other jurisdiction in which the conduct of its business or ownership or leasing of its properties makes such qualification or registration necessary.  Buyer has all requisite limited liability company power and authority to execute and deliver this Agreement and the Operative Documents to which it is a party, to consummate the transactions contemplated by this Agreement and the Operative Documents to which it is a party and to perform all of its obligations under this Agreement and the Operative Documents to which it is a party.  The execution, delivery, and performance of this Agreement and the Operative Documents, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary action on the part of Buyer. This Agreement has been duly executed and delivered on behalf of Buyer and constitutes (and the Operative Documents to which it is a party, when executed and delivered at Closing, will constitute) a legal, valid and binding obligation of Buyer, enforceable against it in accordance with its and their respective terms, except as limited by bankruptcy or other similar Laws applicable generally to creditors’ rights and as limited by general equitable principles.

 

8.2                               No Conflicts.  Buyer’s execution, delivery and performance of this Agreement and the Operative Documents to which it is a party and the consummation of the transactions contemplated by this Agreement or such Operative Documents by it will not conflict with or result in a violation of or a default under (with or without notice or lapse of time or both) (i) any provisions of the certificate of formation, limited liability company agreement, or other governing instruments of Buyer; (ii) any provision of any Laws applicable to Buyer, (except for

 

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consents and approvals of Governmental Authorities customarily obtained subsequent to transfer); (iii) result in a default (with due notice or lapse of time or both) or give rise to any right of termination, cancellation, or acceleration under any material agreement of Buyer, or any Debt Instrument to which Buyer is a party or by which Buyer is bound; or (iv) any order, judgment or decree of any Governmental Authority.

 

8.3                               Finder’s Fees.  Buyer has not incurred any liability, contingent or otherwise, for brokers’ or finders’ fees in respect to this transaction for which Seller will have any responsibility whatsoever.

 

8.4                               Litigation and Claims.  There is no suit, action, demand, proceeding, lawsuit or other litigation pending or, to Buyer’s knowledge, threatened against Buyer before any Governmental Authority or arbitrator that are reasonably likely to impair or delay materially Buyer’s ability to perform its obligations under this Agreement.

 

8.5                               Consents, Approvals or Waivers.  The execution, delivery, and performance of this Agreement by Buyer will not be subject to any consent, approval, or waiver from any Governmental Authority or other third party.

 

8.6                               Financing.  Buyer has sufficient cash, available lines of credit, or other sources of immediately available funds to enable it to pay the Preliminary Purchase Price to Seller at the Closing.

 

8.7                               Independent Investigation.  Buyer is (or its advisors are) experienced and knowledgeable in the oil and gas business and aware of the risks of that business.  Buyer acknowledges and affirms that (a) it has completed such independent investigation, verification, analysis, and evaluation of the Properties and has made all such reviews and inspections of the Properties as it has deemed necessary or appropriate to enter into this Agreement, and (b) prior to Closing, it will have completed its independent investigation, verification, analysis, and evaluation of the Properties and made all such reviews and inspections of the Properties as it deems necessary or appropriate to consummate the transactions contemplated hereby.

 

ARTICLE 9
 COVENANTS OF THE PARTIES

 

9.1                               Access.  Subject to the limitations expressly set forth in this Agreement, Seller will give Buyer and its authorized representatives reasonable access, at Buyer’s sole risk and expense, from the date hereof until the Closing Date during normal business hours, to the Properties and Records, but only to the extent that Seller may do so without (a) violating applicable Laws, or (b) violating any obligations to any third party, and only to the extent that Seller has authority to grant such access without breaching any restriction binding on Seller.  Buyer’s investigation shall be conducted in a manner that minimizes interference with the operation of the business of Seller.  All information obtained by Buyer and its representatives under this Section 9.1 shall be subject to the terms of any applicable privacy laws regarding personal information.

 

9.2                               Conduct of Business Pending Closing.  From the date hereof to the Closing Date, except as provided herein, or as required by any obligation, agreement, Lease, contract or

 

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instrument referred to on any Exhibit or Schedule or as otherwise consented to in writing by Buyer, Seller will

 

9.2.1                     not act in any manner with respect to the Properties other than in the normal, usual and customary manner, consistent with prior practice (including paying or causing to be paid all associated costs and expenses, and meant to preserve intact the business and Properties and associated goodwill);

 

9.2.2                     not dispose of or relinquish any of the Properties, except for (i) sales and dispositions of Hydrocarbons made in the ordinary course of business, or (ii) other sales and dispositions individually not exceeding One Hundred Thousand Dollars ($100,000);

 

9.2.3                     not incur individual expenditures in excess of one hundred thousand Dollars ($100,000) with respect to the Properties for which Buyer would be responsible after Closing, other than transactions in the normal, usual and customary manner, consistent with past practices employed by Seller with respect to the Properties (counting expenditures and liabilities arising from one transaction or a series of similar transactions, and all periodic installments or payments under any lease or other agreement providing for periodic installments or payments, as a single expenditure or liability);

 

9.2.4                     pay all Taxes and assessments with respect to the Properties that become due and payable prior to the Closing Date, other than any such Taxes Seller contests in good faith by appropriate proceedings;

 

9.2.5                     maintain all insurance with respect to the Properties currently in force with the same coverages and limits as are in effect at the date hereof;

 

9.2.6                     maintain substantially the same volume, composition and quality of the Line Fill as it exists as of the date hereof;

 

9.2.7                     use commercially reasonable efforts to maintain any Surface Interests;

 

9.2.8                     not waive, compromise or settle, or violate, breach or default under, any material right or Claim with respect to any of the Properties;

 

9.2.9                     not make or enter into an agreement to make, terminate or amend an agreement for capital expenditures or workover expenditures with respect to the Properties individually in excess of one hundred thousand Dollars ($100,000) (net to Seller’s interest);

 

9.2.10              not grant any encumbrances or take any other actions that could reasonably be expected to result in the creation of encumbrances with respect to any of the Properties that would impose any Liability after Closing, other than Permitted Encumbrances;

 

9.2.11              not take, nor permit any of its Affiliates (or authorize or permit any investment banker, financial advisor, attorney, accountant or other Person retained by, acting for or on behalf of Seller or any such Affiliate) to take, directly or indirectly, any action to solicit, encourage, receive, negotiate, assist or otherwise facilitate (including by

 

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furnishing confidential information with respect to the Properties or permitting access to the Properties or books and records of Seller) any offer or inquiry from any Person concerning the direct or indirect acquisition of the Properties by any Person other than Buyer or its Affiliates; provided, if Seller or such Affiliates (or other Persons acting for or on its behalf) receives from any Person any offer, inquiry or other informational request referred to above, Seller will promptly advise such Person, by written notice, of the terms of this provision and will promptly, orally and in writing, advise Buyer of such offer, inquiry or request and deliver a copy to Buyer; and

 

9.2.12              comply in all material respects with all Laws that are applicable to the Properties.

 

Buyer’s approval of any action restricted by this Section 9.2 shall not be unreasonably withheld or delayed and shall be considered granted in full within seven (7) Business Days of Seller’s notice to Buyer requesting such consent unless Buyer notifies Seller to the contrary during that period.  Notwithstanding the foregoing provisions of this Section 9.2, in the event of an emergency, Seller may take such action as reasonably necessary and shall notify Buyer of such action promptly thereafter.  The acts or omissions of third parties (including the applicable operators of the Properties) who are not Affiliates of Seller shall not constitute a violation of the provisions of this Section 9.2, nor shall any action required by a vote of working interest owners constitute a violation of the provisions of this Section 9.2 so long as Seller and its Affiliates have voted their respective interests in a manner consistent with the provisions of this Section 9.2.

 

9.3                               Consents and Approvals.  Seller will take all commercially reasonable steps necessary or desirable to promptly obtain all consents, approvals or actions of, to make all filings with and to give all notices to Governmental Authorities or any other Person required of Seller to consummate the transactions contemplated by this Agreement.  Notwithstanding the foregoing, Seller shall not be required to make any payments or undertake any obligations for the benefit of the holders of any consent right in order to obtain the required consents and waivers.  Buyer shall use commercially reasonable efforts to cooperate with Seller in seeking to obtain such consents, approvals, permissions, and waivers.

 

9.4                               Confidentiality.  The Parties will remain subject to the Confidentiality Agreements until Closing, at which time the Confidentiality Agreements will terminate.  On and after Closing, Seller will maintain as confidential, for the benefit of Buyer, all confidential information related to the Properties, subject to the following exceptions:

 

9.4.1                     information that becomes available to the public other than through the act or omission of Seller or its Affiliates or any of its or their representatives shall not be subject to this Section 9.4; and

 

9.4.2                     Seller shall be entitled to disclose any information subject to this Section 9.4 that is required to be disclosed under applicable Law or stock exchange regulations so long as Seller only discloses information that is required to be disclosed and Seller uses its commercially reasonable efforts to ensure further confidential treatment of the information so disclosed. In any event, Seller shall use commercially reasonable efforts to not identify by name the Buyer or any of its Affiliates in any such disclosure, except to the extent required by applicable Laws.

 

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9.5                               Casualty Loss.

 

9.5.1                     From the date of this Agreement until Closing,  Seller will promptly notify Buyer of each instance of Casualty Loss to the Properties, or any part thereof.

 

9.5.2                     If, after the date hereof and prior to the Closing any portion of the Properties are substantially damaged or destroyed by fire, explosion, flood, hurricane, tornado, earthquake, acts of God or other casualty (but excluding depreciation or equipment through ordinary wear and tear), or if any substantial portion of the Properties are taken by condemnation or the exercise of eminent domain (in either case, a “Casualty Loss”), this Agreement shall remain in full force and effect, and Buyer shall nevertheless be required to close subject to the requirements of Section 11.6.

 

9.5.3                     In the event that the amount of the costs and expenses associated with repairing or restoring the Properties affected by such Casualty Loss exceeds two percent (2%) of the Purchase Price, Seller shall have the right, but not the obligation, to cure such Casualty Loss that consists of property damage by repairing the affected Property no later than the Closing Date.  If any uncured Casualty Loss exists at the Closing,  Seller and Buyer shall meet to attempt to agree on an adjustment to the Purchase Price reflecting the Reduction in Value of the Properties because of such Casualty Loss.  For this purpose “Reduction in Value” is based on the principle that Seller should generally bear the costs of repairing the Properties to the state existing immediately prior to the Casualty Loss, but if such repair results in equipment or facilities that are newer than or upgraded from that which existed immediately prior to the Casualty Loss, Buyer should bear a portion of such costs as is equitable given the benefit to Buyer of such newer or upgraded equipment or facilities.  Buyer shall be entitled to receive any applicable insurance proceeds or condemnation awards in respect of any Properties affected by a Casualty Loss and the amount thereof shall reduce the amount of the Reduction in Value.

 

9.5.4                     If the Parties are unable to agree on resolution of a Casualty Loss, the Parties shall proceed to Closing with the Purchase Price being decreased by the arithmetic average of the good faith estimates of the reduction in value associated with such Casualty Loss by both Buyer and Seller; provided, however, such dispute(s), and only such dispute(s), shall be exclusively and finally resolved in accordance with the provisions of Section 9.6.

 

9.6                               Casualty Loss Dispute.

 

9.6.1                     Not later than thirty (30) Business Days after Closing, either Party may initiate a non-administered arbitration of any such dispute(s) by written notice to the other Party of any disputed Casualty Loss not otherwise resolved or waived that are to be resolved by arbitration.

 

9.6.2                     With respect to disputed Casualty Losses, on or before a date that is ten (10) Business Days following the Closing Date, a person having at least ten (10) years’ experience assessing the casualty losses of oil and gas properties in California shall be selected by mutual agreement of Buyer and Seller (the “Casualty Loss Arbitrator”).  If Buyer and Seller have not agreed upon a Person to serve as Casualty Loss Arbitrator

 

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during such ten (10) Business Day period, then either Party may, within five (5) Business Days after the end of such initial ten (10) Business Day Period, formally apply to the Los Angeles, California office of the American Arbitration Association (the “AAA”) to choose the Casualty Loss Arbitrator.  The Casualty Loss Arbitrator shall not have worked as an employee or outside counsel for any Party or its Affiliates during the five (5) year period preceding the arbitration or have any financial interest in the dispute.  Either Buyer or Seller may submit the disputed Casualty Losses within a reasonable period of time after the Casualty Loss Arbitrator has been selected in accordance with the foregoing.

 

9.6.3                     In each case above, the arbitration proceeding shall be held in Los Angeles, California and shall be conducted in accordance with the Commercial Arbitration Rules of the AAA, to the extent such rules do not conflict with the terms of this Agreement.  The Casualty Loss Arbitrator’s determination shall be made within forty five (45) days after submission of the matters in dispute and shall be final and binding upon the Parties, without right of appeal.  In making its determinations, the Casualty Loss Arbitrator shall be bound by the provisions of this Agreement and may consider such other matters as, in the opinion of the Casualty Loss Arbitrator, are necessary or helpful to make a proper determination.  The Casualty Loss Arbitrator may consult with and engage disinterested third parties to advise the arbitrator.  The Casualty Loss Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Casualty Losses submitted by any Party and may not award damages, interest, or penalties to any Party with respect to any matter.  Seller and Buyer shall each bear their own legal fees and other costs of presenting their respective cases.  Buyer shall bear fifty percent (50%) of the costs and expenses of the Casualty Loss Arbitrator and the AAA, and Seller shall be responsible for the remaining fifty percent (50%) of the costs and expenses.

 

9.7                               Employees.

 

9.7.1                     Seller and its Affiliates shall reasonably cooperate with Buyer or Buyer’s Affiliate in permitting Buyer or Buyer’s Affiliate to interview, on a voluntary basis, each eligible employee identified in Schedule 9.7), so as  to make selection decisions and communicate to such employees any information concerning employment offers and employment with Buyer or Buyer’s Affiliate.  On or before the date that is five (5) Business Days prior to the termination of the Secondment Agreement, Buyer or Buyer’s Affiliate shall deliver written offers of employment, contingent upon the occurrence of Closing, to those individuals it wishes to retain at Buyer’s or Buyer’s Affiliate’s sole discretion (the “Offer Letters”), which, if accepted, shall provide that such employee shall be hired by Buyer effective as of the Closing Date.  Each individual who accepts Buyer or Buyer’s Affiliate’s offer of employment and who satisfies the conditions of such offer of employment shall become an employee of Buyer or Buyer’s Affiliate effective upon the Closing Date (the “Employment Commencement Date”) and shall be referred to herein as a “Transferred Employee”).  Buyer or Buyer’s Affiliate shall provide to the Transferred Employees employee benefits under plans or policies established or maintained by Buyer or Buyer’s Affiliate (“Buyer or Buyer’s Affiliate  Benefit Plans”) to the same extent that Buyer or Buyer’s Affiliate provides benefits to their similarly situated employees in accordance with Buyer or Buyer’s Affiliate Benefit

 

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Plans.  Buyer, for itself and for Buyer’s Affiliate, represents that in addition to its normal eligibility requirements for retiree medical coverage, eligibility of a Transferred Employee for such coverage shall require at least five (5) years of actual service with Buyer and/or Buyer’s Affiliate from and after the Employment Commencement Date.

 

9.7.2                     If within six (6) months following the Closing Date Buyer hires any eligible employee identified on Schedule 9.7 to whom Buyer did not extend an Offer Letter prior to the Closing Date and who was terminated by Seller within thirty (30) days of the termination of the Secondment Agreement, Buyer shall reimburse Seller all severance payments, including payments related to acceleration of stock awards and bonuses, actually paid by Seller to such employee as a result of Seller terminating that person’s employment.

 

9.7.3                     Subject to Section 9.7.2, Seller shall retain all liabilities with respect to Seller’s or its Affiliate’s current or former employees attributable to the period ending prior to the Closing, including (i) any liabilities that arise as a result of the transactions contemplated hereby (including the termination of employment of any Seller employee), (ii) any obligations under any Seller benefit plan prior to the Closing, (iii) any responsibilities under the Employee Retirement Income Security Act of 1974, as amended, (iv) any liabilities arising out of any obligations under the WARN Act arising as a consequence of the transactions contemplated by this Agreement, and (v) any compensation owed or payable to Seller’s or its Affiliate’s current or former employees, prior to the Closing.

 

9.7.4                     No provision of this Agreement shall create any third party beneficiary rights in any Transferred Employee, any beneficiary or dependents thereof, or any collective bargaining representative thereof, with respect to the compensation, terms and conditions of employment and benefits that may be provided to any Transferred Employee by Buyer or Buyer’s Affiliate or under any benefit plan which Buyer or Buyer’s Affiliate may maintain.

 

9.8                               Indemnity Regarding Access.  Buyer’s access to the Properties and its (and its Affiliates and representatives) examinations and inspections, whether under Section 9.1 or otherwise, shall be at Buyer’s sole risk, cost, and expense, and Buyer waives and releases all claims against Seller Group arising in any way therefrom, or in any way connected therewith. Buyer agrees to indemnify, defend, and hold harmless Seller Group from and against any and all Claims), including Claims attributable to personal injury, death, or property damage, arising out of, or relating to, access to the Properties prior to the Closing by Buyer, its Affiliates, or its or their respective directors, officers, employees, agents, or representatives, even if caused in whole or in part by the negligence (whether sole, joint, or concurrent), strict liability, or other legal fault of any indemnified person hereunder.  Buyer recognizes and agrees that all materials, documents, samples, reports, and other information of any type and nature made available to it, its affiliates or representatives, in connection with the transaction contemplated hereby, whether made available pursuant to ARTICLE 9 or otherwise, are made available to it as an accommodation, and without representation or warranty of any kind, whether express, implied, or statutory, as to the accuracy and completeness of such materials, documents, samples, reports, and other information. Notwithstanding anything to the contrary herein, Buyer shall have no liability to

 

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Seller Group with respect to any pre-existing Environmental Defect identified by or on behalf of Purchaser as a result of Purchaser’s environmental review conducted pursuant to ARTICLE 6.

 

9.9                               Governmental Reviews.

 

9.9.1                     On or before the Closing Date, Buyer shall, at its sole cost and expense, have posted, obtained or otherwise maintain the bonds, letters of credit, and guarantees, and provided such evidence of financial responsibility (that are not otherwise to be transferred at Closing from Seller to Buyer) to the extent such items are set forth on Schedule 9.9.

 

9.9.2                     Promptly after Closing, Buyer (with the assistance of Seller, subject to Section 18.8) shall, at its sole cost and expense, make all filings with any applicable Governmental Authority, as may be required to properly assign and transfer the Properties from Seller to Buyer.

 

9.10                        Operatorship. Seller shall use commercially reasonable efforts, when necessary in Buyer’s opinion, to send letters to the appropriate parties recommending Buyer as the successor operator to Seller with respect to all Properties currently operated by Seller, which letters shall be in form and substance reasonably satisfactory to Buyer.

 

9.11                        Public Announcements. The Parties agree that prior to making any public announcement or statement with respect to the transactions contemplated by this Agreement, the Party desiring to make such public announcement or statement will obtain approval of the other Party to the text of a public announcement or statement to be made solely by Seller, on the one hand, or Buyer, on the other, as the case may be, which approval will not be unreasonably withheld or delayed; provided, however, if Seller, on the one hand, or Buyer, on the other are required by Law or the rules of a national securities exchange to make such public announcement or statement, then the same may be made without the approval of (but having consulted with) the other Party.

 

ARTICLE 10
 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER

 

The obligations of Seller to be performed at the Closing are subject to the fulfillment (or waiver by Seller in its sole discretion), before or at the Closing, of each of the following conditions:

 

10.1                        Representations and Warranties.  The representations and warranties by Buyer set forth in ARTICLE 8 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing as though made at and as of the Closing (except for (a) representations and warranties qualified by materiality, which shall be true and correct in all respects, and (b) representations and warranties that refer to a specified date, which need only be true and correct as of such specified date).

 

10.2                        Covenants.  Buyer has performed and complied with, in all material respects, all covenants and agreements required to be performed and satisfied by it at or prior to the Closing Date.

 

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10.3                        No Litigation or Orders.  There shall be no legal action or proceeding instituted by a Governmental Authority having appropriate jurisdiction or any other Person seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated under the terms of this Agreement or granting substantial damages in connection therewith, and no suit, action, or other proceeding (excluding any such matter initiated by Seller or its Affiliates) shall be pending or threatened in writing before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain or otherwise prohibit the consummation of the transactions contemplated by this Agreement or recover damages from Seller or any Affiliate of Seller resulting therefrom. There shall be no orders (including temporary restraining orders), decree or judgment of any Governmental Authority having appropriate jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated herein.

 

10.4                        Adjustments to Purchase Price.  The net sum of all downward adjustments to the Purchase Price made or reasonably alleged pursuant to Sections 3.3.4 and Section 9.5.3, shall be less than or equal to ten percent (10%) of the Preliminary Purchase Price in the aggregate.

 

ARTICLE 11
 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER

 

The obligations of Buyer to be performed at the Closing are subject to the fulfillment (or waiver by Buyer in its sole discretion), before or at the Closing, of each of the following conditions:

 

11.1                        Representations and Warranties.  The representations and warranties of Seller set forth in ARTICLE 7 shall be true and correct on and as of the Closing as though made on and as of the Closing (other than representations and warranties that refer to a specified date, which need only be true and correct as of such specified date), except for such breaches, when aggregated, as would not have a Material Adverse Effect.

 

11.2                        Covenants.  Seller shall have performed and complied with in all material respects all covenants and agreements required to be performed and satisfied by it on or prior to the Closing Date.

 

11.3                        No Litigation, Orders or Laws.  There shall be no legal action or proceeding instituted by a Governmental Authority having appropriate jurisdiction or any other Person seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated under the terms of this Agreement or granting substantial damages in connection therewith, and no suit, action, or other proceeding (excluding any such matter initiated by Buyer or its Affiliates) shall be pending or threatened in writing before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain or otherwise prohibit the consummation of the transactions contemplated by this Agreement or recover damages from Buyer or any Affiliate of Buyer resulting therefrom. There shall be no orders (including temporary restraining orders), decree or judgment of any Governmental Authority having appropriate jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated herein.

 

11.4                        Release of Liens.  All liens, mortgages, security interests, deeds of trust, production payments or other encumbrances burdening the Properties securing Debt Instruments of Seller or

 

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any of its Affiliates are released at or before Closing, and Seller shall have provided evidence of such release to Buyer at or before Closing.

 

11.5                        Consents and Approvals.  All Material Consents have been secured by Seller, except for consents and approvals of Governmental Authorities customarily obtained subsequent to transfer.

 

11.6                        Adjustments to Purchase Price.  The net sum of all downward adjustments to the Purchase Price made or reasonably alleged pursuant to Sections 3.3.4 and Section 9.5.3, shall be less than or equal to ten percent (10%) of the Preliminary Purchase Price in the aggregate.

 

ARTICLE 12
 CLOSING

 

12.1                        The Closing.  The closing of the transactions contemplated by this Agreement (“Closing”) shall, unless otherwise agreed to in writing by Buyer and Seller, be held at 10:00 a.m. (Los Angeles time) at Buyer’s offices at 10889 Wilshire Boulevard, Los Angeles, CA 90024 on or before December 31, 2012 or such other day as may be mutually agreed by the Parties.  The date on which the Closing occurs is referred to herein as the “Closing Date”.

 

12.2                        Closing Deliveries.  At Closing the following events will occur, each event under the control of one Party being a condition precedent to the events under the control of the other Party, and the Parties will treat each event as if it occurred simultaneously with the other events:

 

12.2.1                          Seller will execute, notarize and deliver to Buyer, and Buyer will execute, notarize and receive, one or more instruments of assignment, in substantially the form of the Conveyance, Assignment and Bill of Sale set forth as Exhibit E (the “Conveyance”);

 

12.2.2                          Buyer will deliver via wire transfer to an account specified by Seller, in immediately available funds, the Preliminary Purchase Price;

 

12.2.3                          Buyer will deliver via wire transfer to an account specified by Escrow Agent, in immediately available funds, an amount equal to the Purchase Price less the Preliminary Purchase Price;

 

12.2.4                          Seller will execute and deliver to Buyer any applicable governmental transfer form required by the Governmental Authority with jurisdiction over the Properties and the administrative change of operator of such Properties from Seller or its Affiliate to such Buyer or its Affiliate;

 

12.2.5                          Seller will execute and deliver a non-foreign tax affidavit in substantially the form set forth in Exhibit F;

 

12.2.6                          Seller will execute and deliver California Form 593-C, California Real Estate Withholding Certificate, certifying an exemption from withholding in substantially the form set forth in Exhibit G;

 

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12.2.7                          Buyer will deliver to Seller a certificate, dated as of the Closing Date, and executed by an officer of Buyer that the conditions set forth in Sections 10.1 and 10.2 have been fulfilled in substantially the form set forth in Exhibit I;

 

12.2.8                          Seller will deliver to Buyer a certificate, dated as of the Closing Date, and executed by an officer of Seller that the conditions set forth in Sections 11.1 and 11.2 have been fulfilled in substantially the form set forth in Exhibit J;

 

12.2.9                          Seller will deliver to Buyer electronic copies of the accounting and royalty decks for the Properties;

 

12.2.10                   Each Party will execute and deliver to the other Party a License Agreement pursuant to which Buyer will license to Seller the 3D Seismic Data on the terms and conditions contemplated by that certain Geophysical Operating Agreement dated November 3, 2009 and made between the Parties;

 

12.2.11                   Each Party will execute and deliver to the other Party the Transitional Services Agreement;

 

12.2.12                   Each Party will execute and deliver to the other Party the Secondment Agreement;

 

12.2.13                   In the event that any portion of the Preliminary Purchase Price is to be paid to the Escrow Agent at Closing pursuant to the provisions of ARTICLE 4, ARTICLE 5 or ARTICLE 6, then each Party will execute and deliver to the other Party the Escrow Agreement;

 

12.2.14                   In the event that any Oil and Gas Property is withheld from the Closing pursuant to the provisions of Sections 4.5 and 5.2, then at the election of Seller (to be made in writing not less than two (2) Days prior to the Closing), each Party will execute and deliver to the other Party the Designation of Operator Agreement;

 

12.2.15                   Seller will execute and deliver to Buyer letters addressed to Colusa, Solano and Sutter Counties, California regarding conditional use permits, each in form and substance reasonably satisfactory to the Buyer; and

 

12.2.16                   Each Party will execute and deliver to the other Party any other instruments and agreements (including ratification or joinder instruments required to transfer Properties from Seller to Buyer) as are reasonably requested by the other Party and are reasonably necessary or appropriate to effectuate the terms of this Agreement.

 

ARTICLE 13
 TERMINATION AND REMEDIES

 

13.1                        Termination.  This Agreement may be terminated prior to Closing as provided below:

 

13.1.1              The Parties may terminate this Agreement by mutual written consent at any time prior to the Closing Date.

 

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13.1.2              Either Party may terminate this Agreement if the first Closing contemplated by this Agreement has not occurred on or before January 31, 2013; provided, however, that no Party may terminate this Agreement pursuant to this Section 13.1.2 if such Party’s willful or negligent failure to comply with its obligations under this Agreement caused the Closing not to occur on or before such date.

 

13.1.3              Either Party may terminate this Agreement, if consummation of the transaction contemplated by this Agreement would violate any non-appealable final order, decree or judgment of any Governmental Authority enjoining, restraining, prohibiting or awarding substantial damages in connection with (a) Seller’s proposed sale of Properties to Buyer, or (b) consummation of the transactions contemplated by this Agreement.

 

13.2                        Effect of Termination.  If this Agreement is terminated pursuant to Section 13.1, this Agreement shall become void and of no further force or effect (except for the provisions of this ARTICLE 13, Sections 7.19, 7.23, 8.3, 9.7, ARTICLE 18, and the Confidentiality Agreements, all of which shall continue in full force and effect).

 

ARTICLE 14
 ACCOUNTING MATTERS

 

14.1                        Preliminary Settlement Statement.  Seller will prepare, in accordance with this Agreement, a settlement statement (“Preliminary Settlement Statement”), and deliver a copy to Buyer no later than close of business on December 19, 2012, setting forth each adjustment to the Purchase Price it anticipates to be appropriate as of the Closing Date necessary to determine the Preliminary Purchase Price and showing the calculation of such adjustments in accordance with ARTICLE 3.  Buyer will have until close of business on December 21, 2012 to review such statement and to provide written notice to Seller of Buyer’s objection to any item on the statement. Buyer’s notice will clearly identify the item(s) objected to and the reasons and support for the objection(s).  The Parties shall attempt to agree on the amount of the Preliminary Purchase Price to be paid at the Closing (the “Preliminary Purchase Price”).  If the Parties do not agree by that date, Seller’s good faith estimate shall be used to determine the Preliminary Purchase Price, except as provided in Section 4.7.1.  If Buyer does not provide written objection(s) within the period contemplated above, the Parties will treat the Preliminary Settlement Statement as correct for purposes of determining the Preliminary Purchase Price.

 

14.2                        Final Settlement Statement.

 

14.2.1              Determination of Final Purchase Price.  As soon as reasonably practicable after the first Closing contemplated by this Agreement, but no later than the later of (a) ninetieth (90th) day following the Closing Date and (b) a date that is five (5) Business days after the Title Arbitrator or Environmental Arbitrator, as applicable, finally resolve all disputes with respect to Title Defects, Title Benefits and Environmental Condition Defects, Seller shall prepare, in accordance with this Agreement, a draft settlement statement (“Final Settlement Statement”), setting forth its determination of each adjustment to the Purchase Price necessary to determine the Final Purchase Price and showing the calculation of such adjustments in accordance with ARTICLE 3.  The Final Settlement Statement shall not include or account for any Properties with respect to

 

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which a Closing has not occurred as of the date of preparation of the Final Settlement Statement.  Buyer will have thirty (30) days after receipt of the Final Settlement Statement to review such statement and to provide written notice to Seller of Buyer’s objection to any item on the statement. Buyer’s notice will clearly identify the item(s) objected to and the reasons and support for the objection(s). If Buyer does not provide written objection(s) within the thirty (30) day period, the Parties will treat the Final Settlement Statement as correct and the Final Purchase Price will not be subject to further adjustment. If Buyer provides written objection(s) within the thirty (30) day period, the Parties will treat the Final Settlement Statement as correct with respect to the items not objected to, and Buyer and Seller will meet to negotiate and resolve the objections within fifteen (15) days of Seller’s receipt of Buyer’s objections.  If the Parties agree on all objections, the Parties will treat the adjusted Final Settlement Statement as correct and the Final Purchase Price will not be subject to further adjustment. Any items not agreed to at the end of the fifteen (15) day period shall be resolved by arbitration in accordance with Section 14.2.2. The Final Settlement Statement shall not include any adjustment for Liabilities that are subject to an indemnification Claim made pursuant to ARTICLE 16.

 

14.2.2              Arbitration.  If the Parties do not agree upon the Final Settlement Statement or the Post-Escrow Settlement Statement, the Parties will promptly submit the dispute to a nationally-recognized public accounting firm or consulting firm mutually agreeable third party accountant (the “Accounting Arbitrator”), which will act as an arbitrator and promptly decide all points of disagreement with respect to the Final Settlement Statement or the Post-Escrow Settlement Statement, as applicable. Such decision shall be made within forty-five (45) days after submission to the Accounting Arbitrator and shall be final and binding on all Parties, without right of appeal. Such arbitrator will act for the limited purpose of determining the specific matters submitted by either Party and may not award damages, interest or penalties to any Party with respect to any matter.  The arbitrator’s decision will be final and binding on the Parties. Any court of competent jurisdiction may enforce the decision against either Party and Seller and Buyer shall each bear their own legal fees and other costs of presenting its case.  The Parties will bear the costs and expenses of such arbitrator fifty percent (50%) by Seller and fifty percent (50%) by Buyer.

 

14.2.3              Payment of Final Purchase Price.  If the Final Purchase Price is more than the Preliminary Purchase Price, Buyer will pay such difference to Seller via wire transfer to an account specified by Seller, in immediately available funds, within five (5) days after the Final Settlement Statement has been agreed by the Parties or decided by arbitration, as applicable, and if the Final Purchase Price is less than the Preliminary Purchase Price, Seller will pay such difference to Buyer via wire transfer to an account specified by Buyer, in immediately available funds, within five (5) Business Days after the Final Settlement Statement has been agreed by the Parties or decided by the arbitrator, as applicable.

 

14.2.4              Buyer’s Assistance and Access.  Buyer shall assist Seller in preparation of the Final Settlement Statement under Section 14.2.1 by furnishing invoices, receipts, reasonable access to personnel, and such other assistance as may be requested by Seller to facilitate such process post-Closing.

 

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14.3                        Post-Escrow Reconciliation.

 

14.3.1              Determination of Post-Escrow Adjustments.  As soon as reasonably practicable after the later to occur of the last Closing with respect to Properties withheld by Seller pursuant to ARTICLE 4, ARTICLE 5 or ARTICLE 6 and June 30, 2013, but no later than the sixtieth (60th) day after such later date, Seller shall prepare, in accordance with this Agreement, a draft settlement statement (“Post-Escrow Settlement Statement”), setting forth its determination of each adjustment to the Purchase Price necessary to determine the Final Purchase Price with respect to each Property that was not included or accounted for in the Final Settlement Statement and with respect to which the Closing has occurred, and showing the calculation of such adjustments in accordance with ARTICLE 3.  Buyer will have thirty (30) days after receipt of the Post-Escrow Settlement Statement to review such statement and to provide written notice to Seller of Buyer’s objection to any item on the statement. Buyer’s notice will clearly identify the item(s) objected to and the reasons and support for the objection(s). If Buyer does not provide written objection(s) within the thirty (30) day period, the Parties will treat the Post-Escrow Settlement Statement as correct and the Final Purchase Price with respect to the Properties the subject of the Post-Escrow Settlement Statement will not be subject to further adjustment. If Buyer provides written objection(s) within the thirty (30) day period, the Parties will treat the Post-Escrow Settlement Statement as correct with respect to the items not objected to, and Buyer and Seller will meet to negotiate and resolve the objections within fifteen (15) days of Seller’s receipt of Buyer’s objections.  If the Parties agree on all objections, the Parties will treat the adjusted Final Settlement Statement as correct and the Final Purchase Price will not be subject to further adjustment. Any items not agreed to at the end of the fifteen (15) day period shall be resolved by arbitration in accordance with Section 14.2.2. The Post-Escrow Settlement Statement shall not include any adjustment for Liabilities that are subject to an indemnification Claim made pursuant to ARTICLE 16.

 

14.3.2              Payment of Post-Escrow Adjustments.  If the Final Purchase Price with respect to the Properties that are the subject of the Post-Escrow Settlement Statement is more than the amount that was held by the Escrow Agent and paid to Seller with respect to such Properties, Buyer will pay such difference to Seller via wire transfer to an account specified by Seller, in immediately available funds, within five (5) days after the Post-Escrow Settlement Statement has been agreed by the Parties or decided by arbitration, as applicable, and if the Final Purchase Price with respect to the Properties that are the subject of the Post-Escrow Settlement Statement is less than the amount that was held by the Escrow Agent and paid to Seller with respect to such Properties, Seller will pay such difference to Buyer via wire transfer to an account specified by Buyer, in immediately available funds, within five (5) Business Days after the Post-Escrow Settlement Statement has been agreed by the Parties or decided by the arbitrator, as applicable.

 

14.3.3              Buyer’s Assistance and Access.  Buyer shall assist Seller in preparation of the Post-Escrow Settlement Statement under Section 14.3.1 by furnishing invoices, receipts, reasonable access to personnel, and such other assistance as may be requested by Seller to facilitate such process.

 

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14.4                        Post-Closing Revenues and Expenses.  Except as expressly provided otherwise in this Agreement and except to the extent accounted for in the Preliminary Settlement Statement, the Final Settlement Statement or the Post-Escrow Settlement Statement, Buyer shall (i) pay to Seller any and all amounts received after Closing by Buyer that are fairly attributable to the ownership of the Properties prior to the Effective Time, and (ii) reimburse Seller for any and all Property Costs paid after Closing by Seller that are incurred on or after the Effective Time.  Except as expressly provided otherwise in this Agreement and except to the extent accounted for in the Preliminary Settlement Statement, the Final Settlement Statement or the Post-Escrow Settlement Statement, Seller shall (i) pay to Buyer any and all amounts received after Closing by Seller that are fairly attributable to the ownership of the Properties on or after the Effective Time and (ii) reimburse Buyer for any and all Property Costs paid after Closing by Buyer that are fairly attributable to the ownership of the Properties prior to the Effective Time.  Any amounts required to be paid by one Party to the other Party under this Section 14.4 shall be paid as soon as reasonably practicable.

 

14.5                        Procedures.

 

14.5.1              For purposes of allocating production (and accounts receivable with respect thereto), under ARTICLE 3 and Section 14.4, (i) liquid Hydrocarbons shall be deemed to be “fairly attributable to” the Oil and Gas Properties when they when they are produced into the tank batteries related to each Well, and (ii) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Oil and Gas Properties when they pass through the delivery point sales meters or similar meters at the point of entry into the pipelines through which they are transported.

 

14.5.2              Surface use or damage fees, insurance premiums, and other Property Costs (excluding Severance Taxes and Property Taxes) that are paid periodically shall be prorated based on the number of days in the applicable period falling on or before, or after, the Effective Time.  Severance Taxes and Property Taxes shall be prorated as provided in Section 17.1.

 

14.5.3              After Closing, Buyer shall handle all joint interest audits and other audits of Property Costs covering periods for which Seller is in whole or in part responsible under Section 14.3, provided that Buyer shall not agree to any adjustments to previously assessed costs for which Seller is liable, or any compromise of any audit claims to which Seller would be entitled, without the prior written consent of Seller, such consent not to be unreasonably withheld.  Buyer shall provide Seller with a copy of all applicable audit reports and written audit agreements received by Buyer and relating to periods for which Seller is partially responsible.

 

ARTICLE 15
 CERTAIN POST-CLOSING COVENANTS

 

15.1                        Further Assurances.  After the Closing, the Parties will execute, acknowledge and deliver or cause to be executed, acknowledged and delivered such instruments and take such other action as may be necessary or advisable to carry out its obligations under this Agreement and under any exhibit, document, certificate or other instrument delivered pursuant hereto.

 

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15.2                        Suspense Funds.  Within five (5) days after the Closing, Seller will provide to Buyer a listing showing all funds from production attributable to the Properties that are currently held in suspense by Seller and will assign to Buyer all of its rights in and to such suspense funds existing as of the Effective Time by way of an adjustment to the Purchase Price pursuant to ARTICLE 3 (with the balance of such proceeds to be paid over or otherwise accounted for pursuant to the Final Settlement Statement contemplated by Section 14.2).  After such transfer, Buyer will be responsible for proper distribution of all the suspense funds attributable to the Properties to the parties lawfully entitled to them.

 

15.3                        Delivery of Records by Seller.

 

15.3.1              As soon as practicable, but in no event later than ten (10) days after the termination date of the Transition Services Agreement, Seller will deliver to Buyer the originals of all Records that are in the possession of Seller or its Affiliates that constitute Land files or that are Records reasonably necessary for the performance of the services to be rendered under and for the administration of the Transition Services Agreement, subject to Section 15.3.3.

 

15.3.2              As soon as practicable, but in no event later than ten (10) days after the Closing Date, Seller will deliver to Buyer the originals of all Records that are in the possession of Seller or its Affiliates that do not constitute Land files or Records reasonably necessary for the performance of the services to be rendered under and for the administration of the Transition Services Agreement, subject to Section 15.3.3.

 

15.3.3              Seller may retain the originals of those Records relating to Tax matters and provide Buyer with copies of such Records.  Seller may retain copies of any other Records, subject to the confidentiality obligations of Section 9.4.

 

15.4                        Access. Subject to the limitations expressly set forth in this Agreement, for a period of one hundred eighty (180) days after Closing, Buyer will give Seller and its authorized representatives reasonable access, at Seller’s sole risk and expense, during normal business hours, to the field offices located on the Property, but only to the extent that Buyer may do so without (a) violating applicable Laws, or (b) violating any obligations to any third party, and only to the extent that Buyer has authority to grant such access without breaching any restriction binding on Buyer.  During such access, Seller shall be entitled to remove the equipment as described on Exhibit D.  Seller’s access to the Properties and its (and its Affiliates and representatives) removal of the equipment shall be at Seller’s sole risk, cost, and expense, and Seller waives and releases all claims against Buyer Group arising in any way therefrom, or in any way connected therewith. Seller agrees to indemnify, defend, and hold harmless Buyer Group from and against any and all Claims), including Claims attributable to personal injury, death, or property damage, arising out of, or relating to, access to the Properties after the Closing pursuant to this Section 15.4 by Seller, its Affiliates, or its or their respective directors, officers, employees, agents, or representatives, even if caused in whole or in part by the negligence (whether sole, joint, or concurrent), strict liability, or other legal fault of any indemnified person hereunder.

 

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15.5                        Post-Closing Marketing.

 

15.5.1              In the event that any Oil and Gas Properties are withheld from the first Closing contemplated by this Agreement pursuant to the provisions of ARTICLE 4, ARTICLE 5 or ARTICLE 6, then the Parties shall reasonably cooperate with each other (including entering into a Gas Purchase Agreement or Agreements with such terms as to price, delivery volumes and delivery schedule as may be mutually agreed between the Parties) to ensure that Hydrocarbons are transported through the Pipeline System in compliance with all applicable Laws, and in a manner that would not and does not subject either Party to the jurisdiction of or regulation by the CPUC or the FERC, or any successor thereof.

 

15.5.2              In the event that any Material Consent with respect to any portion of the Pipeline System is not obtained either prior to the Closing or thereafter, with the result that either such portion or all of the Pipeline System is withheld from the Properties transferred and assigned at the first Closing contemplated by this Agreement in accordance with Section 5.2 of this Agreement, then the Parties shall reasonably cooperate with each other (including entering into a Gas Purchase Agreement or Agreements with such terms as to price, delivery volumes and delivery schedule as may be mutually agreed between the Parties) to ensure that Hydrocarbons are transported through the Pipeline System in compliance with all applicable Laws, and in a manner that would not and does not subject either Party to the jurisdiction of or regulation by the CPUC or the FERC, or any successor thereof.

 

15.5.3              After the Closing, at such time as Seller shall reasonably request, each Party will enter into with the other Party a Gas Purchase Agreement with respect to Gas produced by Seller, if any, from Seller’s Grizzly Island prospect, with such terms as to price, delivery volumes and delivery schedule as may be mutually agreed between the Parties.

 

ARTICLE 16
 INDEMNIFICATION

 

16.1                        Seller’s Indemnity; Retained Obligations.  After Closing, Seller will release, defend, indemnify and hold harmless Buyer Group, subject to and in accordance with this ARTICLE 16, from and against any and all Claims brought against or suffered by Buyer Group arising from, relating to or connected with, directly or indirectly, any of the following:

 

16.1.1              any breach of the representations, warranties or covenants of Seller in this Agreement;

 

16.1.2              any personal injury (including death), fines, penalties, or injunctions, to the extent related to the ownership or operation of the Properties and arising from events occurring prior to the Closing;

 

16.1.3              any offsite disposal, prior to the Closing, of hazardous substances, hazardous materials or hazardous waste arising from the operation or use of the Properties;

 

16.1.4              (a) the payment of any Property Taxes or Severance Taxes allocable to the period prior to the Effective Time as determined pursuant to Section 17.1, (b) the proper payment or accounting for royalties or other lease burdens related to production of

 

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Hydrocarbons from the Properties prior to the Closing, and (c) disputes related to the proper billing or payment of joint interest billing accounts related to ownership or operation of the Properties prior to the Closing;

 

16.1.5              any Tax matters which are the responsibility of the Seller pursuant to Section 17.1;

 

16.1.6              any swap, derivative, hedge or similar contracts or Debt Instruments of Seller or any Affiliate relating to the Properties;

 

16.1.7              any suit, action, proceeding, lawsuit or other litigation pending against Seller or its Affiliates at Closing relating to the Properties;

 

16.1.8              ownership, operation or use of the Excluded Assets;

 

16.1.9              any Imbalances not otherwise accounted for in the Preliminary Settlement Statement or the Final Settlement Statement;

 

16.1.10       any gross negligence or willful misconduct of Seller or its Affiliates, to the extent related to the ownership or operation of the Properties and arising from events occurring prior to the Closing; and

 

16.1.11       commissions, finder’s fees or other remuneration due to any agent, broker or finder claiming by, through or under Seller with respect to the transactions contemplated by this Agreement,

 

in each case, even if such damages are caused in whole or in part by the negligence (whether sole, joint or concurrent), strict liability or other legal fault of any indemnified person hereunder, invitee, or third party, and whether or not caused by a pre-existing condition, but excluding the gross negligence or willful misconduct of any indemnified person hereunder.

 

The matters for which Seller has the obligation to indemnify and hold harmless Buyer Group under this Section 16.1, to the extent of such obligation, are referred to herein as “Seller’s Retained Liabilities.”

 

16.2                        Limitations on Seller’s Indemnity.

 

16.2.1              Seller’s indemnity obligations shall survive Closing. Seller shall have no obligation to indemnify Buyer Group for any Claims arising pursuant to Section 16.1.1 with respect to which Buyer has not delivered written notice thereof to Seller within twelve (12) months after Closing; provided, however, Seller shall have no indemnity obligation for any Claims arising pursuant to Section 16.1.1 with respect to a breach of Seller’s representations and warranties made pursuant to Section 7.5.  Seller shall have the obligation to indemnify Buyer Group with respect to Sections 16.1.2 through 16.1.11 without time limit.  Notwithstanding anything to the contrary herein, from and after Closing, Seller’s indemnification obligations with respect to a breach of the representations and warranties in Section 7.9.2 and Section 7.9.3 shall be limited to Claims made by third parties.

 

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16.2.2     Seller’s indemnity obligations shall be of no further force and effect after the date of their expiration, except with respect to matters for which a specific written claim for indemnity was received by Seller prior to the date of such expiration.

 

16.2.3     Seller’s aggregate indemnification liability under Section 16.1.1 shall be limited to an amount equal to twenty percent (20%) of the Purchase Price.

 

16.2.4     Seller shall not have any liability for any indemnification under Section 16.1.1 for an individual matter until and unless the amount of the liability for Damages with respect to which Seller admits (or it is otherwise finally determined by a court or other Governmental Authority that Seller has) an obligation to indemnify Buyer pursuant to the terms of Section 16.1.1 exceeds Seventy-Five Thousand Dollars ($75,000) (the “Individual Indemnity Threshold”).  Without limiting the foregoing, Seller shall not have any liability for any indemnification under Section 16.1.1 until and unless the aggregate amount of the liability for all Damages (i) for which Claim notices are delivered by Buyer, (ii) with respect to which Seller admits (or it is otherwise finally determined by a court or other Governmental Authority) that Seller has an obligation to indemnify Buyer pursuant to the terms of Section 16.1, and (iii) which exceed the Individual Indemnity Threshold exceeds two percent (2%) of the Purchase Price, and then only to the extent such Damages exceed two percent (2%) of the Purchase Price.

 

16.2.5     Seller’s obligation to defend, indemnify and hold harmless the Buyer Group pursuant to Section 16.1.1 in respect of any breach of Section 7.17 shall be limited to the amount of Taxes payable as a result of such breach and properly allocable to the period prior to the Effective Time (as determined pursuant to Section 17.1).

 

16.2.6     Notwithstanding any provision of this Agreement to the contrary, this Section 16.2 shall not apply to Seller’s indemnification obligations for any breach of Seller’s representations and warranties in Section 7.9.1.

 

16.3        Survival of Seller’s Representations and Warranties.  The representations and warranties made by Seller in this Agreement shall survive Closing for the period contemplated by Section 16.2, and shall be actionable during such period (but not thereafter, excluding claims made in good faith prior to the end of such period) in accordance with this ARTICLE 16; provided, however, that Seller’s representations and warranties made pursuant to Section 7.5 shall terminate at Closing and have no further effect thereafter.

 

16.4        Buyer’s Indemnity; Assumed Obligations.  Except to the extent of Seller’s Retained Liabilities, after Closing, Buyer will assume, and will release, defend, indemnify and hold harmless Seller Group, subject to and in accordance with this ARTICLE 16, from and against, and hereby agrees to fulfill, perform, pay, and discharge (or cause to be fulfilled, performed, paid, or discharged) all of the obligations and liabilities of Seller and its Affiliates, known or unknown, with respect to the Properties, regardless of whether such obligations or liabilities arose prior to, on, or after the Effective Time, including the following:

 

16.4.1     all obligations and liabilities arising from or in connection with any production, pipeline, storage, processing, or other Imbalance attributable to Hydrocarbons produced

 

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from the Oil and Gas Properties, whether before, on, or after the Effective Time, including obligations to furnish makeup gas in accordance with the terms of applicable gas sales, gathering, or transportation Contracts;

 

16.4.2     obligations to pay working interests, royalties, overriding royalties, and other interests held in suspense;

 

16.4.3     obligations for plugging and abandonment of all of the Wells and dismantlement, decommissioning, or abandonment of all structures and equipment included in the Properties or located on the Lands covered by, or described in, the Leases (whether or such Leases have terminated or expired) and restoration of the surface covered by the Properties in accordance with applicable Laws (whether or not required to be plugged, abandoned, dismantled, or restored as of the Effective Time, and whether or not whether or not the applicable Lease has terminated or expired), including any obligations to assess, remediate, remove, and dispose of NORM, asbestos, mercury, drilling fluids, chemicals, and produced waters and Hydrocarbons;

 

16.4.4     subject to the terms of ARTICLE 4, the special warranty of title in the Conveyance and Seller’s representations and warranties in Section 7.9, all Damages and obligations arising from, or relating to, title defects, deficiencies, or other title matters, whether arising or relating to periods of time before, on, or after the Effective Time;

 

16.4.5     damages and obligations arising from, or relating to, Environmental Condition Defects, or other environmental matters, whether arising or relating to periods of time before, on, or after the Effective Time;

 

16.4.6     Tax matters which are the responsibility of Buyer pursuant to Section 17.1; and

 

16.4.7     continuing obligations under any instruments constituting Seller’s chain of title to any of the Oil and Gas Properties;

 

even if such damages are caused in whole or in part by the negligence (whether sole, joint or concurrent), strict liability or other legal fault of any indemnified person hereunder, invitee, or third party, and whether or not caused by a pre-existing condition, but excluding the gross negligence or willful misconduct of any indemnified person hereunder.

 

16.5        Sole and Exclusive Remedy.

 

16.5.1     Notwithstanding anything to the contrary contained in this Agreement, from and after Closing, Seller’s and Buyer’s sole and exclusive remedy against each other with respect to breaches of the representations, warranties, covenants, and agreements of the Parties contained in ARTICLE 7, ARTICLE 8, ARTICLE 9, as applicable, is set forth in this ARTICLE 16 and if no such right of indemnification is expressly provided, then such claims are hereby waived to the fullest extent permitted by Law.

 

16.5.2     Except for the remedies contained in this ARTICLE 16 and any other remedies available to the Parties at law or in equity for breaches of this Agreement other than ARTICLE 7, ARTICLE 8, ARTICLE 9, upon Closing each Party releases, remises, and

 

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forever discharges the other and its and their respective Affiliates and all such Persons’ shareholders, officers, directors, employees, agents, advisors, and representatives from any and all suits, legal or administrative proceedings, claims, demands, Damages, losses, costs, liabilities, interest, or causes of action whatsoever, in law or in equity, known or unknown, which such Parties might now or subsequently may have, based on, relating to, or arising out of this Agreement or Seller’s ownership, use, or operation of the Properties, or the condition, quality, status, or nature of the Properties, including rights to contribution under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Oil Pollution Act of 1990, as amended, breaches of statutory and implied warranties, nuisance or other tort actions, rights to punitive damages, common law rights of contribution, any rights under insurance policies issued or underwritten by the other Party or any of its Affiliates, even if caused in whole or in part by the negligence (whether sole, joint, or concurrent), strict liability, or other legal fault of any released person invitee, or third party, and whether or not caused by a pre-existing condition.  Without limiting the generality of the preceding sentence, Buyer agrees that, from and after Closing, its only remedy with respect to the breach by Seller of its covenants and agreements in ARTICLE 9 shall be the indemnity of Seller in Section 16.1, as limited by the terms of this ARTICLE 16.

 

16.6        Application of Indemnities.

 

16.6.1     Except as may otherwise be required by applicable Laws, the Parties shall treat, for Tax purposes, any amounts paid pursuant to this ARTICLE 16 as an adjustment to the Purchase Price.

 

16.6.2     The amount of any Damages for which an indemnified person hereunder is entitled to indemnity under this ARTICLE 16 shall be reduced by the amount of insurance proceeds realized by the indemnified person or its Affiliates with respect to such Damages (net of any collection costs, and excluding the proceeds of any insurance policy issued or underwritten by the indemnified person or its Affiliates); provided, however, that no Party shall be required to seek recovery under any policy of insurance as a condition to indemnification hereunder.

 

16.6.3     As used in this Agreement, the term “Damages” means the amount of any actual liability, loss, cost, expense, claim, award, or judgment incurred or suffered by any indemnified person hereunder arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts, or otherwise, including reasonable fees and expenses of attorneys, consultants, accountants, or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity; provided, however, that “Damages” shall not include any adjustment for Taxes that may be assessed on payments under this ARTICLE 16 or for Tax benefits received by the indemnified person as a consequence of any Damages.

 

16.6.4     Notwithstanding the foregoing, this ARTICLE 16 shall not apply (i) in respect of an adjustment to the Purchase Price for Property Costs, which are covered exclusively by Sections 3.2 and 3.3 and ARTICLE 14 or (ii) in respect of claims for Title Defects or

 

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Environmental Condition Defects that give rise to an adjustment to the Purchase Price pursuant to ARTICLE 14.

 

ARTICLE 17

TAXATION

 

17.1        Responsible Party.  All Taxes attributable to the ownership or operation of the Properties prior to the Effective Time are the Seller’s responsibility and all deductions, credits or refunds pertaining to the aforementioned Taxes, no matter when received, belong to Seller. All Taxes attributable to the ownership or operation of the Properties on or after the Effective Time (excluding Seller’s income taxes, franchise taxes or margin taxes through Closing, and excluding income or capital gains taxes from the sale of the Properties) are the responsibility of Buyer, and all deductions, credits or refunds pertaining to the aforementioned Taxes, no matter when received, belong to Buyer.  With respect to any taxable period including, but not ending on, the Effective Time (a “Straddle Period”), Property Taxes shall be prorated between the portion of such Straddle Period ending immediately before the Effective Time and the portion of such Straddle Period beginning on the Effective Time in the same proportion as the number of days in each such portion bears to the total number of days in such Straddle Period.  All Property Taxes with respect to any taxable period beginning on or after the Effective Time shall be for Buyer’s account.  Severance Taxes shall be deemed to be attributable to the period during which the production of the Hydrocarbons with respect to such Severance Taxes occurred, and liability therefor allocated to Seller for pre-Effective Time Severance Taxes and to Buyer for post-Effective Time Severance Taxes.  To the extent applicable, the Parties shall estimate all Taxes (excluding Seller’s income taxes, franchise taxes or margin taxes) attributable to the ownership or operation of the Properties to the extent they relate to the period on and after the Effective Time and prior to Closing and incorporate such estimate into the Preliminary Settlement Statement.  The actual amounts (to the extent the same differ from the estimate included in the Preliminary Settlement Statement) shall be accounted for in the Final Settlement Statement.

 

17.2        Transfer Taxes.  Notwithstanding anything to the contrary herein, it is acknowledged and agreed by and between Seller and Buyer that the Purchase Price excludes any sales taxes or other Taxes of a similar nature in connection with the sale of property pursuant to this Agreement. Buyer and Seller will use commercially reasonable efforts and cooperate in good faith to exempt the sale, conveyance, assignments and transfers to be made to Buyer from any sales, use, stamp, real estate transfer, documentary, registration, recording and other similar Taxes (each a “Transfer Tax”). If a determination is ever made that a Transfer Tax applies, Seller and Buyer will each bear fifty percent (50%) of any such Transfer Tax.

 

17.3        Tax-Deferred Exchange Option.  Either Party may elect to effect a tax-deferred exchange under Code Section 1031 (a “Tax Deferred Exchange”) for all or part of the Properties by delivering a written notice to the other Party five (5) days prior to the Closing Date. If a Party elects to effect a Tax-Deferred Exchange (“Electing Party”), the other Party agrees to execute escrow instructions, documents, agreements or instruments to effect the exchange; provided, however, that the other Party incurs no additional costs, expenses, fees or liabilities as a result of or connected with the exchange.  Seller and Buyer may assign any of their respective rights and delegate performance of any of their respective duties under this Agreement in whole or in part to a third party in order to effect such an exchange; provided, however, that the

 

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Electing Party will remain responsible to the other Party for the full and prompt performance of its respective delegated duties. The Electing Party will indemnify and hold other Party harmless from and against all Claims resulting from its participation in any exchange undertaken pursuant to this Section 17.3 pursuant to the request of the Electing Party.

 

17.4        Allocation of Values.  In the event that the Seller and Buyer mutually agree that the transactions under this Agreement are subject to the reporting requirements of Code Section 1060 and that a filing of IRS Form 8594 is required, Seller and Buyer agree to use commercially reasonable efforts to confer and cooperate in the preparation and filing of their respective forms to reflect a consistent reporting of the agreed upon allocation; provided, however, that the Parties shall not be required to file consistent IRS Form 8594 if, despite such efforts, they are unable to reach an agreement on the allocation.  In the event that the allocation is disputed by any taxing authority, the Party receiving notice of such dispute will promptly notify and consult with the other Party and keep the other Party apprised of material developments concerning resolution of such dispute.

 

17.5        Section 754 Elections.  With respect to any of the Properties listed on Schedule 7.17, if the tax partnership to which such Property is subject does not have in effect a valid election under Code Section 754 (a “Section 754 Election”), Seller shall use its commercially reasonable efforts to cause such tax partnership to make a Section 754 Election in accordance with Treasury regulations 1.754-1(b) effective on or before the Closing.

 

ARTICLE 18

MISCELLANEOUS

 

18.1        Notice.  All notices required or permitted under this Agreement must be in writing and delivered personally or by certified mail, postage prepaid and return receipt requested or by facsimile as follows:

 

	
Seller:
    	
 
    	
Venoco, Inc.
    	
 
    	
Buyer:
    	
 
    	
Vintage   Production California LLC
    
	
 
    	
 
    	
370   17th Street, Suite 3900
    	
 
    	
 
    	
 
    	
9600   Ming Avenue, Suite 300
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Denver,   CO 80202
    	
 
    	
 
    	
 
    	
Bakersfield,   CA 93311
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Attention:   Mark DePuy
    	
 
    	
 
    	
 
    	
Attention:   General Manager
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Facsimile:   (303) 626-8315
    	
 
    	
 
    	
 
    	
Facsimile:   (661) 869-8024
    

 

or to such other place within the United States of America as either Party may designate as to itself by written notice to the other.  All notices will be effective upon receipt by the Party to which such notice is addressed.

 

18.2        Governing Law.  This Agreement, the obligations of the Parties under this Agreement and all other matters arising out of or relating to this Agreement and the transactions it contemplates, will be governed by and construed in accordance with the Laws of the State of California, without giving effect to any conflicts of law principles that would cause the laws of another jurisdiction to apply.  Any dispute arising out of or relating to this Agreement which cannot be amicably resolved by the Parties, shall be brought in a federal or state court of

 

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competent jurisdiction sitting in Los Angeles County of the State of California and the Parties irrevocably submit to the jurisdiction of any such court solely for the purpose of any such suit, action or proceeding.

 

18.3        Waiver of Rights Under §1542 of the Civil Code of the State of California.  Any release made by a Party hereunder constitutes a waiver of all rights and benefits which such Party has or in the future may have under and by virtue of the terms of §1542 of the Civil Code of the State of California.  Civil Code §1542 reads as follows:

 

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

 

18.4        Assignment.  Neither Party may assign this Agreement or its rights under this Agreement or delegate any performance obligations under this Agreement prior to Closing without the other Party’s written consent, which will not be unreasonably withheld; provided, however, Buyer may, without the prior written consent of Seller, assign this Agreement in whole or in part to one or more Affiliates of Buyer, but no such assignment will release or discharge Buyer from any of its obligations hereunder. This Agreement will be binding upon and will inure to the benefit of the Parties hereto and their permitted successors and assigns.  Nothing contained in this Agreement entitles anyone other than Buyer or Seller or their respective permitted successors and assigns to any rights under this Agreement.

 

18.5        Entire Agreement; Amendments.  This Agreement, together with the Exhibits and Schedules hereto, the certificates, documents, instruments and writings that are delivered pursuant hereto, and the Confidentiality Agreement, dated June 6, 2012, and the Confidentiality Agreement, dated November 19, 2012, between Seller and an Affiliate of Buyer (the “Confidentiality Agreements”), constitute the entire, complete and exclusive agreement and understanding of the Parties in respect of the subject matter hereof and thereof and expressly supersede all prior understandings, agreements, or representations by or among the Parties, written or oral, with respect thereto.  No amendment or modification of any provision of this Agreement will be valid, unless the same is in writing and signed by Buyer and Seller.

 

18.6        Construction.  The Parties have participated jointly in the negotiation and drafting of this Agreement.  If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring either Party because of the authorship of any provision of this Agreement.  The Parties will treat the words “include,” “includes” and “including” as if followed by “without limitation.” Pronouns in masculine, feminine, and neuter genders will be construed to include any other gender, and words in the singular form will be construed to include the plural and vice versa, unless the context otherwise requires.

 

18.7        Counterparts.  This Agreement may be executed in two or more counterparts, each of which the Parties will treat as an original but all of which together will constitute one and the same instrument.

 

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18.8        Expenses and Fees.  Each Party will pay its own fees and expenses incident to the negotiation and preparation of this Agreement and consummation of the transactions contemplated hereby. Buyer will be responsible for the all fees for the recording of transfer documents.

 

18.9        Waivers.  Any failure by any Party to comply with any of its obligations, agreements, or conditions herein contained may be waived by the Party to whom such compliance is owed by an instrument signed by the Party to whom compliance is owed and expressly identified as a waiver, but not in any other manner.  No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

 

18.10      No Third-Person Beneficiaries.  Nothing in this Agreement shall entitle any Person other than Buyer and Seller to any claim, cause of action, remedy or right of any kind, except the rights expressly provided to the Persons described in Section 9.8, 15.4, 16.1 and 16.4.  Any claim for indemnity under such Sections by any Person not a party to this Agreement must be brought and administered by the applicable Party.  No indemnified person hereunder other than Seller and Buyer shall have any rights against Seller or Buyer under the terms of such Sections except as may be exercised on its behalf by Buyer or Seller, as applicable.  Seller and Buyer may elect to exercise or not exercise indemnification rights on behalf of the other indemnified Persons affiliated with it in its sole discretion and shall have no liability to any such other indemnified Person for any action or inaction.

 

18.11      Severability.  If any provision of this Agreement, or any application thereof, is held invalid, illegal, or unenforceable in any respect under any Law, this Agreement shall be reformed to the extent necessary to conform, in each case consistent with the intention of the Parties, to such Law, and, to the extent such provision cannot be so reformed, then such provision (or the invalid, illegal, or unenforceable application thereof) shall be deemed deleted from (or prohibited under) this Agreement, as the case may be, and the validity, legality, and enforceability of the remaining provisions contained herein (and any other application of such provision) shall not in any way be affected or impaired thereby.

 

18.12      Time of the Essence.  Time is of the essence in this Agreement.  If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration of such period during which notice is required to be given or action taken) shall be the next day which is a Business Day.

 

18.13      Limitation on Damages.  Notwithstanding any term or provision of this Agreement to the contrary, in no event will either Party to this Agreement be liable to the other Party for, and Buyer and Seller, for themselves and on behalf of their respective Affiliates, hereby expressly waive any right to, any consequential, special, exemplary, punitive or similar damages arising out of or relating to this Agreement; except to the extent any such Party was required to pay such damages to a third party in connection with a Claim, in which event such damages shall be recoverable hereunder.

 

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[Signature page follows.]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.

 

	
 
    	
SELLER:
    
	
 
    	
 
    
	
 
    	
VENOCO, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Mark A. DePuy
    
	
 
    	
Name:
    	
Mark   A. DePuy
    
	
 
    	
Title:
    	
Senior   Vice President
    
	
 
    	
 
    
	
 
    	
BUYER:
    
	
 
    	
 
    
	
 
    	
VINTAGE   PRODUCTION CALIFORNIA LLC
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Todd A. Stevens
    
	
 
    	
Name:
    	
Todd   A. Stevens
    
	
 
    	
Title:
    	
Vice   President
    

 

[Signature page to Purchase Agreement.]

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