Document:

Exhibit 10.1

 

PURCHASE AND SALE AGREEMENT

 

by and among

 

SWEPI LP

 

as Seller,

 

and

 

HALCÓN ENERGY PROPERTIES, INC.,

 

as Purchaser,

 

 

DATED FEBRUARY 6, 2018

 

 

RELATING TO OIL AND GAS INTERESTS IN WARD COUNTY, TX

 

1

 

TABLE OF CONTENTS

 

	
Exhibits:
    
	
 
    	
 
    
	
A-1
    	
Mineral Interests
    
	
A-2
    	
Wells
    
	
A-3
    	
Surface Interests
    
	
A-4
    	
Electrical Laterals
    
	
A-5
    	
Field Pipelines
    
	
B
    	
Other Excluded Assets
    
	
C
    	
Assignment, Conveyance   and Bill of Sale
    
	
D
    	
Non-Foreign Affidavit
    
	
E
    	
Williams Gathering   Agreement
    
	
F
    	
Shared Use and Access   Agreement
    
	
G
    	
Reprocessed Seismic   Data License
    

 

	
Schedules:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
A
    	
 
    	
Purchaser Account
    
	
B
    	
 
    	
Seller Account
    
	
1
    	
 
    	
Excluded Contracts
    
	
2.3
    	
 
    	
Allocated Values
    
	
2.6
    	
 
    	
Anadarko Tag Along Assets
    
	
5.3(j)
    	
 
    	
Transition Service Agreement Wells
    
	
6.1(g)
    	
 
    	
Litigation
    
	
6.1(i)
    	
 
    	
Consents and Preferential Rights
    
	
6.1(k)
    	
 
    	
Material Contracts
    
	
6.1(p)
    	
 
    	
Outstanding Capital Commitments
    
	
8.1
    	
 
    	
Owner Balances
    

 

1

 

PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is dated as of February 6, 2018 (the “Execution Date”), by and between SWEPI LP, a Delaware limited partnership (“Seller”), the address for which is 150 N. Dairy Ashford, Houston, Texas 77079, and Halcón Energy Properties, Inc., a Delaware corporation (“Purchaser”), the address for which is 1000 Louisiana Street, Suite 1500, Houston, Texas 77002.  Each of Seller and Purchaser are sometimes separately referred to as a “Party” and are sometimes collectively referred to as “Parties”.

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, Seller’s interests in oil and gas exploration, development and producing properties located in Ward County, Texas and certain related assets.

 

NOW THEREFORE, in consideration of the mutual promises contained herein, the benefits to be derived by each Party hereunder, and other good and valuable consideration, Purchaser and Sellers agree as follows:

 

ARTICLE 1.  — DEFINITIONS

 

The following terms as used in this Agreement shall have the definitions set forth below:

 

“Accounting Notice” has the meaning set forth in Section 8.3(a).

 

“Accounting Referee” has the meaning set forth in Section 8.3(b).

 

“Additional Oil and Gas Interest” has the meaning set forth in Section 4.2(c).

 

“Adjusted Initial Payment Amount” has the meaning set forth in Section 8.2.

 

“Adjusted Final Payment Amount” has the meaning set forth in Section 8.3.

 

“Affiliate(s)” means any Person that (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 that directly or indirectly controls such Party, for which purpose “control” shall mean 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.

 

“Agreement” has the meaning set forth in the Preamble.

 

“Aggregate Environmental Deductible” means an amount equal to one and one half percent (1.5%) of the Unadjusted Purchase Price.

 

“Aggregate Indemnity Deductible” means an amount equal to two percent (2%) of the Unadjusted Purchase Price.

 

2

 

“Aggregate Title Deductible” means an amount equal to one and one half percent (1.5%) of the Unadjusted Purchase Price.

 

“Allocated Value” has the meaning set forth in Section 2.3.

 

“Anadarko” has the meaning set forth in Section 2.6(a)(i).

 

“Anadarko Tag Along Assets” has the meaning set forth in Section 2.6(a)(i).

 

“Anti-Bribery and Money-Laundering Laws and Obligations” means for each Party:  (i) the Laws relating to combating bribery and corruption, and/or the principles described in the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed in Paris on December 17, 1997, which entered into force on February 15, 1999, and the Convention’s Commentaries; (ii) the laws relating to combating bribery, corruption and money laundering in the countries of such Party’s place of incorporation, principal place of business, and/or place of registration as an issuer of securities, and/or in the countries of such Party’s ultimate parent company’s place of incorporation, principal place of business, and/or place of registration as an issuer of securities; (iii) the United States Foreign Corrupt Practices Act of 1977; (iv) the United Kingdom Bribery Act 2010 (as amended from time to time); and (v) and all other applicable national, regional, provincial, state, municipal or local laws and regulations that prohibit the bribery of, or the providing of unlawful gratuities, Facilitation Payments or other benefits to, any Government Official or any other person.

 

“Approval Evidence” has the meaning set forth in Section 10.4(b).

 

“Arbitrable Dispute” has the meaning set forth in Section 16.1(a).

 

“Assets” means all of Seller’s right, title and interest in and to the following, to the extent transferable, other than Excluded Assets, each of which may be separately referred to as an “Asset”;

 

(i)            the Hydrocarbon leases, subleases, royalties, overriding royalties, net profits interests, carried interests, farmout rights, and other rights to Hydrocarbons in place that are described on Exhibit A-1, including all pooled or unitized acreage that includes all or a part of any such interests or other rights, and all tenements, hereditaments and appurtenances belonging to such interests (the “Mineral Interests”);

 

(ii)           the oil, gas, CO2, injection or other wells located on the Mineral Interests, including any wells that have been temporarily or permanently abandoned, and including without limitation the working interests or overriding royalty interests in the wells listed on Exhibit A-2 but excluding the Excluded Water Assets (the “Wells” and together with the Mineral Interests, the “Oil and Gas Interests”);

 

(iii)          the surface fee interests, easements, permits, licenses, servitudes, rights-of-way, surface or ground leases and other surface rights or interests appurtenant to, and used or held for use in connection with the Oil and Gas Interests, listed on Exhibit A-3, in each case, to the extent

 

3

 

such is required in relation to the Oil and Gas Interests, (the “Surface Interests” and, together with the Oil and Gas Interests, the “Properties” or “Property”);

 

(iv)          the equipment, machinery, fixtures, and flowlines (connecting the wellheads to the tanks and equipment), manifolds, processing units, compression facilities, tanks and other tangible personal property and improvements used or held for use in connection with and located on the Properties at the Closing Date (the “Equipment”);

 

(v)           the electricity lines and poles listed and described in Exhibit A-4, (the “Electrical Laterals”);

 

(vi)          the oil and water pipelines listed and described in Exhibit A-5 (the “Field Pipelines”);

 

(vii)         the contracts and contractual rights, obligations and interests, to the extent assignable or transferable and insofar as they directly relate to any Mineral Interest, or lands unitized therewith, included in the Oil and Gas Interests, and those other contracts and contractual rights and obligations related to any of the Properties, Equipment, Electrical Laterals, Field Pipelines, the interests described in subpart (viii) below or the Governmental Authorizations, but excluding the Excluded Contracts;

 

(viii)        all Hydrocarbons within or produced from the Oil and Gas Interests on and after the Effective Time;

 

(ix)          electronic copies of the lease records, title records, well logs, production records, regulatory files, environmental files, and other records pertaining exclusively to the Assets, but excluding the Excluded Records (the “Records”); and

 

(x)           any federal, state and local governmental licenses, permits, franchises, orders, exemptions, variances, waivers, authorizations, certificates, consents, rights, privileges and applications therefor that are primarily used in connection with the ownership or operation of the Assets to the extent assignable (“Governmental Authorizations”).

 

“Assignable Seismic Data” means any processed or interpretive geological or geophysical analysis of underlying third-party owned seismic data, but where such analysis and interpretation is owned by Seller, relating to or covering the Mineral Interests.

 

“Assignment” means the Assignment, Bill of Sale and Conveyance in the form attached as Exhibit C to be entered into by the Seller and Purchaser at Closing.

 

“Assumed Obligations” has the meaning set forth in Section 10.1.

 

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

 

“Casualty Losses” has the meaning set forth in Section 7.12.

 

4

 

“CERCLA” has the meaning set forth in the definition of “Environmental Law”.

 

“Claim Notice” has the meaning set forth in Section 11.1(d)(i).

 

“Claimant” has the meaning set forth in Section 16.2(b).

 

“Closing” means (i) the execution and delivery of the operative conveyances and other closing documents giving effect to the transactions contemplated in this Agreement, and (ii) the payment of the Adjusted Initial Payment Amount to Seller and any other amounts to be paid pursuant to the terms of this Agreement.

 

“Closing Date” has the meaning set forth in Section 5.2; provided, however, that solely with regard to the Supplemental Closing Assets, it shall mean the date of the Supplemental Closing.

 

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

 

“Commission” has the meaning set forth in Section 10.4(a)(i).

 

“Confidentiality Agreement” means that Confidentiality Agreement dated October 25, 2017 between Seller and Halcón Resources Corporation.

 

“Confidential Information” has the meaning set forth in Section 12.1.

 

“Consumer Price Index” or “CPI” refers to the Consumer Price Index-All Urban Consumer for the U.S. City Average for All Items 1982-84=100, as published by the Bureau of Labor Statistics of the United States Department of Labor. If the CPI is hereafter converted to a different standard reference base or otherwise revised, the determination of the CPI adjustment shall be made with the use of such conversion factor, formula or table for converting the CPI, as may be published by the Bureau of Labor Statistics, or, if the Bureau shall no longer publish the same, then with the use of such conversion factor, formula or table as may be published by an agency of the United States, or failing such publication, by a nationally recognized publisher of similar statistical information.

 

“CPR” has the meaning set forth in Section 16.2(a).

 

“CPR Protocol” has the meaning set forth in Section 16.2(a).

 

“Data Exchange” has the meaning set forth in Section 7.1(a).

 

“Data Protection Law” means data protection legislation or any statutory equivalent in force in the locale where Personal Data is being received, processed or transferred.

 

“Decommissioning Security” means:

 

(i)                                     an irrevocable standby letter of credit, commercial bank guarantee, surety bond or similar credit support instrument that is issued by a financial institution that has a credit rating of “A-” or better by Standard & Poor’s Rating Group or Fitch Ratings Ltd. or “A3” or better by Moody’s Investor

 

5

 

Service Inc. In cases where ratings of the aforementioned rating agencies are different, the lower credit rating will be used to establish the applicable rating in respect of any such entity.

 

(ii)                                  a guaranty in form acceptable to Seller from a company with i) a minimum tangible net worth of five hundred million United States Dollars ($500,000,000) and ii) a credit rating of “A-” or better by Standard & Poor’s Rating Group or Fitch Ratings Ltd or “A3” or better by Moody’s Investors Service Inc. In cases where ratings of the aforementioned rating agencies are different, the lower credit rating will be used to establish the applicable rating in respect of any such entity;

 

(iii)                               cash deposited in an escrow account or other secure fund to be established and administered as directed by the Parties; or

 

(iv)                              such combination of (i), (ii), or (iii) above as may be acceptable to Seller, in its sole discretion, totaling the relevant amount of Decommissioning Security which must be provided pursuant hereto.

 

“Defensible Title” has the meaning set forth in Section 4.2(a).

 

“Disputed Environmental Matters” has the meaning set forth in Section 3.2(g).

 

“Disputed Title Matters” has the meaning set forth in Section 4.4(j)

 

“Effective Time” means 12:01am (midnight) Central Standard Time on February 1, 2018.

 

“Electrical Laterals” has the meaning set forth in the definition of “Assets”.

 

“Environmental Arbitration Decision” has the meaning set forth in Section 3.2(g)(v).

 

“Environmental Arbitration Notice” has the meaning set forth in Section 3.2(g)(ii).

 

“Environmental Arbitrator” has the meaning set forth in Section 3.2(g)(iii).

 

“Environmental Defect” has the meaning set forth in Section 3.1.

 

“Environmental Defect Amount” has the meaning set forth in Section 3.2(f).

 

“Environmental Defect Notice” has the meaning set forth in Section 3.2(a).

 

“Environmental Defect Property” has the meaning set forth in Section 3.2(a).

 

“Environmental Obligations” has the meaning set forth in Section 10.3.

 

“Environmental Law” means all applicable federal, state or local laws and regulations concerning or relating to the pollution, protection or restoration of the environment including, but not limited

 

6

 

to, 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 have been and may be amended, replaced or substituted from time to time and all regulations, orders, rulings, directives, requirements and ordinances promulgated thereunder.

 

“Equipment” has the meaning set forth in the definition of “Assets”.

 

“Excluded Assets” means the following:

 

(i)                                     the Excluded Records;

 

(ii)           the copies of Records retained by Seller pursuant to Section 7.9;

 

(iii)          the assets described in Exhibit B;

 

(iv)          all pipelines other than (i) the flowlines located on the Property and (ii) the Field Pipelines (collectively the “Excluded Field Pipelines”);

 

(v)           all electricity lines, cables, poles, equipment and infrastructure other than the Electrical Laterals;

 

(vi)          all water wells, including water disposal, salt water disposal and water supply wells and related infrastructure (other than Field Pipelines) located on any of the Properties including any contracts or agreements relating to the such water assets (“Excluded Water Assets”);

 

(vii)         any Governmental Authorizations which by their own terms are not transferable;

 

(viii)        any contracts or contract rights which; (a) relate to other properties owned by Seller Group, (b) are by their own terms not assignable, (c) contain Hard Consents that have not been obtained or waived, (d) are retained by the Seller as a result of a partial contract assignment at Closing for those contracts which currently cover assets which include the Properties and other properties not subject to this Agreement and the transactions contemplated herein, (e) relate to the processing of gas from the Assets,  (f) relate to the gathering, transportation, marketing or sale of oil or gas from the Assets, except as included on Schedule 6.1(k), or (g) are listed on Schedule 1 (the “Excluded Contracts”);

 

(ix)          any surface fee interests, easements, licenses, permits, servitudes, rights-of-way, surface or ground leases, and all contracts or agreements which relate to the foregoing other than those rights in Exhibit A-3 and, specifically with respect to those agreements in Exhibit A-3 between the Seller and WCT Cowboy Country LLC (“CCAs”), Seller retains, on a non-exclusive basis, all concurrent rights and obligations (it being acknowledged that Purchaser is also being

 

7

 

assigned, on a non-exclusive basis, all concurrent rights and obligations relative to the Assets) under those CCAs required in relation to properties owned by Seller Group;

 

(x)           any intellectual property owned by Seller Group (including all data, files and records relating thereto), including without limitation, all software, all trademarks, tradenames and service names, including without limitation, any rights in trademarks and service names, registered or unregistered, containing the word “Shell”, the Shell Pecten logo, and any interpretative techniques and processes, including without limitation, any interpretive geological and geophysical information (excluding any Assignable Seismic Data), economic analysis, and any information or other similar proprietary data which might reveal Seller’s or its Affiliates’ economic guidelines or other methods or systems by which Seller or its Affiliates conduct their economic analyses, and any similar proprietary data; provided however that this shall not include the Records;

 

(xi)          any future or existing accounts receivable, tax, contract, insurance premium or other refunds, income or revenue, deposits, insurance or condemnation proceeds or awards, rights with respect to operations or claims and causes of action in favor of Seller (including, without limitation, any joint operating, pooling or unit operating agreement audit claims), and any sales and use tax refunds, any of which are attributable to Seller’s ownership of the Assets prior to the Effective Time;

 

(xii)         any and all proceeds from the settlements of contract disputes with purchasers of Hydrocarbons or byproducts from the Properties, including, without limitation, settlement of take-or-pay disputes, insofar as said proceeds are attributable to periods of time prior to the Effective Time irrespective of when such proceeds are actually received;

 

(xiii)        all rights and interests of Seller (a) under any policy or agreement of insurance or indemnity (including, without limitation, any rights, claims or causes of action of Seller against third parties under any indemnities or hold harmless agreements and any indemnities received in connection with Seller’s prior acquisition of any of the Assets) to the extent and only to the extent such rights and interests relate to the ownership of the Assets prior to the Effective Time, and (b) under any bond;

 

(xiv)        all Hydrocarbons produced from the Properties with respect to all periods prior to the Effective Time, and all proceeds from the disposition of such Hydrocarbons irrespective of when such proceeds are actually received, except for such Hydrocarbons produced from the Properties which have a negative Owner Balance as at the Effective Time; provided, however, that notwithstanding the above, Purchaser shall be entitled to the Inventory as a credit to Revenue when the Inventory is actually sold and Seller shall receive an upward adjustment for the Inventory to the Unadjusted Purchase Price;

 

(xv)         all “virtual courthouses” of Seller and Seller’s exclusive use arrangements with title abstract facilities and all documents and instruments of Sellers that may be protected by an attorney-client privilege and all data that cannot be disclosed to Purchaser as a result of confidentiality arrangements under agreements with third parties;

 

8

 

(xvi)        all licensed radio frequencies and associated communications infrastructure and equipment, including towers, antennas, data links and network circuits;

 

(xvii)       any indenture, loan, credit agreement, promissory note or similar agreement, in each case, for indebtedness of Seller or any Affiliate of Seller, as well as any mortgages, deeds of trust, security agreements, pledges, guarantees, or other agreements or instruments used to secure or support the indebtedness, loan agreements, credit agreements or other such agreements;

 

(xviii)      all Hedge Agreements;

 

(xix)        all equipment, tools and other equipment brought onto a well site temporarily for purposes of drilling, side-tracking, deepening, reworking or maintaining a well, any equipment, inventory, machinery, tools and other personal property not currently in use (or contemplated for use) for the operation of a Well or Wells, any vehicles, rolling stock, work over rigs, drilling rigs and related equipment, rental equipment, computers and their associated equipment and software, copy machines, and televisions.

 

“Excluded Contracts” has the meaning set forth in the definition of “Excluded Assets”.

 

“Excluded Field Pipelines” has the meaning set forth in the definition of “Excluded Assets”.

 

“Excluded Records” means:

 

(i)            any data, information, software and records to the extent that disclosure or change in ownership in connection with the transactions contemplated by this Agreement is prohibited by applicable Law;

 

(ii)           all corporate, partnership, financial, tax, and legal records and legal files, including but not limited to all work product of and attorney client communications with Seller’s counsel (which shall include in-house counsel), insofar as related to Excluded Assets or Retained Obligations;

 

(iii)          data and records relating to the sale of the Assets, including bids received from and records of negotiations with third Persons;

 

(iv)          any data, information or records to the extent relating to the Excluded Assets;

 

(v)           data, information or records containing Seller’s economic, reserves or investment forecasts, analyses, criteria, or rationales or similar information;

 

(vi)          any such data, information or records (including without limitation Seller’s proprietary geological or geophysical interpretations or similar data and information, other than Assignable Seismic Data) that are transferrable only upon consent, payment of a license, transfer or other fee or royalty to a third Person, or transferrable only if Purchaser executes a license, royalty or other agreement with a third Person, unless Purchaser pays such fee or royalty or executes such license; or

 

9

 

(vii)         any seismic data owned by Seller, other than Assignable Seismic Data.

 

“Excluded Wells” has the meaning set forth in the definition of “Excluded Assets”.

 

“Execution Date” has the meaning set forth in the Preamble.

 

“Facilitation Payments” means payments to a Government Official to facilitate or expedite performance of a routine governmental action which is an action which is commonly performed by such Government Official.

 

“Field Pipelines” has the meaning set forth in the definition of “Assets”.

 

“Final Accounting Statement” has the meaning set forth in Section 8.3(a).

 

“Final Disputed Environmental Matters” has the meaning set forth in Section 3.2(g)(ii).

 

“Final Disputed Title Matters” has the meaning set forth in Section 4.4(j)(ii).

 

“Final Purchase Price” has the meaning set forth in Section 8.3(a).

 

“Fundamental Representations” means, as to Seller, those representations and warranties set forth in Sections 6.1(a), (b), (c)(i), and (l), and as to Purchaser, means those representations and warranties set forth in Section 6.3(a), (b), (c)(i), and (i).

 

“GAAP” means generally accepted accounting principles of the United States as reasonably applied by Seller consistently with past accounting practices for the Assets.

 

“Government Official” means (i) any official or employee of any government, or any agency, ministry, department of a government (at any level), person acting in an official capacity for a government regardless of rank or position, official or employee of a company wholly or partially controlled by a government (for example, a state owned oil company), political party and any official of a political party; and (ii) any candidate for political office, any officer or employee of a public international organization, such as the United Nations or the World Bank, or any immediate family member (meaning a spouse, dependent child or household member) of any of the foregoing.

 

“Governmental Authority” means any national government or government of any political subdivision, and departments, courts, commissions, boards, bureaus, ministries, agencies or other instrumentalities of any of them.

 

“Governmental Authorizations” has the meaning set forth in the definition of “Assets”.

 

“Hard Consent” means any consent, approval, authorization or permit of, any Person which is required to be obtained, made or complied with for or in connection with any sale, assignment or transfer of any Asset or any interest therein; provided, however, that “Hard Consent” shall not include any (i) consent of, notice to, filing with, or other action by, any Governmental Authority in connection with the sale or conveyance of oil and/or gas leases or interests therein, if they are not

 

10

 

required prior to the assignment of such oil and/or gas leases or interests or they are customarily obtained subsequent to such sale or conveyance (including consents from State agencies), or (ii) consent requirement set forth in any agreement, contract, or oil and gas lease to be assigned which states that consent thereto cannot unreasonably be withheld (or words to similar effect), and as to which the lessor, or other holder of such consent, has not objected to the transfer, or affirmatively stated that consent thereto will not be forthcoming, twenty (20) days after such lessor or holder receives Seller’s written request to said lessor or other holder for consent to transfer the affected Assets to Purchaser or Purchaser’s designated Affiliate.

 

“Hedge Agreement” means a contract or agreement constituting a future hedge, derivative, swap, collar, put, call, cap, option, or other contract that is intended to benefit from, relate to, or reduce or eliminate the risk of fluctuations in interest rates, basis risk, or the price of commodities, including Hydrocarbons or securities.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“Hydrocarbons” means oil, gas, condensate or any other gaseous and liquid hydrocarbons or any combination or constituents thereof, including sulfur and other constituents extracted therefrom.

 

“Imbalances” means (i) any in-kind Hydrocarbon product imbalances, as measured by the applicable commodity increment (MMBtu, barrel, gallon), existing as of the Effective Time relating to applicable pipelines, processing plants and condensate stabilization facilities multiplied by (ii) the then current monthly commodity price, net of any transportation fees and location differentials, settled under Seller’s contracts relating to deliveries of each such Hydrocarbon product to the applicable pipeline, processing plant and condensate stabilization facility. Imbalance amount is considered positive if Seller is owed such amount and, conversely, imbalance amount is considered negative if Seller owes such amount.

 

“Indemnified Party” has the meaning set forth in Section 11.1(e).

 

“Indemnifying Party” has the meaning set forth in Section 11.1(e).

 

“Individual Environmental Threshold” has the meaning set forth in Section 3.2(h)(i).

 

“Individual Threshold” has the meaning set forth in Section 11.1(d)(ii)(B).

 

“Individual Title Threshold” has the meaning set forth in Section 4.4(k)(i).

 

“Interim Period” means the period from and including the Effective Time up to and including the day preceding the actual Closing; provided, however, that with regard to the Supplemental Closing Assets, this means the period from and including the Effective Time up to and including the day preceding the Supplemental Closing.

 

“Interim Period Indemnification Matters” means responsibility for claims for personal injury or death, arising directly or indirectly from or incident to the use, occupation, ownership, operation or maintenance of the Assets, or the condition thereof, to the extent that such claims arise from Seller’s ownership or operation of the Assets on or after the Effective Time and prior to the actual

 

11

 

Closing; provided, however, that with regard to the Supplemental Closing Assets, this means the period on or after the Effective Time and prior to the Supplemental Closing.

 

“Inventory” means Hydrocarbon and non-hydrocarbon substances associated with the Properties in storage upstream of the applicable sales meter at the Effective Time. The value of such Inventory shall be an amount calculated by applying the Seller’s interest in merchantable Hydrocarbon volumes in storage upstream of the applicable sales meter immediately prior to the Effective Time multiplied by the average Hydrocarbon sales price actually received in the month of the Effective Time less all applicable royalties, severance taxes, gravity adjustments and transportation expenses necessary to market such production (without duplication of any deductions already included as part of the Hydrocarbon sales price).

 

“Known/Knowledge” whenever a statement regarding the existence (or absence) of any fact in this Agreement is qualified by a phrase such as “to such Party’s Knowledge”, “Known to such Party,” or “had actual Knowledge”, the Parties intend that the only information to be attributed to such Party is information actually known to (a) the person in the case of an individual or (b) in the case of a corporation (or other business entity), the current officer and manager who devotes substantial attention to matters of such nature during the ordinary course of his or her employment, including in Seller’s case, the Permian Land Manager.  Unless otherwise specifically provided in this Agreement, no Party is represented or obligated to have undertaken a separate investigation in connection with the transaction contemplated in this Agreement to determine the existence (or absence) of any statement or representation qualified by a phrase such as “to such Party’s Knowledge”, “Known to such Party” or “had actual Knowledge”.

 

“Laws” means all laws, statutes, rules, regulations, ordinances, orders, writs, injunctions, decrees, requirements, judgments and codes of Governmental Authorities, including obligations arising under the common law.

 

“Letter Agreement” has the meaning set forth in Section 2.6(a)(i).

 

“Losses” has the meaning set forth in Section 11.1(a).

 

“Lowest Cost Response” has the meaning set forth in Section 3.2(f)(iv).

 

“Material Adverse Effect” means a material adverse effect on the operation, development for the production of Hydrocarbons, ownership or value of the Assets, taken as a whole; provided however, that Material Adverse Effect shall not include the following: adverse effects resulting from any of: changes in oil and gas prices; changes in industry, economic or political conditions, or markets; changes in condition or developments generally applicable to the oil and gas industry in any area or areas where the Assets are located; acts of nature, including hurricanes, storms, earthquakes and other natural disasters; acts or failures to act of Governmental Authorities, including regulatory changes; civil unrest or similar disorder; terrorist acts; changes or proposed changes in Laws or GAAP or the interpretation or enforcement thereof; effects or changes that are cured or no longer exist by the earlier of the Closing Date and the termination of this Agreement pursuant to Section 13.1; failure to meet internal or third party projections or forecasts; and changes resulting from the announcement, pendency or consummation of the transactions contemplated hereby or the performance of the covenants set forth in Article 7 hereof (including

 

12

 

any disruption in supplier, distributor, customer, partner or similar relationships, work stoppages, any loss or threatened loss of employees or other employee disruption).

 

“Material Contract” means a contract being assigned to, or assumed by, the Purchaser (or by which the Assets are bound) pursuant to this Agreement affecting the Assets, which is not an Excluded Contract, and which is of one or more of the following types:

 

(i)            involves (or could reasonably be expected to involve) obligations of, or payments to or from, Seller in any 12-month period in excess of one million United States Dollars ($1,000,000), excluding master service agreements;

 

(ii)           restricts Seller from freely engaging in any business or competing anywhere, including, without limitation, any contract containing an area of mutual interest, non-competition or acreage dedication;

 

(iii)          is a joint development agreement, exploration agreement, term assignment, data license agreement, participation agreement, acreage dedication agreement, or contains a provision which allows any party to be presently entitled to receive assignments or conveyances of any Property not yet made, or earn additional assignments or conveyances of any Property after the Effective Time (excluding rights and obligations arising after Closing under joint operating agreements);

 

(iv)          is a Hydrocarbon sale, gathering, transportation, or processing agreement;

 

(v)           provides for the joint operation or joint ownership of any Property with an Allocated Value exceeding one million United States Dollars ($1,000,000);

 

(vi)          is a judicial order, consent order, settlement agreement (other than a surface damage waiver) or similar document that affects the ownership or operation of any of the Assets;

 

(vii)         contains unperformed commitments to drill or participate in the drilling of additional wells (other than lease maintenance provisions requiring optional drilling to extend a lease beyond the primary term);

 

(viii)        unit agreements (excluding designations of pooled units), unit operating agreements, operating agreements, farmout or farmin agreements (to the extent such agreements are active and acreage remains to be earned or granted);

 

(ix)          contains provisions with drilling carry or other carry obligations with respect to costs normally chargeable to other lease or mineral owners (and excluding rights and obligations under joint operating agreements);

 

(x)           an agreement or contract with any Affiliate of Seller or any officer, director, employee or manager of Seller or any of those of Seller’s Affiliates (in each case) that will not be terminated on or prior to Closing (with no direct or indirect liability or obligation of Purchaser with regard to such termination);

 

13

 

(xi)          any agreement or contract which contains any take-or-pay, any minimum volume commitment or minimum payment provisions but excluding any minimum royalty provisions;

 

(xii)         any agreement or contract (other than an oil and gas lease that contains limitations on drilling including, but not limited to offset obligations for existing structures) that contains material restrictions or prohibitions on the use of the surface for drilling or operations as are required to produce Hydrocarbons, provided that, in the case of lands that contain existing wells producing prior to the Effective Time, such use is not restricted further than as of the Effective Time; and

 

(xiii)        contains any tag-along rights, drag-along rights, preferential purchase rights, rights of first offer, rights of first refusal, rights to put or call any Asset.

 

“Mineral Interest” has the meaning set forth in the definition of “Assets”.

 

“Net Mineral Acre” means, as computed separately with respect to each Hydrocarbon lease included as part of the Assets:  (a) the number of gross acres of land covered by the applicable Hydrocarbon lease, multiplied by (b) the lessor’s mineral interest (stated as a decimal) in Hydrocarbons granted by such Hydrocarbon lease, insofar and only insofar as such interest includes the depths described in Exhibit A-1, multiplied by (c) Seller’s Working Interest in such Hydrocarbon lease; provided that if clauses (a) and/or (b) and/or (c) vary as to different tracts or depths, a separate calculation shall be done for each such tract and depth.

 

“Net Revenue Interest” means the aggregate fractional or percentage ownership of Seller of the right to receive Hydrocarbon production (either in-kind or the share of proceeds from sales of Hydrocarbon production) from the applicable Oil and Gas Interests, after the deduction of all burdens upon such Oil and Gas Interest including royalties, overriding royalties, net profits interests or other burdens on or payable out of production.  Net Revenue Interests (including any applicable current before-payout and estimated final after-payout interests) are shown in Exhibits A-1 and A-2.

 

“NORM” has the meaning set forth in Section 14.4.

 

“Notice Period” has the meaning set forth in Section 11.1(e).

 

“Oil and Gas Interest” has the meaning set forth in the definition of “Assets”.

 

“Operated Properties” has the meaning set forth in Section 7.6(a).

 

“Owner Balances” means those balances maintained by the Seller which represent amounts due to or from third parties related to the sale of Hydrocarbon production from the Properties. The following is a non-exhaustive list of the type of matters represented by such balances; (i) amounts due from Seller to third parties that relate to the period prior to the Effective Time which may include amounts in suspense or amounts owed by Seller as a result of prior period adjustments completed by the Seller (negative Owner Balances); or (ii) amounts due from third parties to Seller that relate to the period prior to the Effective Time which may be a result of prior period adjustments completed by the Seller, but not yet collected as of the Effective Time (positive

 

14

 

Owner Balances). The Owner Balances are listed in Schedule 8.1 as of the Effective Time and will be updated in the Final Accounting Statement to account for the final balances as of Closing Date.

 

“P-4 Form” means the Certificate of Compliance and Transportation Authority required by the Commission necessary to (i) establish the operator of an oil lease, gas well or other well, (ii) certify responsibility for regulatory compliance, including plugging well(s) in accordance with Statewide Rule 14, Plugging ̧ and (iii) identify gatherers, purchasers and purchasers’ Commission -assigned system codes authorized for each producing well or lease.

 

“Party(ies)” has the meaning set forth in the Preamble.

 

“Performance Deposit” has the meaning set forth in Section 2.4.

 

“Permitted Encumbrance” has the meaning set forth in Section 4.3.

 

“Person” means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority or any other entity.

 

“Personal Data” means any information relating to an identified or identifiable individual.

 

“Price Adjustments” has the meaning set forth in Section 8.1.

 

“Pre-Acquisition Review” has the meaning set forth in Section 7.1(b).

 

“Pre-Closing Claim Date” has the meaning set forth in Section 3.2(a).

 

“Preliminary Accounting Statement” has the meaning set forth in Section 8.2.

 

“Properties” has the meaning set forth in the definition of “Assets”.

 

“Property Expense” means the following costs and expenses arising from or in connection with the ownership and/or operation of the Properties incurred in the ordinary course or in the case of an emergency or a threat to life, property or the environment; all capital expenses, joint interest billings, lease operating expenses, lease rentals, bonuses and shut-in payments, royalties, overriding royalties, net profits interests, drilling expenses, workover expenses, geological, geophysical and any other expenditures, including those expenditures chargeable under applicable operating agreements, or other agreements consistent with the standards established by COPAS, that are attributable to the operation of the Assets, or that may be owed to co-tenants or co-lessees, and during the Interim Period shall include overhead based upon the applicable joint operating agreement and COPAS and, where no joint operating agreement is applicable, the overhead shall be on a per well basis of nine thousand five hundred United States Dollars ($9,500) per month (drilling well rate), and one thousand five hundred United States Dollars ($1,500)  per month (producing well rate) with on-site and off-site technical services not covered by overhead at a fixed rate basis; provided, however, that Property Expenses shall not include (i) Taxes, (ii) any Losses for which Seller has agreed to indemnify, defend or hold harmless any Purchaser pursuant to this Agreement, (iii) any costs associated with any debt for borrowed money of Sellers or any of their Affiliates, (iv) any costs associated with curing any Title Defect or remediating any Environmental

 

15

 

Defect, (v)  any Losses attributable to personal injury or death, or violation of any Laws, or (vi) any negative Imbalances.

 

“Purchaser” has the meaning set forth in the Preamble.

 

“Purchaser’s Account” means the bank account and information set forth on Schedule A.

 

“Records” has the meaning set forth in the definition of “Assets”.

 

“Revenues” means all revenue relating to the Assets, including but not limited to Hydrocarbon production revenue from or attributable to any part of Assets, including Inventory, actually received by the Seller during the Interim Period which relate to the period on or after the Effective Time. Revenues will be calculated net of royalties, net profits interest, or similar burdens, severance tax and gathering, marketing and processing charges, and positive Imbalances deducted by the operator of the Assets, to the extent such deductions have actually been paid.

 

“Related Parties” means in relation to a Party:

 

(i)            any of its Affiliates;

 

(ii)           any person employed by that Party or its Affiliates;

 

(iii)          any director or other officer of that Party or its Affiliates.

 

“Remedy Deadline” has the meaning set forth in Section 3.2(g).

 

“Remediation” or “Remediate” has the meaning set forth in Section 3.2(b)(iii).

 

“Respondent” has the meaning set forth in Section 16.2(b).

 

“Retained Employee Liabilities” shall mean any liabilities of Seller (i) to employees of Seller arising under the Worker Adjustment Retraining Notification Act of 1988 as a result of actions taken by Seller prior to the Closing Date, (ii) arising out of claims by Seller’s employees with respect to events that occur prior to the Closing Date and that relate to their employment with, or the terminations of their employment from, Seller, (iii) with respect to employees of Seller arising under any “employee benefit plan” (as defined in Section 3(3) of ERISA) that is sponsored by, contributed to, or maintained by, Seller, or (iv) arising under ERISA for which Purchaser may have any liability under ERISA solely as a result of the consummation of the transactions contemplated by this Agreement.

 

“Retained Obligations” means:

 

(i)            any criminal fines or criminal penalties that may be levied against Seller by any court or regulatory authority for any violation of any laws, rules or regulations in connection with the ownership or operation of the Assets prior to the Effective Time;

 

16

 

(ii)           liability arising from Seller’s transportation or disposal offsite from the Properties prior to the Effective Time of any hazardous substances, wastes, or NORM generated by or used in connection with Seller’s ownership or operation of the Properties;

 

(iii)          responsibility for claims for personal injury or death, arising directly or indirectly from or incident to the use, occupation, ownership, operation or maintenance of the Assets, or the condition thereof, to the extent that such claims arise from Seller’s ownership or operation of the Assets prior to the Effective Time;

 

(iv)          responsibility for proper payment of all royalties, rentals, shut-in payments and all other burdens, charges or encumbrances to which the Assets are subject, but not including the Owner Balances (to the extent there has already been Price Adjustment for the same), attributable to periods prior to the Effective Time;

 

(v)           properly accounting for and disbursing production proceeds from the Oil and Gas Interests for the period prior to the Effective Time other than negative Owner Balances (to the extent there has already been a Price Adjustment for the same);

 

(vi)          all responsibility and liability associated with the pending, or threatened, suits and proceedings relating to the Assets or other ownership or operation thereof prior to the Effective Time, including, without limitation, those listed on Schedule 6.1(g);

 

(vii)         any Taxes attributable to periods prior to the Effective Time; and

 

(viii)        all Retained Employee Liabilities.

 

“Rules” has the meaning set forth in Section 16.2(a).

 

“Secured Obligations” has the meaning set forth in Section 10.4(b).

 

“Seller” has the meaning set forth in the Preamble.

 

“Seller Group” means any Affiliate of Seller, and the directors, officers, employees, agents and representatives of Seller or any Affiliate of a Seller.

 

“Seller’s Account” means the bank account and information set forth on Schedule B.

 

“Shell Legacy Representative” is identified in Section 15.5.

 

“Supplemental Closing” has the meaning set forth in Section 5.4.

 

“Supplemental Closing Assets” has the meaning set forth in Section 5.4.

 

“Surface Interests” has the meaning set forth in the definition of “Assets”.

 

“Surviving Provisions” means Article 1, Section 7.4, Section 11.1(a)(iv)—(v), Section 11.1(b)(v), Article 12, Section 13.2, Article 14 and all other waivers, disclaimers and releases that are in bold

 

17

 

and/or that are capitalized in this Agreement, Section 15.1, Section 15.2, Section 15.5, Section 15.6, Section 15.8, Section 15.9, Section 15.10 and its subsections, Section 15.11, Section 15.15, Section 15.16, Article 16, and the Confidentiality Agreement.

 

“Tax” means (i) all taxes, assessments, customs, duties, imposts, unclaimed property, fees and other governmental charges imposed by any Governmental Authority, including any federal, state or local income tax, gains tax, surtax, remittance tax, presumptive tax, net worth tax, special contribution, production tax, pipeline transportation tax, transaction tax, freehold mineral tax, value added tax, withholding tax, gross receipts tax, gross margin tax, windfall profits tax, profits tax, utility tax, severance tax, personal property tax, real property tax, ad valorem tax, sales tax, goods and services tax, service tax, transfer tax, use tax, excise tax, premium tax, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, unemployment tax, disability tax, alternative or add-on minimum tax and estimated tax, imposed by a Governmental Authority, (ii) any interest, fine, penalty or additions to tax imposed by a Governmental Authority in connection with any item described in clause (i), and (iii) any liability in respect of any item described in clauses (i) or (ii) above owing to a Governmental Authority, that arises by reason of a contract, assumption, transferee or successor liability, operation of law or otherwise.

 

“Texas DTPA” has the meaning set forth in Section 15.16.

 

“Title Arbitration Decision” has the meaning set forth in Section 4.4(j)(v).

 

“Title Arbitration Notice” has the meaning set forth in Section 4.4(j)(ii).

 

“Title Arbitrator” has the meaning set forth in Section 4.4(j)(iii).

 

“Title Benefit” has the meaning set forth in Section 4.2(c).

 

“Title Benefit Amount” has the meaning set forth in Section 4.4(f).

 

“Title Defect” has the meaning set forth in Section 4.2(b).

 

“Title Defect Amount” has the meaning set forth in Section 4.4(d)(i).

 

“Title Defect Notice” has the meaning set forth in Section 4.4(a).

 

“Title Defect Property” has the meaning set forth in Section 4.4(a).

 

“TNRC” has the meaning set forth in Section 10.4(a)(ii).

 

“Transfer Taxes” has the meaning set forth in Section 9.2.

 

“Unadjusted Purchase Price” has the meaning set forth in Section 2.3(a).

 

“United States Dollars” or “$” means the lawful currency of the United States of America.

 

18

 

“Wells” has the meaning set forth in the definition of “Assets”.

 

“Williams Gathering Agreement” has the meaning set forth in Section 5.3(f).

 

“Working Interest” means the aggregate fractional or percentage obligations of Seller to bear costs and expenses for maintenance and development of, and operations relating to, the applicable Oil and Gas Interest.  Working Interests are shown in Exhibits A-1 and A-2.

 

ARTICLE 2. — PURCHASE AND SALE

 

2.1          Purchase and Sale of Assets.

 

On the terms and subject to the conditions contained in this Agreement, Seller agrees to sell to Purchaser, and Purchaser agrees to purchase, accept and pay for the Assets.  Seller shall reserve and retain all the Excluded Assets.

 

2.2          Assets Subject to Existing Agreements and Legal Requirements.

 

Upon Closing, but with effect from the Effective Time, and subject to Purchaser’s rights in relation to; (i) the Retained Obligations, (ii) the warranties in Section 6.1, (iii) the indemnification set forth in Article 11, (iv) any post-Closing rights and remedies of Purchaser under Articles 3 or 4 of this Agreement, and (v) any rights and remedies with regard to the special warranty of title granted under the Assignment; the sale, transfer and conveyance of the Assets to Purchaser or Purchaser’s designated Affiliate will be made subject to, and Purchaser agrees to accept the Assets subject to and agrees to be bound to and to perform, any and all Assumed Obligations.

 

2.3          Purchase Price.

 

(a)                                 The purchase price payable by Purchaser to Seller for the Assets shall be Two Hundred Million United States Dollars ($200,000,000) (the “Unadjusted Purchase Price”) subject to adjustments as provided for in this Agreement. The obligation of Purchaser to pay the Unadjusted Purchase Price shall be satisfied by the payment by Purchaser to Seller, as follows:

 

(i)                         the Adjusted Initial Payment Amount as set forth in Section 8.2; and

 

(ii)                      the Adjusted Final Payment Amount, if any, pursuant to Section 8.3;

 

in each case on the terms and conditions set forth in this Agreement.

 

(b)                                 Schedule 2.3 sets forth Purchaser’s good faith allocation of the Unadjusted Purchase Price among the Oil and Gas Interests, Equipment, Electrical Laterals and Field Pipelines for all purposes under this Agreement (with respect to any of the Assets, such value is referred to herein as the “Allocated Value” and collectively, the “Allocated Values”).  Seller has accepted such Allocated Values for purposes of this Agreement and the transactions

 

19

 

contemplated hereby, but otherwise make no representation or warranty as to the accuracy of such values.

 

2.4                               Performance Deposit.

 

Not later than one (1) Business Day after execution of this Agreement, Purchaser shall pay to the Seller by wire transfer to the Seller’s Account an amount equal to ten percent (10%) of the Unadjusted Purchase Price in good and immediately available funds, as a performance deposit (“Performance Deposit”).  The Performance Deposit is to assure the performance of Purchaser pursuant to the terms and conditions of this Agreement. If Closing occurs, the Performance Deposit shall be applied as a credit against the Adjusted Initial Payment Amount payable by Purchaser at Closing. If this Agreement is terminated without a Closing, then the distribution of the Performance Deposit shall be governed by the provisions of Sections 13.2(b) and 13.2(c).

 

2.5                               Qualified Intermediary.

 

Seller and Purchaser hereby agree that this transaction may be completed as a like-kind exchange and that each Party will assist in completing the sale as a like-kind exchange.  As a like-kind exchange, Seller and Purchaser agree that Purchaser, in lieu of the purchase of the Assets from Seller for the cash consideration provided herein, shall have the right at any time prior to Closing to assign all or a portion of its rights under this Agreement to a Qualified Intermediary (as that term is defined in Treasury Regulation Section 1.1031(k)-1(g)(4)(v)) in order to accomplish the transaction in a manner that will comply, either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031 of the Code. Likewise, Seller shall have the right at any time prior to Closing to assign all or a portion of its rights under this Agreement to a Qualified Intermediary for the same purpose. In the event any Party assigns its rights under this Agreement pursuant to this Section 2.5, such Party agrees to notify the other Parties in writing of such assignment at or before Closing. If Seller assigns its rights under this Agreement for this purpose, Purchaser agrees to (i) consent to Seller’s assignment of its rights in this Agreement in the form reasonably requested by the Qualified Intermediary, and (ii) pay the Unadjusted Purchase Price (as may be adjusted under the terms of this Agreement) for the Assets into a qualified escrow or qualified trust account at Closing as directed in writing. If Purchaser assigns its rights under this Agreement for this purpose, Seller agrees to (i) consent to Purchaser’s assignment of its rights in this Agreement in the form reasonably requested by the Qualified Intermediary, (ii) accept the Unadjusted Purchase Price (as may be adjusted under the terms of this Agreement) for the Assets from the qualified escrow or qualified trust account at Closing, and (iii) at Closing, convey and assign directly to Purchaser the Assets that are the subject of this Agreement upon satisfaction of the other conditions to Closing and other terms and conditions hereof. Seller and Purchaser acknowledge and agree that any assignment of this Agreement, shall not increase the costs, expenses or liabilities of a Party as a result of the other Party’s assignment of this Agreement to a Qualified Intermediary, shall not release either Party from any of their respective liabilities and obligations to each other under this Agreement, and that neither Party represents to the other that any particular tax treatment will be given to either Party as a result thereof.

 

20

 

2.6                               Tag Along Rights.

 

(a)                                 Anadarko Tag Along:

 

(i)                                     Within ten (10) Business Days of the Execution Date, pursuant to the terms of a letter agreement between the Seller, Anadarko E&P Onshore LLC and Kerr-McGee Oil and Gas Onshore LP (Anadarko and Kerr-McGee being jointly “Anadarko”) dated July 27, 2017 (the “Letter Agreement”), Seller must and shall provide to Anadarko notice of the transactions contemplated in this Agreement, together with a summary of the terms, which includes the purchase price that applies and a copy of the relevant parts of this Agreement. Anadarko must confirm to the Seller within thirty (30) days of receipt of the notice from the Seller whether it wishes to sell its interest listed in Schedule 2.6 (the “Anadarko Tag Along Assets”).

 

(ii)                                  If Anadarko confirms that it wishes to sell the Anadarko Tag Along Assets, Purchaser agrees to purchase the Anadarko Tag Along Assets pursuant to a separate purchase and sale agreement to be entered into between the Purchaser and Anadarko where such agreement shall be on the same terms and conditions as set out in this Agreement. The price paid by the Purchaser for Anadarko’s interests in the Anadarko Tag Along Assets shall be the price set out in Schedule 2.6 for each of the Anadarko Tag Along Assets. Purchaser does not have the right to refuse to acquire the Anadarko Tag Along Assets or to negotiate different terms to those agreed in this Agreement, unless otherwise agreed by Anadarko.

 

(iii)                               Purchaser agrees that no discussion or other form of communication will occur between Anadarko and Purchaser in relation to the Anadarko Tag Along Assets without the Seller being present at any meetings or on telephone calls or included or copied on written communications.

 

(iv)                              Purchaser agrees and acknowledges that Seller does not warrant or represent that the information in Schedule 2.6 is complete and accurate. The information has been provided to Seller by Anadarko and Purchaser must separately satisfy itself with the accuracy of the information listed in Schedule 2.6.

 

ARTICLE 3. – ENVIRONMENTAL MATTERS

 

3.1                               Definition of Environmental Defect.

 

As used in this Agreement, the term “Environmental Defect” means with respect to any of the Properties any (i) non-compliance with applicable Environmental Laws or (ii) condition that exists with respect to the air, land, soil, surface, subsurface strata, surface water, ground water or sediments that causes any of the Assets to be subject to obligations to perform any response, removal, construction, closure, disposal or other remedial action under Environmental Laws.  Notwithstanding the foregoing, the following shall not be considered to be an Environmental Defect: (i) any Retained Obligation, (ii) any condition, contamination, liability, loss, cost, expense or claim related to NORM or asbestos that does not require current remediation or removal, and (iii) all obligations and liabilities for plugging, abandonment and restoration obligations as described in Section 10.2.

 

21

 

3.2                               Notice of Environmental Defects.

 

(a)                                 If, as a consequence of its Pre-Acquisition Review, Purchaser desires to assert a claim of an Environmental Defect with respect to any Property, Purchaser must deliver a claim notice to Seller for each such Environmental Defect (each an “Environmental Defect Notice”) promptly after the discovery thereof, but in no event later than forty-five (45) days after the Execution Date, subject to Section 15.11, (such cut-off date being the “Pre-Closing Claim Date”). To be effective, each Environmental Defect Notice must be delivered on or prior to the Pre-Closing Claim Date, shall be in writing, and shall include (i) a description of the alleged Environmental Defect(s) reasonably sufficient for Seller to determine the basis of the alleged Environmental Defect, including, at a minimum, the relevant Environmental Law citation, (ii) identification of the Property adversely affected by the Environmental Defect (each a “Environmental Defect Property”), (iii) the Allocated Value of each Environmental Defect Property, (iv) all documents upon which Purchaser relies for its assertion of an Environmental Defect, including, at a minimum, supporting documents and/or written expert assessments reasonably necessary for Seller (as well as any environmental engineering consultant hired by Seller) to verify the existence of the alleged Environmental Defect(s), and (v) the dollar amount by which Purchaser reasonably believes the Unadjusted Purchase Price should be reduced by the alleged Environmental Defect(s) in accordance with the terms of this Agreement and the computations and information upon which Purchaser’s belief is based, including any analysis by any environmental engineering consultant firm hired by Purchaser. The failure of an Environmental Defect Notice to be delivered to Seller in accordance with the Notice provisions hereof on or prior to the Pre-Closing Claim Date, or to contain the information required by item nos. (i) through (v) of this Section 3.2(a), shall render such notice ineffective, and for the purposes of this Article 3, shall be treated as if it had never been served.

 

(b)                                 Subject to Section 7.1(e), within ten (10) Business Days of receipt of an Environmental Defect Notice, and subject to Section 3.2(c) below and the reservation of all rights to contest any aspect of any such Environmental Defect Notice under Section 3.2(g), Seller shall, in its sole discretion, by notice to Purchaser elect to:

 

(i)                                     reduce the Unadjusted Purchase Price at Closing by an amount agreed upon in writing by Purchaser and Seller as being the amount of the Lowest Cost Response to Remediate each such Environmental Defect; or

 

(ii)                                  only if the value of the Environmental Defect asserted by Purchaser in the Environmental Defect Notice exceeds the Allocated Value for the affected Environmental Defect Property, retain the Property that is affected by such Environmental Defect, in which event the Unadjusted Purchase Price shall be adjusted downward by an amount equal to the Allocated Value of such Environmental Defect Property and shall be reflected in the Preliminary Accounting Statement in accordance with Sections 5.3(c) and 8.1, and such Environmental Defect Property shall no longer be included within the definition of Assets for any purpose under this Agreement other than Section 5.4; or

 

(iii)                               perform or cause to be performed prior to the Remedy Deadline, at the sole cost and expense of Seller, such operations as may be necessary to remediate the

 

22

 

Environmental Defect by (i) bringing such affected Property into compliance with the applicable Environmental Law and (ii) correcting the condition that causes the affected Property to be subject to an obligation to perform remedial action under Environmental Law (subparts (i) and (ii) are collectively referred to as “Remediation” or “Remediate”). Failing such Remediation of the Environmental Defect, the Environmental Defect Property will be excluded from the Closing and the Unadjusted Purchase Price will be reduced by the Allocated Value of the Environmental Defect Property.  Prior to the Remedy Deadline and upon Seller’s Remediation of the Environmental Defect, the Purchaser will acquire the affected Property from Seller and pay the Allocated Value for the Environmental Defect property, adjusted in accordance with Sections 5.3(c) and 8.1, in accordance with Section 5.4. If Seller is unable to Remediate the Environmental Defect prior to the end of the Remedy Deadline, then such Property shall become an Excluded Asset and no longer be considered as an Asset under this Agreement.

 

(c)                                  If Seller receives an Environmental Defect Notice and Seller disagrees with the existence or extent of any of the Environmental Defects alleged in an Environmental Defect Notice, and the Parties cannot agree on the existence or extent prior to the Closing Date: (a) the Seller shall submit the dispute to arbitration pursuant to Section 3.2(g); and (b) while awaiting the outcome from such arbitration, the Environmental Defect Property shall be retained by the Seller and in which event the Unadjusted Purchase Price shall be adjusted downward by an amount equal to the Allocated Value of such Environmental Defect Property and shall be reflected in the Preliminary Accounting Statement in accordance with Sections 5.3(c) and 8.1 pending the outcome of the arbitration pursuant to Section 3.2(g) at which point Section 3.2(g)(viii)(A) and Section 5.4 shall apply.

 

(d)                                 If Seller elects to proceed under Section 3.2(b)(i) and Purchaser and Seller have failed by Closing to agree on the reduction to the Unadjusted Purchase Price, the Parties shall: (a) submit the dispute to arbitration pursuant to Section 3.2(g); and (b) while awaiting the outcome from such arbitration, remove such affected Property from the Assets at Closing and proceed with Closing and the Unadjusted Purchase Price shall be reduced by the Allocated Value for the affected Property pending the outcome of the arbitration pursuant to Section 3.2(g).

 

(e)                                  Subject to Section 6.1(q) and Seller’s Retained Obligations in relation to offsite disposal of hazardous substances (and right to indemnification for such Retained Obligations under Article 11), this Article 3 shall be the exclusive right and remedy of Purchaser with respect to Environmental Defects or any other matter or liability related to Environmental Laws or the environmental condition of the Properties. Notwithstanding anything to the contrary in this Agreement, if prior to the Pre-Closing Claim Date Purchaser identifies an Environmental Defect which could also result in the breach of any warranty other than Section 6.1(q), then Purchaser shall only be entitled to assert such matter as an Environmental Defect to the extent permitted by this Section 3.2 and shall be precluded from also asserting such matter as the basis of the breach of any such representation or warranty. For clarity, after the Pre-Closing Claim Date, Purchaser shall not have the right to assert any claims for Environmental Defects (other than those that are the subject of an Environmental Defect Notice submitted before the Pre-Closing Date) provided that the Purchaser’s rights under this Agreement relating to a breach of the Seller’s warranty in Section 6.1(q) shall not be affected.

 

23

 

(f)                                   The “Environmental Defect Amount” resulting from an Environmental Defect shall be the amount determined in accordance with the following methodology, terms and conditions:

 

(i)                                     if Purchaser and Seller agree on the Environmental Defect Amount, that amount shall be the Environmental Defect Amount;

 

(ii)                                  the Environmental Defect Amount shall be based upon applicable Environmental Law in effect at the Effective Time; and

 

(iii)                               the estimated costs of Remediation shall not exceed the estimated costs of complying with the requirements of Governmental Authorities and Environmental Law and to fully satisfy all claims, fines and penalties that may be imposed by, or asserted by, Governmental Authorities related thereto; and

 

(iv)                              in addition, the estimated costs of Remediation shall be based upon and not exceed the lowest estimated costs reasonably required to comply with the requirements of Governmental Authorities and Environmental Law, and fully satisfy all claims, fines and penalties that may be imposed by, or asserted by, Governmental Authorities related thereto (“the Lowest Cost Response”).

 

(g)                                  If, prior to the date that is one hundred and ten (110) days after the Closing (the “Remedy Deadline”), there is a dispute as to whether Remediation has occurred, or Seller and Purchaser cannot agree on the proper and adequate Remediation for any such Environmental Defect, or if, Seller and Purchaser cannot agree on (1) the Environmental Defect Amount, or (2) whether the alleged Environmental Defect constitutes an Environmental Defect, such dispute(s) (“Disputed Environmental Matters”) shall be finally and exclusively resolved in accordance with the provisions of this Section 3.2(g); provided, however, that notwithstanding anything stated in this Article 3 to the contrary, Seller shall only be permitted to dispute after Closing the matters described above to the extent that the affected Property was retained by Seller at Closing pursuant to Section 3.2(b)(ii) or Section 3.2(b)(iii).  Seller’s election to attempt Remediation shall be without prejudice to its rights under this Section 3.2(g) and shall not constitute an admission against interests or a waiver of Seller’s right to dispute the existence, nature or value of, or cost to cure, the alleged Environmental Defect.

 

(i)                                     Purchaser shall provide to Seller by no later than the tenth (10th) Business Day following the Remedy Deadline an updated written description meeting the requirements of Section 3.2(a), together with all supporting documentation, of the Disputed Environmental Matters.  By not later than ten (10) Business Days after Seller’s receipt of Purchaser’s written description of the Disputed Environmental Matters, Seller shall provide to Purchaser a written response setting forth such Seller’s position with respect to the Disputed Environmental Matters together with all supporting documentation.

 

(ii)                                  By not later than ten (10) Business Days after Purchaser’s receipt of Seller’s written response to Purchaser’s written description of the Disputed Environmental Matters, Purchaser may initiate a non-administered arbitration of any such dispute(s) by written notice to Seller of any Disputed Environmental Matters not otherwise resolved or waived (“Final Disputed

 

24

 

Environmental Matters”) that are to be resolved by arbitration (the “Environmental Arbitration Notice”).

 

(iii)                               The arbitration shall be held before a single arbitrator (the “Environmental Arbitrator”), determined as follows.  The arbitrator selected under this subparagraph shall be a licensed environmental engineer with at least ten (10) years’ experience assessing the environmental condition of oil and gas properties in Texas and not have been associated with or worked with either Party in the past five (5) years.  Within three (3) Business Days following Seller’s receipt of the Environmental Arbitration Notice, Seller and Purchaser shall each exchange lists of three acceptable, qualified arbitrators.  Within three (3) Business Days following the exchange of lists of acceptable arbitrators, Purchaser and Seller shall select by mutual agreement one arbitrator from the combined lists.  If no agreement is reached, Purchaser and Seller shall each, by 5:00 pm Central Time of the second (2nd) Business Day identify a single arbitrator from their original list of three acceptable arbitrators.  The two selected arbitrators shall then together agree on a third arbitrator from the original lists within three Business Days following their own selection by each Party, which shall be no more than seven (7) Business Days following the Environmental Arbitration Notice.  Such third arbitrator shall serve as the Environmental Arbitrator.

 

(iv)                              Within three (3) Business Days following the selection of the Environmental Arbitrator, the Parties shall submit one copy to the Environmental Arbitrator of (A) this Agreement, with specific reference to this Section 3.2(g), (B) Purchaser’s written description of the Final Disputed Environmental Matters together with the supporting documents that were previously provided to Seller pursuant to Section 3.2(g)(i), (C) Seller’s written response to Purchaser’s written description of the Final Disputed Environmental Matters, together with the supporting documents that were previously provided to Purchaser pursuant to Section 3.2(g)(i), and (D) the Environmental Arbitration Notice.  Within five (5) Business Days following such submissions, each of the Parties may submit one written response to the other Party’s submission.  The Environmental Arbitrator shall resolve the Final Disputed Environmental Matters based only on the foregoing submissions.  Neither Purchaser nor Seller shall have the right to submit additional documentation or any additional written response to the Environmental Arbitrator nor to demand discovery on the other Party.

 

(v)                                 The Environmental Arbitrator shall make its determination by written decision within thirty (30) Business Days following Seller’s receipt of the Environmental Arbitration Notice (the “Environmental Arbitration Decision”).  The Environmental Arbitration Decision shall be final and binding upon both Parties, without right of appeal. In making its determination, the Environmental Arbitrator shall be bound by the rules set forth in Section 3.2(f) and this Section 3.2(g).  The Environmental Arbitrator may consult with and engage disinterested third Persons, including counsel, to advise the Environmental Arbitrator, but shall disclose to the Parties the identities of such consultants. Any such consultant shall not (i) be currently working as an employee or consultant for either Party, nor be in discussions about potential future work for either Party, (ii) have worked directly or indirectly as an employee or consultant for either Party or its Affiliates during the two-year period preceding the arbitration, or (iii) have any financial or other personal interest in the dispute.

 

25

 

(vi)                              The Environmental Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Environmental Defects and Environmental Defect Amounts and shall not be empowered to award damages, interest or penalties to either Party with respect to any matter.

 

(vii)                           Each Party shall each bear its own legal fees and other costs of preparing and presenting its case.  Each Party shall bear one-half of the costs and expenses of the Environmental Arbitrator, including any costs incurred by the Environmental Arbitrator that are attributable to the consultation of any third Person.

 

(viii)                        Seller and Purchaser shall implement the Environmental Arbitration Decision as follows:

 

(A)       in the case of alleged Environmental Defects determined to be Environmental Defects, Seller shall elect the course of action set out in Section 3.2(b)(i), (ii) or (iii) within ten (10) Business Days following Seller’s receipt of the Environmental Arbitration Decision; provided that if Section 3.2(c) applies and the Seller pursues Section 3.2(b)(i) or (iii) to implement the Environmental Arbitration Decision the Purchaser shall purchase the Environmental Defect Property and Section 5.4 shall apply;

 

(B)       in the case of disputed Environmental Defect Amounts, where Seller has elected to reduce the Unadjusted Purchase Price in accordance with Section 3.2(b)(i), Seller shall adjust the Unadjusted Purchase Price to give effect to the Environmental Arbitration Decision.  Any Environmental Arbitration Decision shall be a final and binding decision as to that Disputed Environmental Matter.

 

(ix)                              Any dispute over the interpretation or application of this Section 3.2 shall be decided by the Environmental Arbitrator with reference to the Laws of the State of Texas.  Any award of the Environmental Arbitrator may be enforced against both Parties in the courts located in Harris County or Houston, Texas, or any other state in which any Party holds or owns property of any kind.

 

(h)                                 Notwithstanding anything to the contrary in this Agreement, in no event shall there be any remedies available under this Article 3:

 

(i)                                     for any Environmental Defect Amount with respect to an individual Environmental Defect Property if such amount does not exceed fifty thousand United States Dollars ($50,000), but if exceeded, the entire Environmental Defect Amount related thereto shall be counted for purposes of this Agreement, without deduction of this individual threshold (the “Individual Environmental Threshold”); and

 

(ii)                                  unless the aggregate amount of all such Environmental Defect Amounts,  (provided that each such Environmental Defect Amount exceeds the Individual Environmental Threshold and excluding any Environmental Defect Amounts with respect to Environmental Defects cured by Seller) exceeds the Aggregate Environmental Deductible, after which point Purchaser, shall be

 

26

 

entitled to remedies elected by Seller in accordance with Section 3.2(b) only to the extent that such Environmental Defects exceed the Aggregate Environmental Deductible.

 

(i)                                     Without prejudice to any of the other dates by which performance or the exercise of rights is due hereunder, or the Parties’ rights or obligations in respect thereof, the Parties hereby acknowledge that, as set forth more fully in Section 15.7, time is of the essence in performing their obligations and exercising their rights under this Section 3.2, and, as such, that each and every date and time by which such performance or exercise is due shall be the firm and final date and time.

 

(j)                                    If Seller pursues Remediation then Purchaser agrees that at Seller’s election, all negotiations and contacts with Governmental Authorities for approval and review of such remedial action shall be made by Seller.

 

3.3                               SUBJECT TO THE RIGHTS OF THE PURCHASER TO INDEMNIFICATION UNDER ARTICLE 11 WITH REGARD TO A BREACH OF SECTION 6.1(Q) OR SELLER’S RETAINED OBLIGATIONS (TO THE EXTENT RELATED TO SELLER’S OFFSITE DISPOSAL OF HAZARDOUS SUBSTANCES), THIS ARTICLE 3 SHALL CONSTITUTE PURCHASER’S ENTIRE REMEDY WITH RESPECT TO THE ENVIRONMENTAL CONDITION OF THE PROPERTIES AND COMPLIANCE WITH ENVIRONMENTAL LAW.

 

3.4                               EXCEPT AS PROVIDED IN SECTION 3.2 AND SECTION 6.1(Q) (AND ARTICLE 11 WITH REGARD TO A BREACH OF SECTION 6.1(Q)) AND EXCEPT WITH REGARD TO THE SPECIAL WARRANTY OF TITLE FROM SELLER IN THE ASSIGNMENT, PURCHASER SHALL ACQUIRE THE PROPERTIES “WHERE IS” AND “AS IS” WITH NO RIGHT TO RECOVER ANY FURTHER AMOUNTS FROM SELLER FOR ANY LIABILITIES, COSTS OR EXPENSES RELATED TO THE CONDITION OF THE PROPERTIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL CONDITIONS AND DAMAGES TO NATURAL RESOURCES). ACQUISITION OF THE PROPERTY CONTAINING SUCH CONDITIONS “WHERE IS” AND “AS IS” SHALL CONSTITUTE PURCHASER’S WAIVER, GENERAL RELEASE AND AGREEMENT TO DEFEND, INDEMNIFY AND HOLD SELLER AND EACH MEMBER OF SELLER GROUP HARMLESS FROM ALL LIABILITIES, COSTS OR EXPENSES RELATED TO SUCH CONDITIONS (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL CONDITIONS, CERCLA LIABILITY AND DAMAGES TO NATURAL RESOURCES), WHETHER CONTRACT, TORT OR STATUTORY, REGARDLESS OF THE PAST NEGLIGENCE, GROSS NEGLIGENCE OR FAULT OR STRICT OR STATUTORY LIABILITY OF SELLER OR ANY MEMBER OF SELLER GROUP.

 

27

 

ARTICLE 4. – TITLE MATTERS

 

4.1                               Exclusive Title Remedy.

 

Except with regard to the Seller’s special warranty of title in the Assignment, this Article 4 provides Purchaser’s exclusive remedy against Seller with respect to any claim in connection with Seller’s claim of title relating to the Assets.

 

4.2                               Definitions of Defensible Title, Title Defect and Title Benefit.

 

(a)                                 As used in this Agreement, the term “Defensible Title” means such title of the Seller as of the Pre-Closing Claim Date and as of Closing Date that, except for and subject to Permitted Encumbrances:

 

(i)                                           with respect to the Oil and Gas Interests, entitles the Seller to receive not less than the Net Revenue Interest shown in Exhibits A-1 and A-2 for such Oil and Gas Interests, throughout the productive life of such Wells and throughout the term of such Mineral Interests, except (A) decreases in connection with those operations in which Seller or its successors or assigns may elect after the Execution Date to be a non-consenting co-owner, (B) decreases resulting from reversion of interest to co-owners with respect to operations approved after the Execution Date in which such co-owners elect not to consent, (C) decreases resulting from the establishment or amendment, after the Execution Date, of pools or units including, but not limited to allocation and pooled units, (D) decreases required to allow other working interest owners to make up either Imbalances identified in this Agreement or to make up underproduction or pipeline imbalances that occur after Closing, (E) any other decrease required in connection with operations approved (or in connection with breaches of such agreements occurring) after the Closing by any applicable joint operating agreement or as required by Laws, or (F) as otherwise stated in Exhibit A-1 or Exhibit A-2;

 

(ii)                                        with respect to the Wells, obligates Seller to bear not greater than the Working Interest in the Wells as shown in Exhibit A-2, throughout the productive life of such Wells, except (A) increases resulting from contribution requirements with respect to non-consenting or defaulting co-owners under applicable operating agreements with regard to elections made or breaches occurring after the Execution Date, (B) increases resulting from the establishment or amendment from and after the Execution Date of pools or units including but not limited to allocation and pooled units, (C) increases that are accompanied by at least a proportionate increase in Seller’s Net Revenue Interest, or (D) as otherwise stated in Exhibit A-2;

 

(iii)                                     with respect to the Mineral Interests, entitles Seller to receive not less than the Net Mineral Acres shown in Exhibit A-1 for such Mineral Interests, throughout the term of such Mineral Interests, except, (A) decreases resulting from the establishment or amendment, after the Execution Date, of pools or units including but not limited to allocation and pooled units, (B) increases resulting from contribution requirements with respect to non-consenting or defaulting co-owners under applicable operating agreements with regard to elections made or breaches occurring after the Execution Date, or (C) as otherwise stated in Exhibit A-1;

 

(iv)                                    in the case of any Mineral Interest, entitles Seller to a primary term under such Hydrocarbon lease or other Mineral Interest (if such Hydrocarbon lease or other Mineral Interest is

 

28

 

not held by production beyond its primary term) that does not expire sooner than set forth on Exhibit A-1;

 

(v)                                       with regard to the Assets, is free and clear of liens, encumbrances, obligations, or Title Defects.

 

(b)                                       As used in this Agreement, the term “Title Defect” means (i) any lien, charge, encumbrance, obligation, defect, or other similar matter that, if not cured, causes Seller not to have Defensible Title in and to the Oil and Gas Interests to the extent specified in Exhibit A-1 and Exhibit A-2, and (ii) any lien or financial encumbrance on the Equipment, Field Pipelines and Electrical Laterals. Notwithstanding the foregoing, the following shall not be considered Title Defects:

 

(i)                                           defects based solely on: (A) lack of information, including lack of information in Seller’s files, the lack of third party records or unavailability of information from Governmental Authorities; (B) references to a document(s) if such document(s) is not in Seller’s files; or (C) Tax assessment, Tax payment or similar records (or the absence of such activities or records);

 

(ii)                                        defects arising out of variation of corporate name or lack of corporate or other entity authorization, unless Purchaser provides affirmative evidence that the action was not authorized and such lack of authorization results in a third Person’s actual and superior claim of title to the relevant Oil and Gas Interest;

 

(iii)                                     defects based on failure to record Mineral Interests granted by any Governmental Authority, or any assignments of record title or operating rights in such Mineral Interests, in the real property, conveyance or other records of the county in which such Oil and Gas Interest is located;

 

(iv)                              defects based on a gap in Seller’s chain of title in the county records as to Oil and Gas Interests, where such a gap occurs in excess of twenty-five (25) years prior to the effective date of said Oil and Gas Interests, and no challenge of record can be demonstrated, whether by pending judicial, quiet title action, or other filing of record in the county courthouse clearly demonstrating that such a gap represents a competing chain of title;

 

(v)                                       defects as a consequence of cessation of production, insufficient production, failure to produce in paying quantities or failure to conduct operations during any period after the completion of a well capable of production in paying quantities on any of the Oil and Gas Interests held by production, or lands pooled, communitized or unitized therewith, except to the extent of a court ordered termination of the lease or affirmative release by Seller of a lease will constitute a title defect if such interest is listed on Exhibit A-1;

 

(vi)                                    defects that have been cured by the passage of time, the doctrine of adverse possession, applicable laws of limitations or prescription or such other matter that would render such defect invalid according to applicable law;

 

(vii)                                 defects in the chain of title or in the Oil and Gas Interest itself consisting of the failure to recite marital status in a document or omissions of successions of heirship or estate

 

29

 

proceedings, unless Purchaser provides affirmative evidence that such failure or omission results in another person’s superior claim of title to the relevant Asset;

 

(viii)                              defects arising solely out of lack of survey or lack of metes and bounds descriptions, unless a survey is expressly required by applicable Law;

 

(ix)                                    defects arising from any change in applicable Law after the Execution Date;

 

(x)                                 defects arising from prior oil and gas leases relating to the Oil and Gas Interests that have expired (and Seller can provide reasonable cause or support of such expiration, including the passage of time) but are not surrendered of record;

 

(xi)                                    defects arising from an unsubordinated mortgage that is not in default; and

 

(xii)                                 defects arising from assignments made by Seller to obligated third parties or arising from interests to which Seller is contractually entitled to, but for which have not received an assignment as of the Closing Date, provided that the interests covered by such assignments are reflected in Exhibit A-1 or Exhibit A-2, as applicable, and have been taken into account in the Seller’s Net Revenue Interests, Working Interests and Net Mineral Acres reflected thereon;

 

(xiii)                              defects arising from shut-in wells that are operated under leases containing habendum and/or shut-in clauses which permit the continuation of such leases by payment of shut-in royalties, and Seller can provide evidence that all such royalties have been properly paid;

 

(xiv)                             defects arising from the expiration of any oil and gas lease for any Mineral Interests after the Execution Date to the extent such expiration date was stated on Exhibit A-1.

 

(c)                                  As used in this Agreement, the term “Title Benefit” means any right, circumstance or condition that operates to (i) increase the Net Revenue Interest of Seller in any of the Oil and Gas Interests above that shown on Exhibit A-1 or Exhibit A-2 without causing a proportionate or greater than proportionate increase in Seller’s Working Interest, as applicable, above that shown on Exhibit A-1 or Exhibit A-2; (ii) decrease the Working Interests of Seller in any of the Wells below that shown on Exhibit A-2 without a decrease in Seller’s Net Revenue Interest, as applicable, below that shown on Exhibit A-2, or (iii) increase the Seller’s Net Mineral Acres above that shown in Exhibit A-1 (but if the reason is due to an increase in Seller’s Working Interest, then such increase must be accompanied by not less than a proportionate increase in Seller’s Net Revenue Interest in the applicable Mineral Interest) (each, an “Additional Oil and Gas Interest”).

 

4.3                               Definition of Permitted Encumbrances.

 

The term “Permitted Encumbrances” means any or all of the following:

 

(a)                                 royalties and any overriding royalties, net profits interests, free gas arrangements, production payments, reversionary interests and other similar burdens on Hydrocarbon production to the extent that the net cumulative effect of such burdens does not (i) reduce Seller’s Net Mineral Acres below that shown in Exhibit A-1; or (ii) reduce Seller’s Net Revenue Interest below that

 

30

 

shown in Exhibit A-2 or (iii) increase the Seller’s Working Interest above that shown in Exhibit A-2 without a proportionate increase in the Net Revenue Interest of such Seller;

 

(b)                                 all contracts and contract rights included within the definition of Assets, to the extent that the net cumulative effect of such instruments does not (i) reduce the Seller’s Net Mineral Acres below that shown on Exhibit A-1, (ii) reduce the Seller’s Net Revenue Interest below that shown in Exhibit A-2 or (iii) increase the Seller’s Working Interest above that shown in Exhibit A-2 without a proportionate increase in the Net Revenue Interest of Seller, or (iv) prevent or materially impair the current ownership or use of the Wells and associated acreage and surface area producing prior to the Effective Time, or (v) prevent or materially impair the ability to develop the undeveloped lands covered by the Oil and Gas Interests to produce Hydrocarbons;

 

(c)                                  rights of first refusal, preferential rights to purchase and similar rights, and third Person consent to assign rights with respect to the Assets, to the extent and only to the extent such rights are set forth on an applicable disclosure schedule to this Agreement;

 

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

 

(e)                                  materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by Law), or if delinquent, being contested in good faith by appropriate actions;

 

(f)                                   all rights to consent by, required notices to, filings with, or other actions by Governmental Authorities in connection with the sale or conveyance of the Oil and Gas Interests therein if they are not required or customarily obtained prior to the sale or conveyance;

 

(g)                                  excepting circumstances where such rights have already been triggered, rights of reassignment arising upon final intention to abandon or release any of the Oil and Gas Interests;

 

(h)                                 easements, rights-of-way, covenants, servitudes, permits, surface leases and other rights in respect of surface operations to the extent that the same have been provided to Purchaser prior to the Execution Date and the net cumulative effect of such rights do not (i) reduce Seller’s Net Mineral Acres below that shown in Exhibit A-1, (ii) reduce Seller’s Net Revenue Interest below that shown in Exhibit A-2 or (iii) increase Seller’s respective Working Interest above that shown in Exhibit A-2 without a proportionate increase in the Net Revenue Interest of Seller;

 

(i)                                     calls on production set forth in the Material Contracts provided that the current and future amounts to be paid for the same included in such Material Contracts;

 

(j)                                    all rights reserved to or vested in any Governmental Authorities to control or regulate any of the Assets in any manner or to assess Tax with respect to the Assets, the ownership, use or operation thereof, or revenue, income or capital gains with respect thereto, and all rights, 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;

 

31

 

(k)                                 any lien, charge or other encumbrance on or affecting the Assets which is expressly waived, assumed, bonded or paid by Purchaser at or prior to Closing or which is discharged by Seller at or prior to Closing and all defects or irregularities resulting from failure to record releases of liens, production payments or mortgages that have expired by their own terms or the enforcement of which are barred by applicable statutes of limitation;

 

(l)                                     any lien or trust arising in connection with workers’ compensation, unemployment insurance, pension or employment laws or regulations, provided such lien or trust is not delinquent;

 

(m)                             limitations (including drilling or operating limitations and any pooling obligations) imposed on the Oil and Gas Interests by reason of the rights of subsurface owners or operators in a common property disclosed in the Data Exchange as of the Execution Date, to the extent that the net cumulative effect of such burdens does not (i) reduce Seller’s Net Mineral Acres below that shown in Exhibit A-1; or (ii) reduce Seller’s Net Revenue Interest below that shown in Exhibit A-2 or (iii) increase the Seller’s Working Interest above that shown in Exhibit A-2 without a proportionate increase in the Net Revenue Interest of such Seller; or (iv) prevent or materially impair the ability to develop the undeveloped lands covered by the Oil and Gas Interests to produce Hydrocarbons;

 

(n)                                 the matters described in Schedule 6.1(g);

 

(o)                                 any matters evident from Exhibit A-1 or Exhibit A-2; and

 

(p)                                 except for any lien or financial encumbrance on the Equipment, Field Pipelines and Electrical Laterals, any defect in title to any Asset other than an Oil and Gas Interest.

 

(p)                                 any other liens, charges, encumbrances, defects or irregularities 
 that (i) do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Oil and Gas Interests subject thereto or affected thereby (as currently used or owned), (ii) would be accepted by a reasonably prudent title examiner engaged in the business of reviewing and interpreting on the ownership and operations of oil and gas properties in the region where the Oil and Gas Interests are located, including the absence of any lease amendment or consent by any royalty interest or mineral interest holder authorizing the pooling of any leasehold interest, royalty interest or mineral interest and the failure of Exhibit A-1 or Exhibit A-2 to reflect any lease or any unleased mineral interest where the owner thereof was treated as a non-participating co-tenant during the drilling of any well,  (iii) do not reduce the Seller’s Net Mineral Acres below that shown in Exhibit A-1, or (iv) do not reduce the Seller’s Net Revenue Interest below that shown in Exhibit A-2 or (v) increase the Seller’s Working Interest above that shown in Exhibit A-2 without a proportionate increase in the Net Revenue Interest of such Seller, or (vi) prevent or materially impair the current ownership or use of the Wells and associated acreage and surface area, producing prior to the Effective Time, or (vii) prevent or materially impair the ability to develop the undeveloped lands covered by the Oil and Gas Interests to produce Hydrocarbons.

 

32

 

4.4                               Notice of Title Defects.

 

(a)                                 If, as a consequence of its Pre-Acquisition Review, Purchaser desires to assert a claim of a Title Defect, Purchaser must deliver claim notices to Seller (each a “Title Defect Notice”) promptly after the discovery thereof, but in no event later than the Pre-Closing Claim Date.  To be effective, each Title Defect Notice shall be in writing and shall include (i) a description of the alleged Title Defect(s) reasonably sufficient for Seller to determine the basis of the alleged Title Defect, (ii) identification of the Oil and Gas Interest adversely affected by the Title Defect (each a “Title Defect Property”), (iii) the Allocated Value of each Title Defect Property, (iv) all documents upon which Purchaser relies for its assertion of a Title Defect, including, at a minimum, supporting documents reasonably necessary for Seller (as well as any title attorney or examiner hired by Seller) to verify the existence of the alleged Title Defect(s), provided that if such documents are not in Purchaser’s possession, Purchaser may instead provide Seller with sufficient detail as to why the Purchaser cannot use reasonable commercial efforts to obtain such documentation, where the documents are located (if applicable) and/or how the Seller can obtain any necessary documents relied on, but not in the Purchaser’s possession, and (v) the amount by which Purchaser reasonably believes the Allocated Value of each Title Defect Property is reduced by the alleged Title Defect(s) in accordance with the terms of this Agreement and the computations and information upon which Purchaser’s belief is based, including any analysis by any title attorney or examiner hired by Purchaser.

 

(b)                                 Should Purchaser discover any Title Benefit on or before the Pre-Closing Claim Date, Purchaser shall as soon as practicable, but in any case by the Pre-Closing Claim Date, deliver a notice to Seller in writing, which shall include (i) a description of the Title Benefit, (ii) the Oil and Gas Interest or Additional Oil and Gas Interest affected, (iii) the Allocated Values of the Oil and Gas Interest subject to such Title Benefit or the fair market value of the Additional Oil and Gas Interest affected and (iv) the amount by which Purchaser reasonably believes the Allocated Value of each of those Oil and Gas Interests is increased by such Title Benefit, and the computations and information upon which Purchaser’s belief is based including any analysis by any title attorney or examiner hired by Purchaser.  Seller has the right, but not the obligation, to deliver to Purchaser a similar notice on or before the Pre-Closing Claim Date with respect to each Title Benefit discovered by Seller.

 

(c)                                  Seller shall have the right, but not the obligation, to attempt, at Seller’s sole cost, to cure or remove on or before the Remedy Deadline, any Title Defects for which Seller has received a timely Title Defect Notice from Purchaser, subject to the terms and conditions of this Section 4.4.  If, by the Remedy Deadline, Seller has not cured the Title Defects or if prior to Closing, Seller and Purchaser cannot agree on (i) the proper and adequate cure for any such Title Defect, (ii) the Title Defect Amount, or (iii) whether the alleged Title Defect constitutes a Title Defect, such dispute shall be finally and exclusively resolved in accordance with the provisions of Section 4.4(j); provided, however, that notwithstanding anything stated in this Article 4 to the contrary, Seller shall only be permitted to dispute after Closing the matters described above to the extent that the affected Property was retained by Seller at Closing pursuant to Section 4.4(d)(ii) and 4.4(d)(iii).   Seller’s election to attempt to cure a Title Defect shall be without prejudice to its rights to have the matter decided under Section 4.4(j) and shall not constitute an admission against interest or a waiver of Seller’s right to dispute as to the existence, nature or value of the alleged Title Defect. Prior to the Remedy Deadline and following the Closing, Seller shall conduct any cure of alleged

 

33

 

Title Defects using its own resources, personnel and advisors; provided, however, that Purchaser, shall reasonably cooperate with Seller’s efforts but shall not be required to incur any out of pocket costs other than de minimus costs. Any disputed Title Defects that have not been cured, waived, or otherwise resolved by the Parties prior to the Remedy Deadline shall be exclusively and finally resolved in accordance with the provisions of Section 4.4(j). Notwithstanding anything contained herein to the contrary, Seller shall deliver a written notice to Purchaser of its election to cure any Title Defects prior to Closing.

 

(d)                                 In the event that any Title Defect is not waived by Purchaser or, subject to Section 4.4(c), cured prior to the Closing, Seller shall, at its sole election, and subject to the Aggregate Title Deductible, elect prior to Closing to:

 

(i)                                     accept a reduction in the Unadjusted Purchase Price equal to an amount determined pursuant to Section 4.4(h) (the “Title Defect Amount”) as being the value of such Title Defect net of any Title Benefit Amount calculated in accordance with Section 4.4(i); in which event, the Title Defect Amount shall be deducted from the Unadjusted Purchase Price in accordance with Sections 5.3(c) and 8.1; or

 

(ii)                                  only if the value of the Title Defect asserted by Purchaser in the Title Defect Notice exceeds fifty percent (50%) of the Allocated Value for the affected Title Defect Property, retain the entirety of the Title Defect Property, in which event, the Unadjusted Purchase Price shall be adjusted downward by an amount equal to the Allocated Value of such Title Defect Property in accordance with Sections 5.3(c) and 8.1; or

 

(iii)                               prior to the Remedy Deadline, at the sole cost and expense of Seller, cure such Title Defect. If the Title Defect is not cured prior to Closing, then the Title Defect Property will be excluded from the Closing and the Unadjusted Purchase Price will be reduced by the Allocated Value of the Title Defect Property.  Prior to the Remedy Deadline and upon Seller’s curing the Title Defect, the Purchaser will acquire the affected Property from Seller in accordance with Section 5.4.  If Seller is unable to cure the Title Defect prior to the end of the Remedy Deadline, then such Property shall become an Excluded Asset and no longer be considered as an Asset under this Agreement

 

(e)                                  Upon Seller electing to retain a Title Defect Property because of a Title Defect pursuant to Section 4.4(d)(ii) or 4.4(d)(iii), the Parties shall complete any further conveyancing in accordance with Section 5.4.

 

(f)                                   With respect to each Oil and Gas Interest or Additional Oil and Gas Interest affected by Title Benefits reported under Section 4.4(b) (or which Purchaser should have reported under such section), an amount (the “Title Benefit Amount”) equal to the increase in the Allocated Value for such Oil and Gas Interest or the fair market value of such Additional Oil and Gas Interest caused by such Title Benefits will be determined pursuant to Section 4.4(i), and such Title Benefit Amount shall be exclusively used to offset any Title Defect Amounts that are finally determined under this Section 4.4. If Purchaser disputes any Title Benefit or Title Benefit Amount, it shall be resolved in accordance with the dispute resolution provisions governing Title Defects in Section 4.4(j).

 

34

 

(g)                                  Except with regard to Purchaser’s rights under the special warranty of title in the Assignment, this Section 4.4 shall be the exclusive right and remedy of Purchaser with respect to Title Defects or any other matter related to title or ownership of the Assets.  In this regard and notwithstanding anything to the contrary in this Agreement, if prior to the Pre-Closing Claim Date Purchaser identifies any matter that could be asserted as a Title Defect which could also result in the breach of any representation or warranty of a Seller as set forth in Section 6.1, then Purchaser shall only be entitled to assert such matter as a Title Defect to the extent permitted by this Article 4 and shall be precluded from also asserting such matter as the basis of the breach of any such representation or warranty. For clarity, after the Pre-Closing Claim Date, except with regard to claims under the special warranty of title in the Assignment, Purchaser shall not have the right to assert any claims for Title Defects (other than those that are the subject of a Title Defect Notice submitted before the Pre-Closing Date).

 

(h)                                 The Title Defect Amount resulting from a Title Defect shall be the amount by which the Allocated Value of the Title Defect Property adversely affected by such Title Defect is reduced as a result of the existence of such Title Defect and shall be determined in accordance with the following methodology, terms and conditions:

 

(i)                                     if Purchaser and Sellers agree on the Title Defect Amount, that amount shall be the Title Defect Amount;

 

(ii)                                  if the Title Defect is a lien, encumbrance or other charge which is undisputed and liquidated in amount, then the Title Defect Amount shall be the undisputed and liquidated amount necessary to be paid to remove the Title Defect from the appropriate Seller’s interest in the affected Title Defect Property;

 

(iii)                               if the Title Defect reflects a discrepancy between (A) the Net Mineral Acres for any Title Defect Property and the Net Mineral Acres shown in Exhibit A-1, then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect property multiplied by a fraction the numerator of which is the Net Mineral Acres for the Title Defect Property and the denominator of which is the Net Mineral Acres stated in Exhibit A-1, if the Title Defect reflects a discrepancy between (A) the Net Revenue Interest for any Title Defect Property and (B) the Net Revenue Interest stated in Exhibit A-2, then the Title Defect Amount shall be the product of the Allocated Value of such Title Defect Property multiplied by a fraction, the numerator of which is the amount of the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest stated in Exhibit A-2;

 

(iv)                              if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in Section (h)(i), (ii) or (iii) above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property adversely affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the values placed upon the Title Defect by Purchaser and Sellers and such other factors as are necessary to make a proper evaluation;

 

35

 

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

 

(vi)                              notwithstanding anything to the contrary in this Article 4, the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of such Title Defect Property.

 

(i)                                     The Title Benefit Amount for any Title Benefit described in Section 4.2(b) shall be: (A) for any increase in Net Revenue Interest, the product of the Allocated Value of the affected Oil and Gas Interest multiplied by a fraction, the numerator of which is the Net Revenue Interest increase and the denominator of which is the Net Revenue Interest stated in Exhibit A-2; (B) for any increase in Net Mineral Acres, the product of the Allocated Value of the affected Oil and Gas Interest multiplied by a fraction, the numerator of which is the Net Mineral Acres increase and the denominator of which is the Net Mineral Acres stated in Exhibit A-1 and (C) for any Additional Oil and Gas Interest, the fair market value thereof, determined with reference to the Allocated Values of Oil and Gas Interests with characteristics similar to such Additional Oil and Gas Interest.

 

(j)                                    Seller and Purchaser shall attempt to agree on all Title Defects and Title Benefits and Title Defect Amounts and Title Benefit Amounts, respectively, prior to the Closing, but Closing shall not be delayed because of failure to so agree.  If, by Closing, Seller and Purchaser are unable to agree on an alleged Title Defect/Title Benefit or Title Defect Amount/Title Benefit Amount (the “Disputed Title Matters”), the Title Defect Property which is the subject of such Disputed Title Matter shall be retained by the Seller and the Unadjusted Purchase Price shall be adjusted downward by an amount equal to the Allocated Value of such Title Defect Property and shall be reflected in the Preliminary Accounting Statement in accordance with Sections 5.3(c) and 8.1, and such dispute(s), and only such dispute(s), shall be exclusively and finally resolved in accordance with the following provisions of this Section 4.4(j).

 

(i)                                     Purchaser shall provide to Seller by not later than the tenth (10th) Business Day following the Remedy Deadline an updated written description meeting the requirements of Section 4.4(a), together with all supporting documentation, of the Disputed Title Matters.  By not later than ten (10) Business Days after Seller’s receipt of Purchaser’s written description of the Disputed Title Matters, Seller shall provide to Purchaser a written response setting forth Seller’s position with respect to the Disputed Title Matters together with all supporting documentation, including a written description meeting the requirements of Section 4.4(b) in the case of any Title Benefit Amount asserted by a Seller.

 

(ii)                                  By not later than ten (10) Business Days after Purchaser’s receipt of Seller’s written response to Purchaser’s written description of the Disputed Title Matters, Purchaser may initiate a non-administered arbitration of any such dispute(s) by written notice to Sellers of any Disputed Title Matters (“Final Disputed Title Matters”) not otherwise resolved or waived that are to be resolved by arbitration (the “Title Arbitration Notice”).

 

(iii)                               The arbitration shall be held before a single arbitrator (“Title Arbitrator”), determined as follows.  Each arbitrator selected under this subparagraph shall be an attorney with at least fifteen (15) years’ experience examining oil and gas titles in Texas and shall not have

 

36

 

performed work for either Seller, Purchaser or their Affiliates for the past five years or have a financial or other personal interest in either Party, any Disputed Title Matters or outcome of the arbitration.  Within three Business Days, following receipt of the Title Arbitration Notice, Seller and Purchaser shall each exchange lists of three acceptable, qualified arbitrators.  Within three (3) Business Days, following the exchange of lists of acceptable arbitrators, Purchaser and Seller shall select by mutual agreement one arbitrator from the combined lists.  If no such agreement is reached, Purchaser and Seller shall each, by 5:00 pm Central Time of the second Business Day, following the exchange of lists of acceptable arbitrators, identify a single arbitrator from their original list of three acceptable arbitrators.  The two selected arbitrators shall then agree on a third arbitrator from the original lists within five (5) Business Days, following their own selection by each Party, which shall be no more than ten (10) Business Days, following the Title Arbitration Notice. Such third arbitrator shall serve as the Title Arbitrator.

 

(iv)                              Within three (3) Business Days following the selection of the Title Arbitrator, the Parties shall submit one copy to the Title Arbitrator of (A) this Agreement, with specific reference to this Section 4.4(j), (B) Purchaser’s written description of the Final Disputed Title Matters together with the supporting documents that were previously provided to Seller pursuant to Section 4.4(j)(i), (C) Seller’s written response to Purchaser’s written description of the Final Disputed Title Matters, together with the supporting documents that were previously provided to Purchaser pursuant to Section 4.4(j)(i), and (D) the Title Arbitration Notice.  Within five (5) Business Days following such submissions, each of the Parties may submit one written response to the other Party’s submission.  The Title Arbitrator shall resolve the Final Disputed Title Matters based only on the foregoing submissions.  Neither Purchaser nor Seller shall have the right to submit additional documentation or any additional written response to the Title Arbitrator nor to demand discovery on the other Party.

 

(v)                                 The Title Arbitrator shall choose a location convenient for deliberation, or may deliberate by telephone conference.  The Title Arbitrator shall make its determination by written decision within thirty (30) Business Days following Seller’s receipt of the Title Arbitration Notice (the “Title Arbitration Decision”).  The Title Arbitration Decision shall be final and binding upon both Parties, without right of appeal. In making its determination, the Title Arbitrator shall be bound by the rules set forth in this Section 4.4.  The Title Arbitrator may consult with and engage disinterested third Persons to advise the Title Arbitrator, but shall disclose to the Parties the identities of such consultants. Any such consultant shall not (i) be currently working directly or indirectly as an employee or consultant for either Party, nor be in discussions about potential future work for either Party, (ii) have worked as an employee or consultant for either Party or its Affiliates during the two-year period preceding the arbitration, or (iii) have any financial or other personal interest in the dispute.

 

(vi)                              The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Title Defects and Title Defect Amounts or Title Benefits and Title Benefit Amounts and shall not be empowered to award damages, interest or penalties to either Party with respect to any matter.

 

(vii)                           Each Party shall each bear its own legal fees and other costs of preparing and presenting its case.  Each Party shall bear one-half of the costs and expenses of the Title Arbitrator,

 

37

 

including any costs incurred by the Title Arbitrator that are attributable to the consultation of any third Person.

 

(viii)                        Seller and Purchaser shall implement the Title Arbitration Decision as follows: (A) in the case of alleged Title Defects determined to be Title Defects, Seller shall elect to remedy, at its sole election, such Title Defects pursuant to Section 4.4(d) within twenty (20) Business Days following Seller’s receipt of the Title Arbitration Decision, and (B) in the case of disputed Title Benefits and Title Benefit Amounts, any amounts that are determined to be owed to Seller shall be paid to Seller, and in the case of disputed Title Defect Amounts, Seller shall pay any amounts determined to be owed to Purchaser.  Any alleged Title Defects/Title Benefits determined to be or not to be Title Defects/Title Benefits under the Title Arbitration Decision shall be final and binding as being or not being Title Defects/Title Benefits.  The Parties shall complete any further conveyancing in accordance with Section 5.4 to effect the remedy chosen by Seller pursuant to subsection (A) above.

 

(ix)                              Any dispute over the interpretation or application of this Section 4.4(j) shall be decided by the Title Arbitrator with reference to the Laws of the State of Texas.  Any award of the Title Arbitrator may be enforced against both Parties in the courts described in Harris County, Houston, Texas.

 

(k)                                 Notwithstanding anything to the contrary in this Agreement, in no event shall there be any remedies available under Section 4.4(d):

 

(i)                                     for any Title Defect Amount with respect to an individual Title Defect Property if such amount does not exceed fifty thousand United States Dollars ($50,000), but if exceeded, the entire Title Defect Amount related thereto shall be counted for purposes of this Agreement, without deduction of this individual threshold (the “Individual Title Threshold”); and

 

(ii)                                  unless the aggregate amount of all such Title Defect Amounts (provided that each such Title Defect Amount exceeds the Individual Title Threshold and excluding any Title Defect Amounts with respect to Title Defects cured by Seller) exceeds the Aggregate Title Deductible, after which point, Purchaser shall be entitled to remedies elected by Seller in accordance with Section 4.4(d) only to the extent that such Title Defects exceed the Aggregate Title Deductible; provided that the aggregate amount of all Title Benefit Amounts shall be credited against and reduce any Title Defect Amounts.

 

In the event the aggregate amount of Title Benefit Amounts equals or exceeds the aggregate amount of Title Defect Amounts, Seller shall not be entitled to any payment from Purchaser with respect to such excess amounts.

 

(l)                                     Without prejudice to any of the other dates by which performance or the exercise of rights is due hereunder, or the Parties’ rights or obligations in respect thereof, the Parties hereby acknowledge that, as set forth more fully in Section 15.7, time is of the essence in performing their obligations and exercising their rights under this Article 4, and, as such, that each and every date and time by which such performance or exercise is due shall be the firm and final date and time.

 

38

 

4.5                               Limitations on Applicability.

 

The right of Purchaser or Seller to assert a Title Defect or Title Benefit, respectively, under this Agreement shall terminate on the Pre-Closing Claim Date; provided, however, that until the alleged Title Defect or Title Benefit or Title Defect Amount or Title Benefit Amount, as the case may be, is resolved in accordance with this Agreement, there shall be no termination of Purchaser’s or Seller’s rights under Section 4.4 with respect to any alleged Title Defect or Title Benefit or Title Defect Amount or Title Benefit Amount properly notified in accordance with Section 4.4 on or before the Pre-Closing Claim Date.

 

4.6                               Consents to Assignment and Preferential Rights to Purchase.

 

(a)                                 Promptly, and in no event later than ten (10) Business Days after the Execution Date, Seller shall prepare and send (i) notices to the holders of any required consents to assignment to Purchaser or its designated Affiliate, that are set forth on Schedule 6.1(i) or are otherwise identified prior to Closing, requesting consents to the transactions contemplated by this Agreement and (ii) notices to the holders of any applicable preferential rights to purchase or similar rights that are set forth on Schedule 6.1(i) in compliance with the terms of such rights and requesting waivers of such rights.  The notices regarding consents required under this Section 4.6 shall include language to the effect that the counterparty, to the extent it agrees to give consent, is consenting to an assignment to Purchaser or any of its Affiliates in one or more series of transactions.  The consideration payable under this Agreement for any Property for purposes of preferential purchase right notices shall be the Allocated Value for such Property.  Seller shall use commercially reasonable efforts (at no cost to Seller other than de minimus costs) to cause such consents to assignment and waivers of preferential rights to purchase or similar rights (or the exercise thereof) to be obtained and delivered prior to the Closing. Purchaser shall use reasonable commercial efforts to cooperate with Seller in seeking to obtain such consents to assignment and waivers of preferential rights and will provide any additional financial information, collateral or security as are required under the Material Contracts to meet reasonable financial requirements demanded by counterparties in order to obtain consents from such counterparties. Notwithstanding anything to the contrary, in no event or circumstance shall Seller be required to post collateral or security on behalf of the Purchaser nor shall Purchaser be obligated to provide collateral or security in an amount greater than as required in the applicable Material Contract.

 

(b)                                 If Seller fails to obtain a Hard Consent, then (unless waived in writing by Purchaser) the affected Property shall be excluded from the Assets to be conveyed to Purchaser and the Unadjusted Purchase Price shall be reduced by the Allocated Value of such Property. In the event that a Hard Consent that was not obtained prior to Closing, is obtained within one hundred and twenty (120) days following Closing then within ten (10) days after such consent is obtained, Purchaser shall purchase such Property in accordance with Section 5.4.

 

(c)                                  If Seller fails to obtain a consent prior to the Closing and such consent is not a Hard Consent then the Property subject to such unobtained consent shall be assigned by Seller to Purchaser at Closing and Purchaser (or its designated Affiliate) shall have no claim against, and Seller shall have no liability for, the failure to obtain such consent.

 

39

 

(d)                                 If Seller fails to obtain a Hard Consent which is waived by the Purchaser, Purchaser hereby indemnifies and holds Seller harmless against all Losses suffered or incurred by Seller, or any of its Affiliates, resulting from or in connection with the assignment of the relevant Property from the Seller to the Purchaser or its designated Affiliate without obtaining such Hard Consent.

 

(e)                                  If any third Person exercises a preferential right to purchase any Property prior to the Closing, Seller shall retain such Property in order to convey such Property to such Person, and the Unadjusted Purchase Price shall be reduced by the Allocated Value of such Property.

 

4.7                               THE PROVISIONS OF THIS ARTICLE 4 AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT CONSTITUTE PURCHASER’S ENTIRE REMEDY WITH RESPECT TO THE TITLE TO THE ASSETS.

 

4.8                               EXCEPT AS PROVIDED IN THIS ARTICLE 4 AND THE SPECIAL WARRANTY SET FORTH IN THE ASSIGNMENT, PURCHASER SHALL ACQUIRE THE ASSETS “WHERE IS” AND “AS IS” WITH NO RIGHT TO RECOVER ANY FURTHER AMOUNTS FROM SELLER FOR ANY DEFECT (INCLUDING TITLE DEFECTS) TO OR LIEN OR ENCUMBRANCE UPON THE TITLE TO THE ASSETS.

 

ARTICLE 5. – CLOSING

 

5.1                               Closing Conditions.

 

(a)                                 Purchaser’s Closing Conditions.

 

The obligation of Purchaser to comply with its Closing obligations contemplated by this Agreement shall be subject to the satisfaction prior to the Closing Date of the following conditions:

 

(i)                                     No representation and warranty of Seller set forth in Section 6.1, either individually or in the aggregate, is untrue and incorrect to an extent that results in a Material Adverse Effect; provided, however, that to the extent such representation or warranty is qualified by materiality, such qualification shall be disregarded for purposes of this Section 5.1(a)(i).

 

(ii)                                  Seller shall have performed in all material respects those covenants and agreements of Seller set forth herein that are required to be performed at or prior to Closing.

 

(iii)                               No suit, action or proceeding, with respect to the Assets, seeking an injunction or order enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall have been issued or brought by any Governmental Authority or Person (other than Seller or its Affiliates) and shall have remained in effect on the Closing Date.

 

(b)                                 Seller’s Closing Conditions.

 

The obligation of Seller to close the transactions contemplated by this Agreement shall be subject to the satisfaction prior to the Closing Date of the following conditions:

 

40

 

(i)                                     The representations and warranties of Purchaser set forth in Section 6.3 shall be true and accurate in all material respects.

 

(ii)                                  Purchaser shall have performed in all material respects those covenants and agreements of Purchaser set forth herein that are required to be performed prior to Closing.

 

(iii)                               No suit, action or proceeding, seeking an injunction or order enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall have been issued or brought by any Governmental Authority or Person (other than Purchaser or its Affiliates) and shall have remained in effect on the Closing Date.

 

5.2                               Time and Place.

 

Unless otherwise mutually agreed, the Closing shall be held on April 3, 2018 (the “Closing Date”), at 10:00 AM Central Time, at the offices of Seller at 150 N. Dairy Ashford, Houston, Texas 77079.  The time and place for Closing may be changed to an earlier or later time and place by mutual written agreement of the Parties, but any acceleration or postponement of the Closing shall not change the Effective Time.

 

5.3                               Closing.

 

The following shall take place at the Closing:

 

(a)                                 Seller and Purchaser shall execute and deliver the Assignment.

 

(b)                                 Purchaser and Seller shall execute such designation of operator forms, to be prepared by Seller and reasonably satisfactory to Purchaser, as are necessary to transfer operations to Purchaser for those Oil and Gas Interests that are operated by Seller and which are to be operated by Purchaser after the Closing and such other remaining documents, letters-in-lieu of transfer orders, joinders, ratifications, certificates, instruments or agreements which are contemplated by the transaction described herein or deemed necessary or appropriate by the Parties.

 

(c)                                  Purchaser shall pay to Seller by wire transfer to Seller’s Account an amount equal to the Adjusted Initial Payment Amount, as detailed in Preliminary Accounting Statement, less an amount equal to the Performance Deposit (provided that Seller may direct that Purchaser shall pay the Unadjusted Purchase Price, less the Performance Deposit, without making adjustments prescribed under Section 8.1, to the Qualified Intermediary, and in such event on the Closing Date the Party that owes the net amount of adjustments under Section 8.1 shall pay such amount by wire transfer directly to the other Party).

 

(d)                                 Purchaser and Seller shall execute and deliver the Non-Foreign Affidavit attached as Exhibit D, such designation of operator forms as are necessary to transfer operations to Purchaser for those Oil and Gas Interests that are operated by Seller and which are intended to be operated by Purchaser after the Closing, and such other remaining documents, letters-in-lieu of transfer orders, joinders, ratifications, certificates, instruments or agreements which are contemplated by the transaction described herein or deemed necessary or appropriate by the Parties.

 

41

 

(e)                                  Seller shall deliver to Purchaser releases, in form and substance reasonably satisfactory to Purchaser, releasing all mortgages and financial liens by, through or under Seller and burdening any portion of the Assets.

 

(f)                                   Seller shall execute and deliver, and Purchaser shall execute and agree to be bound to the terms of, that certain gas gathering agreement by and between Williams Midstream Gas Services LLC, Seller and Purchaser which will become effective upon the Closing Date and in the form attached hereto as Exhibit E (“Williams Gathering Agreement”).

 

(g)                                  Seller shall execute and deliver and Purchaser shall execute and agree to be bound to the terms of the Shared Use and Access Agreement attached hereto as Exhibit F.

 

(h)                                 Seller and Purchaser shall execute the Reprocessed Seismic Data License, in the form attached as Exhibit G, relating to the Assignable Seismic Data; provided that Purchaser has obtained, and demonstrates same to Seller, a license from the third-party owner of the underlying seismic data prior to the Closing Date.

 

(i)                                     If requested by Purchaser prior to Closing, Seller and Purchaser shall execute a Transition Services Agreement in form and substance reasonably acceptable to both Parties which will provide that Seller shall continue to perform certain operations with respect to the Wells set forth on Schedule 5.3(j) for a limited period of time after Closing.

 

No agreement to be executed and delivered at the Closing, or action to be taken at the Closing, shall be effective until all such agreements have been executed and delivered or actions have been taken, and all such agreements and actions shall be deemed to be effective concurrently.

 

5.4                               Supplemental Closings.

 

To the extent that any Assets are initially excluded from the Closing and retained by Seller for the purpose of allowing the Seller the right to cure or dispute any asserted Title Defects or Environmental Defects related thereto, but subsequently become assignable to Purchaser pursuant to the terms of this Agreement (as to those applicable Assets being retained, collectively, the “Supplemental Closing Assets” and individually, a “Supplemental Closing Asset”), then there shall be a supplemental closing (the “Supplemental Closing”) on a date mutually agreed to by the Parties, but in no event later than twenty (20) Business Days from the date such Supplemental Closing Asset becomes, or is deemed to become assignable to Purchaser.  At such Supplemental Closing, Seller shall convey the applicable Supplemental Closing Asset to Purchaser by means of an assignment and bill of sale using the form attached hereto as Exhibit C. Purchaser shall pay to Seller the Allocated Value attributable to such Supplemental Closing Asset, as adjusted by the Price Adjustments, or other amount determined in accordance with this Agreement. The Parties shall perform such other obligations in Section 5.3 that apply to that Asset, including amending any such agreements to include the Supplemental Closing Assets associated with the respective Supplemental Closing.  Notwithstanding anything to the contrary in this Agreement, with regard to the Supplemental Closing Assets and the Supplemental Closing: (i) the conditions to the obligations of the Parties to close set forth in Section 5.1 shall be applicable with regard thereto as of the date of the Supplemental Closing, instead of as of the date of Closing or the Closing Date, (ii)

 

42

 

the representations and warranties of the Parties in Article 6 shall also be deemed made with regard thereto as of the Supplemental Closing (unless any particular subsection therein specifies that it applies as of another date), (iii) the covenants of the Parties set forth in Sections 7.2 and 7.3 shall continue to apply with regard to the Supplemental Closing Assets until the Supplemental Closing, (iv) the dates specified in Section 8.1 relating to the Preliminary Accounting Statement and the Final Accounting Statement for such Supplemental Closing Assets shall, instead, refer to the date of the Supplemental Closing instead of any references therein to the Closing or Closing Date, and (v) for purposes of any Assumed Obligations, Retained Obligations and indemnification obligations under Article 11, any Supplemental Closing Assets shall otherwise be treated as Excluded Assets unless and until a Supplemental Closing relating thereto occurs.

 

ARTICLE 6. – GENERAL REPRESENTATIONS AND WARRANTIES

 

6.1                               Seller’s Representations & Warranties.

 

Seller represents and warrants to Purchaser, as of the Execution Date and as of the Closing Date (unless any subsection below specifies that it applies as of another date) that:

 

(a)                                 Organization.  Seller is duly incorporated or formed, validly existing and in good standing under the laws of Delaware and is duly qualified to carry on its business in the State of Texas.

 

(b)                                 Validity of Agreement. Seller has the corporate power to carry on its business as presently conducted, to execute and deliver this Agreement and the other agreements and documents contemplated hereby and to perform its obligations under this Agreement and the other agreements and documents contemplated hereby. This Agreement has been duly executed and delivered by Seller and constitutes a valid and binding obligation of Seller, duly authorized and enforceable against it in accordance with the terms hereof, subject to applicable bankruptcy and other similar laws affecting creditor’s rights and to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

(c)                                  No Conflict.  The execution and delivery of this Agreement by Seller does not, and the consummation of the transaction contemplated hereunder will not, (i) violate any provision of, or constitute a default under, the certificate of incorporation or by-laws of Seller, or (ii) materially violate any Law to which Seller is subject, or any provision of any material agreement, indenture, mortgage, lien, lease, instrument, order, arbitration award, judgment, or decree to which Seller is a party or by which it or any of the Oil and Gas Interests are bound, except for any such violations which would not reasonably be expected, individually or in the aggregate, to prevent or materially delay the consummation by Seller of the transactions contemplated by this Agreement.

 

(d)                                 Bankruptcy.  There is no bankruptcy, reorganization or receivership proceeding pending, being contemplated or threatened against Seller.

 

(e)                                  Governmental Authorizations.  Seller has, to its Knowledge, all Governmental Authorizations required and issued by Governmental Authorities under provisions of Law, necessary or required to own and operate the Assets, and all such Governmental Authorizations are in full force and effect.  Seller has not received written notice of any material violations in respect

 

43

 

of any such Governmental Authorizations that are unresolved at the Execution Date, and to Seller’s Knowledge, Seller is not in violation of the terms of any such Governmental Authorizations.

 

(f)                                   Compliance with Laws.  Seller is not in material violation of any applicable Laws with respect to the ownership and operation of the Operated Properties. To Seller’s Knowledge, Seller is not in material violation of any applicable Laws with respect to the ownership or operation of any Asset that is not an Operated Property. To Seller’s Knowledge, with regard to any time prior to Closing, Seller has not materially violated any applicable Laws with respect to the ownership and operation of the Assets. This provision has no application to Environmental Laws.

 

(g)                                  Litigation.  As of the date hereof, there is no action, complaint, investigation, claim, judicial or administrative action, proceeding or litigation of any type pending or commenced or, to Seller’s Knowledge, threatened to which Seller is a party or to which any of the Assets are bound that (i) questions or involves the validity or enforceability of Seller’s obligations under this Agreement or (ii) seeks (or reasonably might be expected to seek) to prevent or delay the consummation by Seller of the transactions contemplated by this Agreement or damages in connection with any such consummation.  There are no actions, suits or proceedings pending, or to Seller’s Knowledge, threatened in writing, before any Governmental Authority or arbitrator against Seller with respect to the Assets except for those actions, suits and proceedings listed on Schedule 6.1(g).

 

(h)                                 Taxes.   To Seller’s Knowledge, Seller has filed all tax returns required to be filed with respect to the Assets, and paid in full all Taxes owed with respect to the Assets (whether or not shown on a Tax Return).  To Seller’s Knowledge, there are no liens for Taxes on any of the Assets other than with respect to Taxes not yet due and payable.  None of the Assets are (or will be as of the Closing Date) held in an arrangement (other than as may arise by virtue of Seller’s organizational or governing documents) that is treated as a partnership or any entity for federal, state or local income Tax purposes.

 

(i)                                     Preferential Rights and Consents to Assign.  The Assets are not subject to any preferential rights to purchase, and, except for those consents that are customarily obtained after Closing, are not subject to any consents to assign, other than those preferential rights to purchase and those consents to assign that are set forth in one or more of the agreements identified on Schedule 6.1(i) hereto.

 

(k)                              Material Contracts.  All Material Contracts as of the Execution Date are listed on Schedule 6.1(k).  Except as disclosed in Schedule 6.1(k) and as set forth in the complaints in suits disclosed in Schedule 6.1(g), (i) Seller has not received written notice from any counterparty to a Material Contract of any alleged material default under any such Material Contract, (ii) to Seller’s Knowledge, all Material Contracts are in full force and effect, and (iii) Seller is not in breach or default with respect to any of its obligations under any of the Material Contracts in any material respect. Seller has made available to Purchaser true and correct copies of the Material Contracts and all amendments thereto prior to the Execution Date.

 

(l)                                     Liability for Brokerage Fees.  Purchaser shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Seller or any

 

44

 

Affiliate of Seller, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transaction contemplated hereby.

 

(m)                             Anti-Bribery and Anti-Money Laundering.

 

(i)                                     In relation to the transactions the subject of this Agreement, neither Seller nor any of its Related Parties has made, offered or authorized any payment, gift, promise or other advantage, whether directly or through any other person or entity, to or for the use or benefit of any Government Official or any entity or other person where such payment, gift, promise or other advantage would (A) comprise a Facilitation Payment; or (B) violate the Anti-Bribery and Money-Laundering Laws and Obligations or any other applicable law.

 

(ii)                                  Seller undertakes to Purchaser that, in connection with this Agreement, it is knowledgeable about and will comply with all laws, regulations, rules and requirements relating to anti-money laundering applicable to its performance of this Agreement.

 

(iii)                               Seller represents and warrants to Purchaser that any payments to Purchaser hereunder shall not constitute the proceeds of crime in contravention of anti-money laundering laws.

 

(n)                                 Payments for Production.  None of Seller or its Affiliates are obligated under any contract or agreement or Hydrocarbon lease, being assigned (or by which Purchaser will be bound) at Closing, for the sale of Hydrocarbons from the Assets containing a take-or-pay, advance payment, prepayment, or similar provision, or under any gathering, transmission, or any other contract or agreement, being assigned at Closing (or by which Purchaser will be bound), with respect to any of the Assets to gather, deliver, process, or transport any Hydrocarbons without then or thereafter receiving full payment therefor.

 

(o)                                 No Prepayments.  There have been no advance, take or pay or other prepayments received by Seller with respect to Seller’s interest in the Assets that would obligate Purchaser to deliver Hydrocarbon production from the Assets after the Effective Time without receiving full payment.

 

(p)                                 Outstanding Capital Commitments.  Except as listed on Schedule 6.1(p), as of the Execution Date, there are no outstanding AFEs or other commitments to make capital expenditures which are binding on the Assets and which Seller reasonably anticipates will individually require expenditures by the owner of the Assets, net to its proportionate interest, after the Effective Time in excess of two hundred and fifty thousand United States Dollars ($250,000).

 

(q)                                 Environmental.  Seller has not received any written notice that the Assets are not in compliance with any Environmental Laws, except for such non-compliance which has been remediated or otherwise resolved. Seller has not received any written notice of any claims against it with respect to Environmental Liabilities with respect to the Assets or any demands to clean-up any portion of the Assets, except for such claims or demands which have been resolved and closed with the applicable Governmental Authority. With respect to the Assets operated by Seller or its Affiliate (and to Seller’s Knowledge, with regard to Assets operated by a non-Affiliate third party), neither Seller nor any Affiliate has entered into or is a party to or bound by any agreement with or

 

45

 

consent, order, decree or judgment of, any Governmental Authority that is in existence and (i) is based on any current Environmental Laws that relate to the use of any of the Assets, or (ii) requires any remediation of any of the Assets.

 

(r)                                    Suspended Funds.  Schedule 8.1 lists all funds held in suspense (including funds held in suspense for unleased interests) by Seller as of the date of Execution Date that are attributable to the Assets.

 

(s)                                   Imbalances.  As of the Effective Time, the Oil and Gas Interests are not subject to any material Imbalances. In addition, there are no Imbalance amounts that would be the obligation, liability or to the benefit of Purchaser after Closing.

 

6.2                               Limitations on Seller’s Representations & Warranties.

 

(a)                                 Except as and to the extent expressly set forth in this Article 6 and the special warranty of title set forth in the Assignment; (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 Purchaser or Purchaser Group (including any opinion, information, projection or advice that may have been provided to Purchaser or Purchaser Group by any officer, director, employee, agent, consultant, representative or advisor of Seller or Seller Group).

 

(b)                                 WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND EXCEPT FOR THE SPECIAL WARRANTY OF TITLE SET FORTH IN THE ASSIGNMENT AND THE REPRESENTATIONS AND WARRANTIES IN SECTION 6.1 OF THIS AGREEMENT, SELLER (1) MAKES NO AND EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (I) TITLE TO ANY OF THE ASSETS, (II) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE OIL AND GAS INTERESTS, (III) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE OIL AND GAS INTERESTS, (IV) THE EXISTENCE OF ANY PROSPECT, RECOMPLETION, INFILL OR STEP-OUT DRILLING OPPORTUNITIES, (V) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS, (VI) THE PRODUCTION OF HYDROCARBONS FROM THE ASSETS, 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 ASSETS, (VIII) INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT, OR (IX) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO PURCHASER 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 (2) FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY,

 

46

 

EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OR ANY OF THE ASSETS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT, EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN THIS ARTICLE 6 AND FOR THE SPECIAL WARRANTY OF TITLE SET FORTH IN THE ASSIGNMENT,  PURCHASER SHALL BE DEEMED TO BE OBTAINING THE ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS” WITH ALL FAULTS AND DEFECTS, AND THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE.  FURTHERMORE, EXCEPT AS SPECIFICALLY SET FORTH IN SECTION 6.1(Q), SELLER HAS NOT AND WILL NOT MAKE ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, ENVIRONMENTAL LIABILITIES, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE COMPANIES OR THE ASSETS, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY.

 

(c)                                  Inclusion of a matter on a schedule attached hereto with respect to a representation or warranty that addresses matters that are material or have a Material Adverse Effect shall not be deemed an indication that such matter is material or does, or may, have a Material Adverse Effect.  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.

 

6.3                               Purchaser’s Representations & Warranties.

 

Purchaser represents and warrants to Seller as of the Execution Date and as of the Closing Date (unless any subsection below specifies that it applies at another date) that:

 

(a)                                 Organization.  Purchaser is a corporation, duly organized, validly existing and in good standing under the laws of Delaware, and is duly qualified to carry on its business in the State of Texas.

 

(b)                                 Validity of Agreement.  Purchaser has the corporate or limited liability company authority, as applicable, to carry on its business as presently conducted, to execute and deliver this Agreement and the other agreements and documents contemplated hereby and to perform its obligations under this Agreement and the other agreements and documents contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against it in accordance with the terms hereof, subject to applicable bankruptcy and other similar laws affecting creditor’s rights and to principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

(c)                                  No Conflict. The execution and delivery of this Agreement by Purchaser does not, and the consummation of the transaction contemplated hereunder will not, (i) violate any provision of, or

 

47

 

constitute a default under, the governing documents of Purchaser or, (ii) violate any Law to which Purchaser is subject, or any provision of any material agreement, indenture, mortgage, lien, lease, instrument, order, arbitration award, judgment, or decree to which Purchaser is a party, except, for any such violations which would not reasonably be expected, individually or in the aggregate, to prevent or materially delay the consummation by Purchaser of the transactions contemplated by this Agreement.

 

(d)                                 Bankruptcy.  There is no bankruptcy, reorganization or receivership proceeding pending, being contemplated or threatened against Purchaser or to Purchaser’s Knowledge, any direct or indirect shareholder of Purchaser that is an Affiliate of Purchaser.

 

(e)                                  Receipt of Data.  As of the Closing Date, Purchaser has had the ability to perform diligence on the Assets based on information provided in the Data Exchange and conduct a field visit pursuant to Section 7.1; provided, however, that the foregoing representation shall not limit or restrict Purchaser’s rights and remedies under Article 3, Article 4,  the special warranty of title in the Assignment or other conveyances delivered under this Agreement, or for claims regarding a breach of any of Seller’s representations and warranties under Section 6.1.

 

(f)                                   Independent Evaluation.  Purchaser is an experienced and knowledgeable investor in the oil and gas business and is experienced with the usual and customary practices of producers such as Seller.  In making the decision to enter into this Agreement and consummate the transactions contemplated hereby, Purchaser has relied solely on the basis of its own independent due diligence investigation of the environmental Assets, relying upon Purchaser’s own legal, financial, engineering and technical expertise and advisors.

 

(g)                                  No Securities Distribution.  Purchaser intends to acquire the Assets for Purchaser’s own benefit and account and not with a view of making any distribution of securities, within the meaning of the Securities Act of 1933, as amended.

 

(h)                                 Financing.  Prior to Closing, Purchaser will have arranged to have available sufficient funds to enable Purchaser to (i) pay the Adjusted Initial Payment Amount to Seller at Closing, (ii) pay or post any collateral or security required under contracts or agreements to be assigned, or (iii) provide such financial support as is required by any Governmental Authority to be approved as an operator of oil and gas properties in the State of Texas.

 

(i)                                     Liability for Brokerage Fees.  Seller shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser or any Affiliate of Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transaction contemplated hereby.

 

(j)                                    Litigation.  There are no actions, proceedings, or investigations pending, or to Purchaser’s Knowledge, any basis or threat thereof, which question the validity of this Agreement or any other action taken or to be taken in connection herewith.

 

(k)                                 Qualifications.  Purchaser is qualified with all applicable Governmental Authorities to own and operate the Properties.

 

48

 

(l)                                     Anti-Bribery and Anti-Money Laundering.

 

(i)                                     In relation to the transactions the subject of this Agreement, neither Purchaser nor any of its Related Parties has made, offered or authorized any payment, gift, promise or other advantage, whether directly or through any other person or entity, to or for the use or benefit of any Government Official or any entity or other person where such payment, gift, promise or other advantage would (A) comprise a Facilitation Payment; or (B) violate the Anti-Bribery and Money-Laundering Laws and Obligations or any other applicable law.

 

(ii)                                  Purchaser undertakes to Seller that, in connection with this Agreement, it is knowledgeable about and will comply with all laws, regulations, rules and requirements relating to anti-money laundering applicable to its performance of this Agreement.

 

(iii)                               Purchaser represents and warrants to Seller that its payments to Seller hereunder shall not constitute the proceeds of crime in contravention of anti-money laundering laws.

 

(iv)                              Purchaser stipulates that the funds used to pay the Performance Deposit and the Purchase Price shall be made from the Purchaser’s Account.

 

(m)                             Operatorship.  Halcón Operating Co., Inc., an affiliate of Purchaser, is not in continuing violation of any statutes, rules or regulations of the State of Texas in any material respects and is not aware of any reason why Halcón Operating Co., Inc. may not be accepted as an operator by the State of Texas or other applicable regulator. At the Closing Date, Purchaser has accurately provided all of the required information regarding Halcón Operating Co., Inc. necessary to complete and file the P-4 Forms with the Commission.

 

ARTICLE 7. – COVENANTS OF THE PARTIES.

 

7.1                               Access to Properties and Information.

 

(a)                                 Seller has provided, and shall continue to provide up to the Closing Date, to Purchaser (i) access to a virtual data room containing images of certain documents, instruments and agreements relevant to Purchaser’s examination of the Assets,  (ii) the opportunity, to the extent Seller was able to provide it, to conduct site visit(s) of certain of the Properties, (iii) the opportunity to review certain lease, well, financial, land, contract and regulatory files in Seller’s possession that relate to the Assets, (iv) the opportunity to ask questions related to the Assets of certain of the managers and employees of Seller and its Affiliates, (v) the opportunity to view geological and geophysical data on workstations at the offices of Seller, and (vi) drafts of the Exhibits and Schedules to this Agreement (collectively referred to as the “Data Exchange”).

 

(b)                                 Upon execution of and pursuant to the terms of this Agreement, Purchaser may, at reasonable times during normal business hours, at Purchaser’s sole cost and expense, conduct an expert investigation into the environmental condition of the Properties for the purposes set out in Article 3 and the status of title to the Oil and Gas Interests for the purposes set out in Article 4 (the “Pre-Acquisition Review”) in accordance with the provisions of this Section 7.1(b).  The entirety

 

49

 

of the Pre-Acquisition Review shall be subject to the indemnity provisions of Section 7.4 below. During all periods that Purchaser or any of its representatives are on the Assets, Purchaser shall maintain, at its sole expense and with reputable insurers, such insurance as is reasonably sufficient to support Purchaser’s indemnity obligations under Section 7.4.

 

The scope of the Pre-Acquisition Review includes:

 

(i)                                     The right to enter all or any part of the Properties at any reasonable time and with reasonable advance notice before accessing any Property (which shall be not less than 48 hours advance notice), and to conduct an environmental assessment which may include a Phase I review of the Properties, as defined by the current American Society for Testing and Material (“ASTM”) Standard Practice for Phase I environmental property assessments (Designation E1527-05), a review of the compliance status of the Assets relative to Environmental Laws, a review of other site conditions including the presence of endangered species habitat and waters of the United States, and to otherwise inspect, inventory, investigate, perform environmental assessments, study and examine the same and the operations conducted thereon (provided that Purchaser shall have no right to conduct any invasive environmental sampling or testing which includes, but is not limited to digging and collecting samples on any Properties without the consent of Seller, which consent may be withheld in Seller’s sole discretion and may be subject to any conditions), provided that Purchaser (including its agents or consultants) be limited to two (2) visits to the Properties; and

 

(ii)                                  The right, subject to compliance with applicable Law, including the HSR Act, to inspect and review at Seller’s offices at reasonable times and upon reasonable advance notice, all of the Records.

 

(c)                                  Purchaser shall maintain the results of its investigation, testing and evaluation and review of files and records, confidential in accordance with and otherwise comply with the terms of the Confidentiality Agreement.

 

(d)                                 Purchaser shall provide Seller a copy of any final environmental assessment reports and the supporting documentation of or about the Properties commissioned by Purchaser, including, without limitation, any reports, data and conclusions developed pursuant to the Pre-Acquisition Review, promptly after such assessment report has been furnished to or obtained by Purchaser, and Seller shall be permitted to discuss the contents of any such assessment reports with the party who prepared such reports.  Neither Party shall be deemed by its receipt of said documents to have made any representation or warranty, expressed, implied or statutory, as to the condition of the Assets or the accuracy of said documents or the information contained therein.

 

(e)                                  Seller shall have the right to have a representative or representatives accompany Purchaser and Purchaser’s representatives (including without limitation environmental consultants and experts) at all times during Purchaser’s Pre-Acquisition Review.  With respect to any samples taken in connection with Pre-Acquisition Review, Purchaser shall take split samples, providing one of each such sample, properly labeled and identified, to Seller without charge.  In the event that Purchaser’s Phase I identifies the need for additional investigation or sampling, then Purchaser may request Seller’s consent to conduct Phase II environmental property assessments or

 

50

 

such other activities.  The Phase II procedures and plan concerning any additional investigation shall be submitted to Seller in a written environmental property assessment plan, and shall be reasonable based on the findings of the Phase I.  Thereafter, Seller may, in its sole discretion, approve said environmental property assessment plan, in whole or in part, and Purchaser shall not have the right to conduct any activities set forth in such plan until such time that Seller has approved such plan in writing; provided that, in the event of the Seller’s rejection of said environmental property assessment plan, in whole or in part, Purchaser may request that an independent environmental consultant or expert (not being the same person used by the Purchaser) be engaged by Seller, at Purchaser’s cost, to verify whether, in their opinion, a Phase II report is necessary. If such person reports that a Phase II is necessary, but Seller still does not approve, the Purchaser (i) may still deliver an Environmental Defect Notice with respect to such Assets and (ii) notwithstanding anything in this Agreement to the contrary, may elect to have such Assets excluded from the transactions contemplated hereunder whereby such Asset shall be deemed an Excluded Asset, and the Unadjusted Purchase Price shall be reduced by the Allocated Value of such Excluded Assets.

 

(f)                                   While conducting the Pre-Acquisition Review, Purchaser and its employees, agents and consultants shall abide by Seller’s safety rules, regulations and other operating policies applicable to such Properties. Seller has the right to be present during any activities conducted on the Assets as part of the Pre-Acquisition Review.

 

(g)                                  Purchaser shall not contact directly or indirectly, any Governmental Authorities, lessors, midstream companies doing business with Seller in connection with the Assets, or similar third parties, without Seller’s express written consent and limited to the purposes for which consent is sought.

 

7.2                               Notification of Breaches.

 

(a)                                 Until the Closing Date;

 

(i)                                     Purchaser shall notify Seller promptly after Purchaser obtains Knowledge that any representation or warranty of Seller contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Seller prior to or on the Closing Date has not been so performed or observed in any material respect.

 

(ii)                                  Seller shall notify Purchaser promptly after Seller obtains Knowledge that any representation or warranty of Purchaser contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Purchaser prior to or on the Closing Date has not been so performed or observed in a material respect.

 

(b)                                 Any of Purchaser’s or Seller’s representations or warranties that are untrue or that shall become untrue in any material respect between the Execution Date and the Closing Date, and any of Purchaser’s or Seller’s covenants or agreements to be performed or observed prior to the Closing Date that have not been so performed or observed in any material respect, shall be

 

51

 

considered not to have occurred for all purposes of this Agreement to the extent that any such breach of representation, warranty, covenant or agreement is cured by the applicable Closing.

 

7.3                               Operation of the Business.

 

(a)                                                              From the Execution Date until the Closing occurs, Seller will continue to operate the Assets in the ordinary course of business and in material compliance with all applicable Laws, including, without limitation, Environmental Laws, and in material compliance with all Material Contracts and Mineral Interests.  From the Execution Date until Closing, Seller agrees not to, without Purchaser’s prior consent (provided that such consent may not be unreasonably withheld, conditioned or delayed to the effect that the Seller incurs a cost which would not be reimbursed by the Purchaser under the terms of this Agreement):

 

(i)                                     Except as listed in Schedule 6.1(p), expend, propose or approve the commitment to expend any funds, net to Seller’s interest, in excess of two hundred and fifty thousand United States Dollars ($250,000) per operation or per well, or make any commitments to expend funds, net to Seller’s interest, in excess of two hundred and fifty thousand United States Dollars ($250,000) per operation, or otherwise incur any other obligations or liabilities, other than in the ordinary course of business, except in the event of an emergency requiring immediate action to protect life, prevent environmental contamination, or to preserve the Assets (including without limitation where needed to comply with any drilling obligations needed to maintain any Mineral Interest);

 

(ii)                                  except (i) as listed in Schedule 6.1(p), (ii) where necessary to prevent the termination of a Mineral Interest or (iii) where needed to comply with any drilling obligations needed to maintain any Mineral Interest, propose: the drilling of any additional wells, propose the deepening, plugging back, side-tracking or reworking of any existing wells, or propose the abandonment of any wells relating to the Oil and Gas Interests;

 

(iii)                               sell, transfer (including any mortgage or hypothecation, farmout, or assign) or abandon any portion of the Assets other than sales and dispositions of Hydrocarbons and items of materials, supplies, Equipment, improvements or other personal property or fixtures forming a part of the Assets that have become obsolete or unusable and except for any abandonment that is required by law or regulation;

 

(iv)                              amend or terminate any Material Contract in any material respect or enter into any new Material Contract other than the Williams Gathering Agreement and Shared Use and Access Agreement;

 

(v)                                 fail to maintain any Governmental Authorization affecting the Assets;

 

(vi)                              enter into any settlement of any material issues with respect to any assets or audit or other administrative or judicial proceeding with respect to Taxes for which Purchaser may have liability;

 

(vii)                           not waive, compromise or settle any material right or claim if such waiver, compromise or settlement regarding the use, ownership or operation of any of the Assets;

 

52

 

(viii)                        terminate (excluding expiration) or materially amend any Mineral Interest or Surface Interest; or

 

(ix)                              elect to non-consent any operation on any of the Oil and Gas Interests.

 

(b)                                 Notwithstanding the foregoing, Seller will be free to do any of the foregoing without the consent of Purchaser where needed to comply with Seller’s HSSE policies or to safeguard life, property or the environment; provided, however, that Seller shall provide written notice of the same to Purchaser as promptly as reasonably practicable.

 

(C)                               EXCEPT WITH REGARD TO SELLER’S BREACH OF THE COVENANTS SET FORTH IN THIS SECTION 7.3, PURCHASER RELEASES SELLER AND EACH MEMBER OF SELLER GROUP FROM ANY LIABILITY FOR SELLER’S OR SELLER GROUP MEMBER’S OWN NEGLIGENCE, INCLUDING SELLER’S OR SELLER GROUP MEMBER’S SOLE NEGLIGENCE OR GROSS NEGLIGENCE (BUT NOT WILLFUL MISCONDUCT OF SELLER OR SELLER GROUP), IN ANY CAPACITY, OR FROM ANY LIABILITY TO PURCHASER EXISTING BY OPERATION OF STATUTE OR UNDER STRICT LIABILITY, ARISING OUT OF, CONNECTED WITH OR RELATED TO, SELLER’S OPERATION, OWNERSHIP OR CONTROL OF THE ASSETS FROM THE EFFECTIVE TIME UNTIL THE CLOSING DATE.

 

(d)                                 Requests for approval of any action restricted by this Section 7.3 shall be delivered to the following individual, who shall have full authority to grant or deny such requests for approval on behalf of Purchaser:

 

Jon Wright

Email: jwright@halconresources.com

Phone: (720) 446-1036

 

Purchaser’s approval of any action restricted by this Section 7.3 shall be considered granted upon the expiry of ten (10) days (unless a shorter time is reasonably required by the circumstances and such shorter time is specified in Seller’s notice) of Seller’s notice to Purchaser requesting such consent unless Purchaser notifies Seller to the contrary during that period.

 

7.4                               Indemnity Regarding Access.

 

PURCHASER AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER, THE SELLER GROUP, THE OTHER OWNERS OF INTERESTS IN THE PROPERTIES, AND ALL SUCH PERSONS’ AFFILIATES, AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES, COSTS AND EXPENSES (INCLUDING COURT COSTS AND REASONABLE ATTORNEYS’ FEES), INCLUDING CLAIMS, LIABILITIES, LOSSES, COSTS AND EXPENSES ATTRIBUTABLE TO PERSONAL INJURY, DEATH, OR PROPERTY DAMAGE, ARISING OUT OF OR RELATING TO ACCESS TO THE ASSETS PRIOR TO CLOSING BY PURCHASER OR ANY PERSON UNDER PURCHASER’S CONTROL,

 

53

 

EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE, GROSS NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY INDEMNIFIED PERSON, EXCLUDING ANY WILLFUL MISCONDUCT OF ANY INDEMNIFIED PERSON; PROVIDED, HOWEVER, THAT PURCHASER’S IDENTIFICATION OF AN ENVIRONMENTAL CONDITION ON OR ATTRIBUTABLE TO THE ASSETS THAT WAS NOT CAUSED BY PURCHASER SHALL NOT BE CONSIDERED TO BE PROPERTY DAMAGE FOR THE PURPOSES OF THIS SECTION 7.4.

 

7.5                               Governmental Reviews.

 

(a)                                 Upon the terms and subject to the conditions set forth in this Agreement, each Party shall use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and reasonably cooperate with the other Party (without obligation to spend money in its cooperation with the other Party’s efforts) in doing, all things necessary, proper or advisable under applicable Laws to consummate the transactions contemplated by this Agreement as promptly as practicable, including (i) the obtaining of all necessary actions or non-actions, waivers, authorizations, expirations or terminations of waiting periods, clearances, consents and approvals from Governmental Authorities, (ii) the making of all necessary registrations and filings and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Authority, and (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated by this Agreement.  Except for any filing fees that may be imposed by law on Seller, Seller shall not be required to pay or reimburse Purchaser for any fees or other payments to any Governmental Authority in connection with any such actions, approvals, or consents.

 

(b)                                 Purchaser shall use its commercially reasonable efforts to resolve prior to Closing any objections as may be asserted by any Governmental Authority with respect to Purchaser’s participation in the transactions contemplated by this Agreement.  Seller shall cooperate with Purchaser, including by timely providing such information and making available such personnel as Purchaser may reasonably request to prepare for and participate in meetings with Governmental Authorities, and/or to respond to any questions raised by Governmental Authorities.

 

If a Party intends to participate in any meeting with any Governmental Authority with respect to such filings, it shall give the other Party reasonable prior notice of such meeting and permit the other Party to attend such meeting to the extent practicable.

 

7.6                               Operatorship.

 

(a)                                 Purchaser agrees that it will promptly take such actions as are necessary to become the successor operator of those Properties operated by Seller as of the Effective Time (“Operated Properties”) and to obtain all necessary approvals of Governmental Authorities and will indemnify Seller Group from any and all liabilities, costs and expenses in connection with the succession of Seller by Purchaser as operator of the Operated Properties. Seller makes no representation or warranty or provides any assurance that Purchaser shall succeed Seller as operator of any portion of the Operated Properties; provided, however, that Seller will assist, to the extent reasonable,

 

54

 

Purchaser in Purchaser’s efforts to succeed Seller as operator of any Well, at no cost to Seller greater than a de minimus cost, including designating and/or appointing by assignment, to the extent legally possible, Purchaser as successor operator or taking any other actions permitted or required under applicable Laws, the applicable operating agreement or other governing document (including executing letters whereby the applicable Seller resigns as operator of all Seller-operated Wells and Assets).

 

(b)                                 If any Governmental Authority has not accepted Purchaser, or Purchaser’s designated operator, as operator of any Operated Properties at or after the date that is one hundred twenty (120) days from the Closing Date, Purchaser and Seller will use commercially reasonable efforts to negotiate a mutually beneficial solution to facilitate the transfer of operatorship to Purchaser or its designated operator.   If the Parties cannot agree on a mutually beneficial solution, Seller may give the Purchaser notice and within thirty (30) days following the expiry of such period requiring the Purchaser to re-assign or cause to be re-assigned those applicable Assets to the Seller and the Seller will return eighty-five percent (85%) of the applicable portion of the Adjusted Initial Payment Amount relating to such returned Assets, together with any other reasonable costs, expenses or amounts paid by Purchaser after Closing relating to the prudent operation of such applicable Assets.

 

(c)                                  IF THERE IS A RE-ASSIGNMENT PURSUANT TO SECTION 7.6(b), PURCHASER SHALL INDEMNIFY AND HOLD HARMLESS SELLER AND SELLER GROUP AGAINST ALL CLAIMS, LOSSES AND LIABILITIES, IF ANY, RESULTING FROM PURCHASER’S OPERATION OF THE ASSETS DURING THE TIME PERIOD BETWEEN CLOSING AND THE DATE OF THE RE-ASSIGNMENT OF THE ASSETS TO THE SELLER, EXCEPT TO THE EXTENT SUCH CLAIMS ARISE FROM OR ARE ATTRIBUTABLE TO THE WILLFUL MISCONDUCT OF SELLER.

 

7.7                               Recording & Filing.

 

Within seven (7) Business Days of the Closing Date, Seller shall, at no expense to Seller (other than de minimus costs), use its reasonable commercial efforts to file the P-4 Forms with the Commission.  If Seller fails to file the P-4 Forms after fifteen (15) Business Days from the Closing Date, the Purchaser shall have the right to file the P-4 Forms with the Commission.  In addition, within (30) days of Closing, Purchaser shall, at its expense, use its reasonable commercial efforts to file or record the conveyance documents other than P-4 Forms, as necessary with the appropriate governmental agencies or records office.  Seller and Purchaser shall provide a copy of same, including recording date, to the other Party and any other contract parties requiring the same.

 

7.8                               Notice to Third Persons.

 

In relation to lessors, royalty owners, operators, non-operators, purchasers of production, other contract parties and Government Authorities Seller has the right to notify all or such of those parties as it deems appropriate that Purchaser has purchased the Assets and has assumed liability for the Assumed Obligations relating to their continued operation from and after the Closing Date, with an effective date of the Effective Time; provided that Seller shall provide Purchaser with the form that such notices will take and Purchaser shall have the right to consent to the such form, such

 

55

 

consent not to be unreasonably withheld, delayed or conditioned. Purchaser and Seller shall execute all transfer orders, division orders, or letters-in-lieu necessary to transfer payment of the proceeds from the sale of production from the Assets as of the Effective Time to Purchaser, and joinders, ratifications or other similar instruments required to transfer Assets as of the Effective Time to Purchaser.

 

7.9                               Property Records.

 

Within fifteen (15) days after Closing, Seller shall deliver to Purchaser electronic copies of the Records (subject to the limitations contained in this Agreement) which were not already delivered by Seller.  Any electronic information or data provided shall be in the same format as that then currently used by Seller and Seller is not required to perform or create additional programming or system support in connection therewith.  Seller may retain photocopies, electronic images or other formats of the Records. Seller may excise or redact Records to remove information that would constitute an Excluded Record.  Seller and Purchaser shall each appoint one (1) focal point for coordination of the transfer of electronic information and data to Purchaser.

 

7.10                        Use of Name.

 

On or before sixty (60) days after Closing, Purchaser will permanently remove, or cause to be permanently removed (and not simply covered or obscured), from the facilities pertaining to the Assets, the name, logo and service mark of Seller and its Affiliates, and all variations and derivations thereof, and will not thereafter make use thereof in respect of the Properties being conveyed to Purchaser.

 

7.11                        Seller’s Insurance.

 

Purchaser acknowledges and agrees that (a) no insurance policies arranged for the benefit of or provided to Seller or any member of Seller Group, including any current insurance policies relating to the business or assets of Seller (“Current Insurance Policies”), shall continue after Closing and (b) Purchaser shall not, and shall procure that no member of Purchaser Group shall, make any claims under any such insurance policies or insurance coverage in respect of facts, events or circumstances arising before or after Closing.  Purchaser further hereby acknowledges and agrees that no historic insurance coverage provided by or to Seller, including the Current Insurance Policies, shall be available to Purchaser or Seller after Closing, with the exception of insurance coverages required by statute or law and, in such limited instances only to the extent that the policies provide such historical coverage.  Purchaser further acknowledges and agrees that it has no right, title or interest in any unearned premiums on any policies maintained by or for the benefit of Seller or any member of Seller Group.

 

7.12                        Casualty Loss.

 

If after the Execution Date and prior to the Closing any part of the Assets shall be damaged or destroyed by fire or other casualty or if any part of the Assets shall be taken in condemnation or under the right of eminent domain (collectively, “Casualty Losses”) or if proceedings for such purposes shall be pending or threatened, this Agreement shall remain in full force and effect notwithstanding any such destruction, taking or proceeding, or the threat of any such destruction,

 

56

 

taking or proceeding, and the Parties shall proceed with the transactions contemplated by this Agreement notwithstanding such destruction or taking without reduction of the Unadjusted Purchase Price; provided, however, Seller shall pay to Purchaser all sums paid to Seller by third parties by reason of the destruction or taking of such Assets (up to the Allocated Value), including any sums paid pursuant to any agreement or indemnity (for avoidance of doubt other than insurance), and shall assign, transfer and set over unto Purchaser all of the rights, title and interest of Seller in and to any claims, causes of action, unpaid proceeds or other payments from third parties, including any agreement of indemnity, arising out of such destruction or taking (up to the Allocated Value).

 

7.13                        Data Privacy.

 

(a)                                 Each Party acknowledges that it may be required to process Personal Data during the undertaking of its obligations under this Agreement.  Each Party agrees that it shall comply with the obligations imposed by all applicable Data Protection Laws and take appropriate technical and organizational measures against unauthorized or unlawful processing of, accidental loss or destruction of, or damage to Personal Data; provided that, having regard to the state of technological development and the cost of implementing any measures, the measures must ensure a level of security appropriate to the harm that might result from unauthorized or unlawful processing or accidental loss, destruction or damage and the nature of the Personal Data to be protected.  These measures shall also aim at preventing unnecessary collection and further processing of such Personal Data.

 

(b)                                 All Personal Data made available to any Party or their representatives hereunder shall be made available on an “as is” basis without any warranties, either express or implied, as to the quality, completeness, accuracy, validity, non-infringement or utility of such Personal Data.  In no event shall the Party providing Personal Data be liable for any actual, incidental, punitive, consequential or other damages arising out of, or resulting from the receiving Party’s or their representatives’ (i) use of or reliance upon the Personal Data or (ii) disclosure of the Personal Data to a third party in breach of this Agreement or any applicable Data Protection Law.  The Parties agree that the Party responsible for a breach of data privacy or a violation of relevant applicable Data Protection Laws will indemnify, defend and hold harmless the non-breaching Party from and against any and all claims, liabilities, losses, causes of actions, costs and expenses (including, without limitation, those involving theories of negligence or strict liability and including court costs and attorneys’ fees) asserted against, resulting from, imposed upon or incurred by the non-breaching Party as a result of, or arising out of the breach of data privacy or a violation of relevant applicable Data Protection Laws.

 

7.14                        Environmental Reporting.

 

For any reporting to a Governmental Authority related to the Assets that because of the Closing Date and particular Law could involve the potential for combined or split reporting, Purchaser and Seller shall confer at an agreed time prior to Closing in order to resolve any issues related to such reporting.

 

57

 

7.15                        Assignable Seismic Data.

 

If the Parties do not enter into the Reprocessed Seismic Data License at Closing pursuant to Section 5.3(h), but subsequent to the Closing Date, the Purchaser obtains, and demonstrates same to Seller, a license from the third-party owner of the underlying seismic data prior to the date upon which the Seller submits to Purchaser the Final Accounting Statement, Seller and Purchaser shall execute the Reprocessed Seismic Data License, in the form attached as Exhibit G, relating to the Assignable Seismic Data.

 

7.16                        Interim Assistance with Survey, Staking and Permitting.

 

Purchaser and Seller agree that from and after the Execution Date until the Closing Date, Seller shall use reasonable efforts to provide Purchaser (or its Affiliates) with access to the Assets, identified in advance written notice to Seller and during normal business hours, for the purposes of surveying, staking and other preliminary surface work in order to facilitate Purchaser’s drilling operations after Closing.  Seller further agrees to use commercially reasonable efforts (at no cost to Seller other than de minimus costs) to assist Purchaser in preparing any necessary Governmental Authorizations or third party notifications for such post-Closing operations; provided, however, that Purchaser shall be solely responsible for any costs, expenses and liability associated therewith and for purposes of clarity, the indemnity obligations of Purchaser set forth in Section 7.4 shall expressly apply to any access granted to or action taken by Purchaser pursuant to this Section 7.16.

 

ARTICLE 8. – ACCOUNTING FOR REVENUE & EXPENSES

 

8.1                               Adjustments to Purchase Price.

 

The Unadjusted Purchase Price shall be adjusted as follows, without double counting any amounts, (the “Price Adjustments”).

 

(a)                                 The Unadjusted Purchase Price shall be adjusted upward by the following amounts (without duplication):

 

(i)                                     Property Expenses attributable to periods from and after the Effective Time which have been paid by Seller;

 

(ii)                                  Inventory;

 

(iii)                               Imbalances, if positive;

 

(iv)                              Owner Balances, if positive, pursuant to Schedule 8.1;

 

(v)                                 Property and ad valorem taxes accrued by Seller and attributable to the Assets after the Effective Time; and

 

(vi)                              any other amount provided for elsewhere in this Agreement.

 

58

 

(b)                                 The Unadjusted Purchase Price shall be adjusted downward by the following amounts (without duplication):

 

(i)                                     Revenues;

 

(ii)                                  Environmental Defects pursuant to Sections 3.2(b)(i) and 3.2(g)(viii), subject to 3.2(h);

 

(iii)                               Title Defects pursuant to Section 4.4(d)(i), subject to 4.4(k);

 

(iv)                              Allocated Value of Assets that are excluded from this Agreement because of (a) the exercise of preferential rights or unobtained Hard Consents pursuant to Section 4.6(b); (b) Seller’s election to exclude Assets under Sections 3.2(b)(ii), 3.2(b)(iii), 3.2 (d) and 3.2(g)(viii), subject to 3.2(h); (c) Seller’s election to exclude Assets under 4.4(d)(ii), 4.4(d)(iii) and 4.4(j)(viii), subject to 4.4(k); and Purchaser’s election to exclude Assets pursuant to Section 7.1(e);

 

(v)                                 Imbalances, if negative;

 

(vi)                              Owner Balances, if negative, pursuant to Schedule 8.1;

 

(vii)                           Property and ad valorem taxes paid by Purchaser and attributable to the Assets before the Effective Time;

 

(viii)                        Property Expenses attributable to periods prior to the Effective Time which have been paid by Purchaser;

 

(ix)                              Any other amount provided for elsewhere in this Agreement; and

 

(x)                                 The expenses incurred during the period between the Effective Time and the Closing Date which relate to the workover operations on the Crockett 1-26 1H well (API #42475355820000).

 

8.2                               Preliminary Accounting Statement.

 

Not less than five (5) Business Days prior to Closing, Seller shall furnish Purchaser with a good faith estimated accounting (“Preliminary Accounting Statement”), prepared in a manner consistent with Seller’s past accounting practices, reflecting the Price Adjustments as of the date of preparation of such Preliminary Accounting Statement and the effect of such Price Adjustments on the Unadjusted Purchase Price. The Parties shall in good faith attempt to agree on the Preliminary Accounting Statement as soon as reasonably possible. The amount resulting from the application of the Price Adjustments to the Unadjusted Purchaser Price included in the Preliminary Accounting Statement, as agreed upon by the Parties, will be the “Adjusted Initial Payment Amount”; provided, however, that if the Parties do not agree upon an adjustment set forth in the Preliminary Accounting Statement, then the Adjusted Initial Payment Amount shall be that amount set forth in the draft Preliminary Accounting Statement delivered by Seller to Purchaser

 

59

 

pursuant to this Section 8.2 and that any disagreement with respect to Title Defects and Environmental Defects will be resolved pursuant to the applicable provisions of this Agreement.

 

8.3          Final Accounting Statement.

 

(a)          On or before one hundred twenty (120) days after Closing, Seller shall prepare and deliver to Purchaser a draft of the proposed final accounting statement (the “Final Accounting Statement”) setting forth Seller’s good faith updated determination of the Price Adjustments and applies those Price Adjustments to the Unadjusted Purchase Price (the “Final Purchase Price”) which shall be the final amount payable by Seller or by Purchaser (as the case may be) to the extent not already paid or taken into account at Closing (the “Adjusted Final Payment Amount”).  Parties shall cooperate to avoid split month accounting for revenue. In the event Closing does not occur on the first day of a calendar month, Seller will market Hydrocarbon production, pay associated royalties for the calendar month in which Closing occurs on Purchaser’s behalf, and Seller’s remittance of the amount of production sales, less royalties, paid by Seller to Purchaser will be included in the Final Accounting Statement and the Adjusted Final Payment Amount will be adjusted accordingly. To the extent reasonably required by Seller, Purchaser shall assist in the preparation of the Final Accounting Statement. Purchaser shall have the right to audit the Final Accounting Statement.  The Parties’ failure to complete the Final Accounting Statement shall not constitute a waiver of the right to receive any amount otherwise due.  The Final Accounting Statement shall become final and binding upon the Parties and payable thirty (30) days after receipt thereof by Purchaser, unless Purchaser gives written notice of its disagreement (an “Accounting Notice”) to Seller prior to such date.  Time is of the essence with respect to the Accounting Notice.  Any Accounting Notice shall specify in detail the dollar amount, nature and basis of the disagreement so asserted.   Purchaser shall not be entitled to dispute any expenditure or payment made by Seller, as a prudent operator, substantially in accordance such of Seller’s past practices as evident from the lease operating statements provided in the Data Exchange, subject, in all instances, to the restrictions and limitations on Seller’s authority set forth in this Agreement, including those set forth in Section 7.3. If an Accounting Notice is received by Seller in a timely manner, then the Final Accounting Statement (as revised in accordance with clause 8.3(a)(i) or 8.3(a)(ii) below) shall become final and binding on the Parties and any amounts due shall be payable by the earlier of thirty (30) days after (i) the date Seller and Purchaser agree in writing with respect to all matters as to which there is a disagreement or (ii) the date on which the Accounting Referee issues its decision.

 

(b)           During the sixty (60) days following the date of receipt by Seller of an Accounting Notice, Seller shall make available the records relevant to the disagreement and Seller and Purchaser shall attempt in good faith to resolve in writing any differences that they may have with respect to all matters specified in the Accounting Notice.  If, at the end of such sixty (60) day period, Seller and Purchaser have not reached agreement on such matters, the matters that remain in dispute shall be submitted to a mutually agreed neutral accountant (the “Accounting Referee”) for review and final binding resolution.  The Accounting Referee shall be a certified public accountant, with at least 15 years of oil and gas accounting experience, who is an employee or partner of a recognized independent public accounting firm and experienced in oil and gas accounting.  In the event the Parties cannot agree upon the Accounting Referee, each Party will appoint a neutral accountant who meets the criteria set forth in the foregoing sentence and the two selected accountants shall appoint a third accountant meeting the foregoing criteria to be the “Accounting Referee.”  All determinations and adjustments with respect to allocating items to the period before or after the

 

60

 

Effective Time shall be in accordance with GAAP, consistently applied, and this Agreement. The Accounting Referee shall render a decision resolving the matters in dispute within fifteen (15) days following their submission to the Accounting Referee. Seller and Purchaser shall each be responsible for one-half of the fees and expenses of the Accounting Referee.  In the event the disagreement relates to a contract interpretation matter as opposed to an accounting matter, such matter shall be resolved pursuant to the provisions of Article 16 and not this Article 8.

 

(c)           If, prior to the first anniversary of the Closing Date, a Party receives any proceeds or makes any expenditure for the benefit of the other Party, it shall promptly remit to the other Party the relevant amount (to the extent such amounts had not been previously accounted for in the Final Accounting Statement). No claim made pursuant to this Section 8.2(c) shall be valid unless it is brought prior to the first anniversary of the Closing Date.

 

8.4          Inventory

 

Seller shall gauge all merchantable Hydrocarbon and non-hydrocarbon substances associated with the Mineral Interests in storage as of the Effective Time and shall provide Purchaser with all reasonable detail and support necessary to confirm such amounts.

 

8.5          Notice to Remitters of Proceeds and Expenses.

 

After the Closing, the Parties shall inform the remitters of any proceeds attributable to the Assets to pay Purchaser to the extent practical after the Effective Time.  To the extent that any remitter pays revenues or sends invoices or claims (for Owner Balances or Property Expenses) to the incorrect Party, that Party shall promptly remit such revenues (without interest) or forward such invoices or claims to the correct Party.

 

8.6          Post-Closing Payments.

 

Payments to be made following the Closing under this Agreement shall be made by wire transfer of immediately available funds within five (5) Business Days after the final determination is made that such payments are due and payable to the Purchaser’s Account or Seller’s Account (as the case may be).

 

ARTICLE 9. — TAX MATTERS

 

9.1          Apportionment of Taxes.

 

All Taxes (except as provided below) pertaining to the Assets or Hydrocarbon production from the Assets and similar obligations, including, without limitation, production, severance, excise, and other similar Taxes that are based upon production of, or income or revenues from Hydrocarbons, are Seller’s responsibility where attributable to the period prior to the Effective Time and Purchaser’s responsibility where attributable to the period after the Effective Time (regardless of when assessed on the Assets or Hydrocarbon production).  Seller shall be allocated and shall bear all ad valorem taxes, real property taxes, Personal Property taxes, and similar Tax obligations (the “Property Taxes”) with respect to the Assets for any Tax period (or portion thereof) ending prior to the Effective Time.  Purchaser shall be allocated and shall bear all Property Taxes with respect to the Assets for any Tax period (or portion thereof) beginning on or after the Effective Time.

 

61

 

Property Taxes for any Tax period in which the Effective Time occurs shall be apportioned based on the number of days in such Tax period before and after the Effective Time, between Seller and Purchaser.  To the extent possible, amounts relating to such Taxes shall be included in the Final Accounting Statement, but the Final Accounting Statement shall not constitute a final settlement of Tax liability as allocated between the Parties pursuant to this Section 9.1.  Notwithstanding the foregoing, each Party shall be responsible for its own federal, state, or local income taxes, gross margin taxes, franchise taxes or gross receipts taxes with respect or attributable to the ownership of the Assets and the transactions pursuant to the terms of this Agreement and each Party agrees to indemnify and hold the other Party harmless with respect to such Taxes.  PURCHASER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER FOR ALL PROPERTY AND HYDROCARBON PRODUCTION TAXES ATTRIBUTABLE TO ANY TAX PERIOD (OR PORTION THEREOF) ENDING ON OR AFTER THE EFFECTIVE DATE AND SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS PURCHASER FOR ALL PROPERTY HYDROCARBON PRODUCTION TAXES ATTRIBUTABLE TO ANY TAX PERIOD (OR PORTION THEREOF) ENDING PRIOR TO THE EFFECTIVE DATE.

 

9.2          Transfer Taxes.

 

Purchaser shall be responsible for paying Transfer Taxes or other fees, if any, that are payable upon or because of the transfer of any of the Assets to Purchaser.  “Transfer Taxes” means any sales, use, excise, stock, stamp, documentary, filing, recording, registration, authorization and similar taxes, fees and charges. The Parties shall reasonably cooperate (including by the provision of exemption certificates, documentation to support an occasional or isolated sale exemption, or other evidence or documentation) to reduce the amount of any such Transfer Taxes.

 

9.3          Tax Reporting of the Allocation of Purchase Price.

 

Seller and Purchaser agree to allocate the Final Purchase Price and any liabilities assumed by Purchaser under this Agreement based on the Allocated Values provided that no more than 10% of the Purchase Price shall be allocated to tangible property and no less than 90% shall be allocated to the Mineral Interests. Seller and Purchaser each agree that the Assets subject to this Agreement do not constitute an “applicable asset acquisition” as described under Code Section 1060, and do not constitute a trade or business in the ordinary sense of the term. Seller and Purchaser each agree to report the Tax consequences of the transactions contemplated herein as a purchase and sale of assets, and in particular to report the information consistent with the terms of this Agreement and shall not take any position inconsistent therewith upon examination of any Tax return, in any refund claim, in any litigation, investigation or otherwise unless required to do so by applicable Law after notice to the other Party, or with such other Party’s prior consent.

 

9.4          Cooperation on Tax Returns and Tax Proceedings.

 

Purchaser and Seller will cooperate fully as and to the extent reasonably requested by the other party, in connection with the filing of any Tax Returns with respect to the Properties (other than with respect to income and franchise taxes) and any audit, litigation or other proceedings.

 

62

 

ARTICLE 10. — PURCHASER’S ASSUMED OBLIGATIONS

 

10.1        Purchaser’s Assumed Obligations.

 

At Closing, but with effect from the Effective Time (except for the matters below stated to take effect at a time other than the Effective Time) and subject to and except with regard to any of Purchaser’s rights in relation to (i) the Retained Obligations, (ii) indemnification set forth in Article 11, and (iii) post-Closing matters relating to Title Defects and Environmental Defects, Purchaser shall assume and agree to fulfill, perform, pay and discharge all of the obligations and liabilities arising from, related to or connected with the ownership, operatorship (where applicable) and operation of the Assets (all of which shall constitute the “Assumed Obligations”).  The Assumed Obligations include, without limitation, the following:

 

(a)           the express and implied obligations, conditions and covenants under the terms of all contracts, agreements, instruments and orders to which the Assets are subject, other than the Excluded Contracts, and including, for the avoidance of doubt, liability for breach of any of the foregoing, whether such breach occurred prior to or after the Effective Time;

 

(b)           the responsibility for compliance with all applicable Laws, the maintenance of all Governmental Authorizations, and bonds required by Governmental Authorities relating to the Assets and including, for the avoidance of doubt, subject to Section 10.2, liability for breach of any of the foregoing, whether such breach occurred prior to or after the Effective Time;

 

(c)           the responsibility for royalties, overriding royalties, minimum royalties, net profits interests, rentals, shut-in payments and all other burdens, charges or encumbrances to which the Oil and Gas Interests are subject and including, for the avoidance of doubt liability for failures to pay any of the foregoing, with respect to Hydrocarbon production on and after the Effective Time;

 

(d)           the responsibility for proper accounting for and disbursement of production proceeds from the Oil and Gas Interests on and after the Effective Time, and the obligation to maintain and hold Owner Balances, funds or royalties in suspense in at least the amounts set forth on Schedule 8.1;

 

(e)           the responsibility for any liquid or gaseous Hydrocarbon imbalances existing as of the Effective Time in connection with any of the Assets;

 

(f)            the responsibility for any and all claims for personal injury or death arising directly or indirectly from or incident to the use, occupation, ownership, operation or maintenance of any of the Assets, or the condition thereof and including, for the avoidance of doubt, liability for claims arising on or after the Closing Date; and

 

(g)           the responsibility to properly plug, abandon and restore the Assets, as provided in Section 10.2, the Environmental Obligations, as provided in Section 10.3, the obligations in Section 10.4 (to the extent such obligations have not terminated) and all other obligations assumed by Purchaser under the terms of this Agreement.

 

63

 

10.2        Plugging and Abandonment of Wells, Removal of Facilities.

 

Upon and after Closing, but with effect from the Effective Time, Purchaser assumes full responsibility and liability for all plugging, abandonment and restoration obligations with respect to the Properties, regardless of whether such obligations relate or are attributable to the ownership or operation of the Properties prior to or after the Effective Time, and including, but not limited to, the obligation to:

 

(a)           plug and abandon (or re-plug) any and all oil, gas, condensate, CO2, injection or other wells and wellbores, located on each Mineral Interest (or lands pooled with a Mineral Interest), whether producing, not producing or abandoned or plugged in each case prior to or after the Effective Time;

 

(b)           remove and dispose of all structures, equipment and facilities located on or comprising the Properties;

 

(c)           restore each Mineral Interest and wellsite associated with the Oil and Gas Interests, including the surface, and subsurface;

 

(d)           cleanup and dispose of any equipment or materials contaminated with NORM or asbestos;

 

(e)           perform all other obligations related to the foregoing that arise by contract, lease terms, applicable law or demands of governmental agencies;

 

all to be performed in a good and workmanlike manner and in accordance with, and to the extent required by, lease and contract obligations and applicable Law.

 

10.3        Environmental Obligations.

 

Subject to the Retained Obligations and excluding any liability or condition that relates to any Excluded Assets, and subject to Purchaser’s right to indemnification in relation to Section 6.1(q) set forth in Article 11, and the rights the Purchaser may have in relation to any Final Disputed Environmental Matters, the Assumed Obligations include the assumption by Purchaser of full responsibility and liability for all liabilities and obligations arising out of, related to, or connected with, the environmental condition of the Assets (“Environmental Obligations”), including without limitation, claims arising out of the following circumstances, conditions, occurrences, events and activities on or related to the Assets, regardless of whether occurring, or arising or resulting from any acts or omissions of Seller or any other Person prior to the Effective Time and regardless of the condition of the Assets when acquired:

 

(a)           environmental pollution or contamination, including pollution or contamination of the soil, subsurface, groundwater or air by hydrocarbons, brine, hazardous wastes, hazardous substances, asbestos, NORM or otherwise, attributable to the Assets acquired by Purchaser;

 

(b)           underground injection activities and waste disposal occurring on any of the Properties;

 

64

 

(c)           cleanup responses, and the cost of remediation, control, assessment or compliance, with respect to surface and subsurface pollution;

 

(d)           disposal on the Properties of any hazardous substances, wastes, materials, and products generated by or used in connection with the ownership or operation of the Properties; and

 

(e)           compliance or noncompliance with, or satisfaction of remedies (to include, but not be limited to, cost reimbursement, fines and/or penalties, if any) provided under any Environmental Law.

 

10.4        Additional Security for Assumed Obligations.

 

(a)           Within sixty (60) days after Closing, Purchaser shall, or shall procure that its designated Affiliate shall, deliver to Seller (to the attention of the Shell Legacy Representative in accordance with the terms of Section 15.5) a certificate certified by an officer of Purchaser, certifying that:

 

(i)            the P-4 Form has been filed with the Texas Railroad Commission (the “Commission”) and approved by the Commission identifying the Operated Properties as Properties for which the Purchaser is the successor operator and assumes plugging and decommissioning responsibility;

 

(ii)           with respect to Operated Properties, if applicable, Purchaser has filed with the Commission an active organization report that meets the requirements of Section 91.142 of the Texas Natural Resources Code (the “TNRC”) and any relevant Commission rules, guidance or regulations; and

 

(iii)          with respect to Operated Properties, if applicable, Purchaser has obtained a Commission-approved bond, letter of credit, or cash deposit covering such Operated Properties and such bond, letter of credit, or cash deposit must be in compliance with:

 

(1)           Sections 91.103-107 of the TNRC; and

 

(2)           any other relevant law, statute, rule guidance or regulation.

 

(b)           Within ten (10) Business Days after the Commission has approved and accepted the Purchaser’s P-4 Form filing, Purchaser shall deliver evidence of such approval to Seller (to the attention of the Shell Legacy Representative in accordance with the terms of Section 15.5) which evidence must be reasonably acceptable to Seller (the “Approval Evidence”); provided, however, that if the Commission provides written notice of any objection to such Purchaser’s P-4 Form filing, the sixty-day period described in Section 10.4(a) above shall be extended for another forty-five (45) days after receipt of the Commission’s objection to file a corrective P-4 Form.  Upon Seller’s receipt of (i) the certificate described in Section 10.4(a) above, and (ii) the Approval Evidence, then automatically and with no further action required by either Party, Purchaser shall be deemed to have satisfied its obligations under this Section 10.4, and this Section 10.4 shall automatically terminate (with no further action by or notice to any Party) and be of no further force and effect. If Purchaser has not (x) timely delivered the certificate described in Section 10.4(a) above to Seller or (y) delivered the Approval Evidence in each case within (9) months after the

 

65

 

Closing Date, Purchaser must provide to Seller, within fifteen (15) days after the expiration of the applicable deadline set forth in Section 10.4(a) above or in this sentence, Decommissioning Security in an amount equal to twenty million United States Dollars ($20,000,000), which Seller may draw upon in the event Purchaser does not fulfill its obligations under Section 10.2, (the “Secured Obligations”), without limiting any other remedies Seller has hereunder or at law or in equity.  Once the Seller draws upon the Decommissioning Security, it must use the funds for the sole purpose of satisfying such Section 10.2 obligations as the obligations fall due and in any event within twenty-four (24) months, and Seller shall provide detailed statements, invoices and receipts with regard to the use of such funds to evidence Seller’s compliance with these provisions.  Seller shall have the right, not more than once every two years, to require that Purchaser increase the amount of the Decommissioning Security by a percentage equal to the percentage increase in the Consumer Price Index from the date of this Agreement (in the event of the first increase) or from the date of the most recent Decommissioning Security increase (in the event of subsequent increases).  Should Seller decide to exercise such right, Seller must provide written notice to Purchaser in the manner set forth in Section 15.5 of this Agreement, and Purchaser must provide evidence of its compliance with Seller’s request within thirty (30) days of receipt of such request.

 

(c)           The Purchaser expressly covenants that it will continue to comply in all material respects with all laws, statutes, rules, and regulations which allow for the release of Seller’s liability and plugging responsibility contemplated in this Article 10, including without limitation Sections 89.011, 89.012, 91.103-.107, and 91.142 of the TNRC.

 

(d)           If Purchaser is required to provide Decommissioning Security, then on or before each anniversary of the Closing Date, Purchaser must deliver to Seller (to the attention of the Shell Legacy Representative in accordance with the terms of Section 15.5) a report describing the status of all the Secured Obligations, such report to include without limitation the following:

 

(i)                                     an update of contact information for the primary personnel within Purchaser’s organization who are involved with the fulfillment of the Secured Obligations;

 

(ii)                                  an update of the progress of the Secured Obligations;

 

(iii)                               an updated plan for how Purchaser intends to fulfill the Secured Obligations; and

 

(iv)                              any changes to ownership status due to a conveyance or assignment that alter the party responsible for fulfilling the Secured Obligations.

 

(e)           Conveyance or assignment of this Agreement or the Assets to another party does not release Purchaser from obligations under this Section 10.4.

 

66

 

ARTICLE 11. — INDEMNIFICATION

 

11.1        Indemnification.

 

(a)           Upon Closing, Purchaser shall, except to the extent that a claim or matter is indemnified by Seller pursuant to Section 11.1(b), indemnify, defend and hold harmless the Seller and each member of Seller Group from and against any and all claims, liabilities, losses, causes of actions, costs and expenses (including, without limitation, those involving theories of negligence or strict liability and including court costs and attorneys’ fees) (“Losses”) asserted against, imposed upon or incurred by Seller or such other persons entitled to indemnification under this Section 11.1(a) as a result of, or arising out of:

 

(i)            the breach (without regard to any qualification of materiality or Material Adverse Effect) of any of the representations or warranties of Purchaser contained in Section 6.3 when made at either the Execution Date or Closing Date (as applicable);

 

(ii)           the failure of Purchaser to perform any of the covenants or agreements of Purchaser contained in this Agreement;

 

(iii)          the Assumed Obligations;

 

(iv)          any obligations for a brokerage or finder’s fee or commission incurred by Purchaser in connection with the transactions contemplated by this Agreement; and

 

(v)           any violation or alleged violation of securities laws by Purchaser in connection with the Assets and any claim arising out of Purchaser’s dealings with its partners, investors, lender, assignees or other third Persons in connection with the transactions evidenced by this Agreement.

 

(vi)          Purchaser’s liability, if any, with regard to the ownership or operation of any portion of the Assets that may be re-conveyed or reassigned to Seller pursuant to the provisions of Section 7.6(b);

 

(vii)         the cost and expenses, including reasonable attorneys’ fees, of enforcing this Section 11.1(a).

 

(b)           Subject to Section 11.1(d), upon Closing, Seller shall indemnify, defend and hold harmless Purchaser and its Affiliates, and Purchaser’s and such Affiliates’ directors, officers, employees, stockholders and agents, from and against all Losses asserted against, imposed upon or incurred by Purchaser or such other persons entitled to indemnification under this Section 11.1(b) as a result of, or arising out of:

 

(i)            the breach (without regard to any qualification of materiality or Material Adverse Effect) of any of the representations or warranties of Seller contained in Section 6.1 when made at either Execution Date or Closing Date (as applicable);

 

67

 

(ii)           the failure of Seller to perform any of the covenants or agreements of Seller contained in this Agreement;

 

(iii)          the Excluded Assets;

 

(iv)          the Retained Obligations;

 

(v)           any obligations for a brokerage or finder’s fee or commission incurred by Seller in connection with the transactions contemplated by this Agreement;

 

(vi)          the cost and expenses, including reasonable attorneys’ fees, of enforcing this Section 11.1(b); and

 

(vii)         the Interim Period Indemnification Matters.

 

(c)           EXTENT OF INDEMNIFICATION.  WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION, DEFENSE AND ASSUMPTION PROVISIONS SET FORTH IN THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY LAW, AN INDEMNIFIED PERSON SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS OF SECTIONS 11.1(a) OR 11.1(b), REGARDLESS OF WHETHER THE ACT, OCCURRENCE OR CIRCUMSTANCE GIVING RISE TO ANY SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE), OR OTHER FAULT OR VIOLATION OF ANY LAW OF OR BY ANY SUCH INDEMNIFIED PERSON, PROVIDED THAT NO SUCH INDEMNIFICATION SHALL BE APPLICABLE TO THE EXTENT OF ANY WILLFUL MISCONDUCT OF THE INDEMNIFIED PERSON.

 

(d)           Notwithstanding anything to the contrary in this Agreement, the liability of Seller and Purchaser under this Agreement and any documents delivered in connection herewith or contemplated hereby shall be limited as follows:

 

(i)            Except for the Fundamental Representations, which survive indefinitely, the representations and warranties of the Parties set forth in this Agreement shall survive the Closing Date for a period of nine (9) months and all representations and warranties of the Parties under this Agreement shall terminate nine (9) months after the Closing Date; provided, however, that any such representation or warranty for which a written notice of claim specifying in reasonable detail the specific nature of the Losses and the estimated amount of such Losses (“Claim Notice”) delivered in good faith in compliance with the requirements of this Section 11.1(d) shall survive with respect only to the specific matter described in such Claim Notice until the earlier to occur of (A) the date on which a final non-appealable resolution of the matter described in such Claim Notice has been reached or (B) the date on which the matter described in such Claim Notice has otherwise reached final resolution.  The indemnities in Section 11.1(a)(ii) — (vii) and Section 11.1(b)(iv) shall survive the Closing Date indefinitely.  The indemnities in Section 11.1(b)(vii) shall survive the Closing Date for a period of twelve months and the indemnities in Sections

 

68

 

11.1(b)(iii), (v) and (vi) shall survive the Closing Date for a period of seven (7) years. For purposes of clarity, any Losses arising from or attributable to Retained Obligations shall not be subject to the limitations set forth in Section 11.1(d)(ii)(B) or Section 11.1(d)(ii)(C) and any Losses arising from or attributable to the Interim Period Indemnification Matters shall not be subject to the limitations set forth in Section 11.1(d)(ii)(B).  Covenants to be performed at or after Closing shall survive until performed.  Claims for covenants to be performed prior to Closing shall survive for twelve months after the Closing Date.

 

(ii)           Notwithstanding anything to the contrary herein, in no event shall:

 

(A)          SELLER OR PURCHASER BE LIABLE TO THE OTHER FOR INDIRECT OR CONSEQUENTIAL LOSSES (EXCEPT WHERE SUCH LOSSES CONSTITUTE PART OF A CLAIM OF A THIRD PERSON WHICH IS INDEMNIFIED PURSUANT TO THE PROVISIONS OF THIS AGREEMENT), LOSS OF PROFITS, LOSS OF OPPORTUNITY, OR ANY PUNITIVE, EXEMPLARY OR SPECIAL DAMAGES THAT MAY BE AWARDED IN THE OTHER PARTY’S FAVOR; and

 

(B)          Seller indemnify Purchaser, or be otherwise liable to Purchaser for any Losses arising from a breach of a representation or warranty of Seller that is not a Fundamental Representation (1) for any individual claim for Loss that does not exceed fifty thousand United States Dollars ($50,000), but if exceeded, the entire amount of the Loss thereto shall be counted for purposes of this Agreement, without deduction of this individual threshold (the “Individual Threshold”), and (2) until Purchaser has suffered Losses in the aggregate in excess of the Aggregate Indemnity Deductible, after which point Seller will be obligated only to indemnify Purchaser from and against further Losses  in excess of the Aggregate Indemnity Deductible; and

 

(C)          Seller indemnify Purchaser under (1) Sections 11.1(b)(i), 11.1(b)(ii) and 11.1(b)(vii) in excess of fifteen percent (15%) of the Unadjusted Purchase Price or (2) Sections 11.1(b)(v) and (vi) in excess of the Unadjusted Purchase Price.

 

(iii)          No amount shall be recovered from any Party for the breach or untruth of any representations or warranties, of the other Party, or for any other matter, to the extent that the Party claiming a Loss as a result thereof had actual Knowledge of such breach, untruth or other matter at or prior to the Execution Date, nor shall such Party be entitled to rescission with respect to any such matter.

 

(iv)          The amount of any indemnification provided under Section 11.1(a) or (b) shall be net of any amounts of insurance proceeds or other amount from any third person actually recovered or realized by the indemnified party in respect of the indemnification claim to which such insurance proceeds or other amounts relate.

 

(v)           Notwithstanding anything stated herein to the contrary:  (A) neither Party will have any liability to the other Party or such other Party’s indemnified parties under this Article 11 with respect to any item for which a specific adjustment has already been made to the Unadjusted Purchase Price under the terms of this Agreement; and (B) Seller will have no liability to Purchaser or Purchaser’s indemnified parties hereunder for any matter which is claimed as a Title Defect or

 

69

 

an Environmental Defect.  Claims for Title Defects or Environmental Defects, even those not resulting in an adjustment to the Unadjusted Purchase Price because the applicable aggregate deductible is not exceeded, are not subject to the terms of this Article 11, may not be claimed under this Article 11, may not be included for purposes of determining whether the limitations set forth in this Section 11.1(d) have been met and may not be included in the Aggregate Indemnity Deductible for purposes of the limitations set forth in this Section 11.1(d).  Nothing herein, however, limits Purchaser’s rights and claims under the special warranty of title in the Assignment.

 

(vi)          Each person entitled to indemnification hereunder or otherwise to damages in connection with the transactions contemplated in this Agreement shall use commercially reasonable efforts to mitigate all losses, costs, expenses and damages after becoming aware of any event which could reasonably be expected to give rise to any losses, costs, expenses and damages that are indemnifiable or recoverable hereunder or in connection herewith.

 

(e)           All claims for indemnification under this Agreement shall be asserted and resolved pursuant to this Section 11.1(e). Any Person claiming indemnification hereunder is hereinafter referred to as the “Indemnified Party” and any Person against whom such claims are asserted hereunder is hereinafter referred to as the “Indemnifying Party.” In the event that any Losses are asserted against or sought to be collected from an Indemnified Party by a third Person, said Indemnified Party shall with reasonable promptness provide to the Indemnifying Party a Claim Notice. The Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to any such Losses if the Indemnified Party fails to notify the Indemnifying Party thereof in accordance with the provisions of this Agreement in reasonably sufficient time so that the Indemnifying Party’s ability to defend against the Losses is not materially prejudiced. The Indemnifying Party shall have thirty (30) days from the personal delivery or receipt of the Claim Notice (the “Notice Period”) to notify the Indemnified Party; (i) whether or not it disputes the liability of the Indemnifying Party to the Indemnified Party hereunder with respect to such Losses and/or (ii) whether or not it desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such Losses; provided, however, that any Indemnified Party is hereby authorized prior to and during the Notice Period to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party (and of which it shall have given notice and opportunity to comment to the Indemnifying Party). In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such Losses, the Indemnifying Party shall have the right to defend all appropriate proceedings with counsel of its own choosing, which proceedings shall be promptly settled or prosecuted by them to a final conclusion. If the Indemnified Party desires to participate in, but not control, any such defense or settlement it may do so at its sole cost and expense. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Losses that the Indemnifying Party elects to contest or, if appropriate and related to the claim in question, in making any counterclaim against the person asserting the third-party Losses, or any cross-complaint against any person. No claim may be settled or otherwise compromised without the prior written consent of the Indemnifying Party and no claim may be settled or compromised by the Indemnifying Party without the prior written consent of the Indemnified Party (not to be unreasonably withheld or delayed) unless such settlement or compromise entails a full and

 

70

 

unconditional release of the Indemnified Party without any admission or finding of fault or liability.

 

11.2        Exclusive Remedy.

 

If Closing occurs, the indemnities set forth in this Agreement and the remedies expressly provided for herein, together with, and the special warranty of title in the Assignment, shall be the sole and exclusive remedies of the parties indemnified hereunder for breach of any representation, warranty or covenant set forth in this Agreement; provided, however, that nothing in this Section 11.2 shall be deemed to affect any Person’s right to post-Closing equitable relief (including specific performance in a court of law) for breach of a covenant set forth in this Agreement (whether or not such covenant is set forth in Article 7), nor shall it affect any Party’s right to avail itself of the other dispute resolution provisions set forth in this Agreement relating to Title Defects, Environmental Defects, and accounting matters.  Except for such remedies and the special warranty of title in the Assignment, Purchaser shall be deemed to release and forever discharge Sellers and their Affiliates and their respective officers, directors, managers, members, employees, agents, advisors and representatives from any and all other Losses whatsoever, in law or in equity, known or unknown, which such parties might now or subsequently may have, based on, relating to or arising from Seller’s ownership, use or operation of the Properties, or the condition, quality, status or nature of the Properties, including rights to contribution under CERCLA or any other Environmental Law, breaches of statutory or implied warranties, nuisance or other tort actions, rights to punitive damages and common law rights of contribution, rights under agreements between Seller or any of its Affiliates, and rights under insurance maintained by Seller or any of its Affiliates, EVEN IF CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT, GROSS OR CONCURRENT, BUT EXCLUDING WILLFUL MISCONDUCT), OF ANY RELEASED PERSON.

 

ARTICLE 12. — CONFIDENTIALITY

 

12.1        Subject to Section 12.2 and without prejudice to the terms of the Confidentiality Agreement, until the earlier of Closing or termination of this Agreement, all confidential information furnished or disclosed to the Purchaser or any of its Affiliates by Seller or its Affiliates in connection with the transactions contemplated by this Agreement (“Confidential Information”) shall be held confidential by the Purchaser and shall not be divulged in any way by Purchaser to any third party without the prior written approval of Seller provided that Purchaser may, without such approval, disclose such Confidential Information to:

 

(a)           any outside professional consultants, upon obtaining a similar undertaking of confidentiality (but excluding this proviso) from such consultants;

 

(b)           any bank or financial institution from whom Purchaser is seeking or obtaining finance, upon obtaining a similar undertaking of confidentiality (but excluding this proviso) from such bank or institution;

 

71

 

(c)           any department, authority, ministry or agency of any government or other governmental authority lawfully requesting such information;

 

(d)           any court or arbitral tribunal of competent jurisdiction acting in pursuance of its powers;

 

(e)           any of its Affiliates upon obtaining a similar undertaking of confidentiality from such Affiliates; and

 

(f)            any of its employees or contractors (in the case of contractors, upon obtaining a similar undertaking of confidentiality) who have a need to know such information both prior to Closing and after Closing;

 

(g)           any disclosure in connection with any capital markets transaction of Purchaser or an Affiliate of Purchaser, whether equity or debt, provided that recipients of the information are under an obligation of confidentiality;

 

(h)           any disclosure to a prospective buyer or assignee, as long as they are bound by a confidentiality agreement with a similar undertaking of confidentiality;

 

(i)            the extent required by any applicable laws, or the requirements of any recognised stock exchange or the Securities and Exchange Commission in compliance with its rules and regulations.

 

12.2        The Purchaser agrees that any information obtained by, furnished or disclosed to the Purchaser relating to Environmental Defects shall remain confidential indefinitely and the time period in Section 12.1 above shall not apply to this information.

 

12.3        The Purchaser shall remain bound by this Article 12, notwithstanding any termination of this Agreement.  If this Agreement is terminated, the Purchaser shall, at the request of the Seller, promptly return to the Seller (and delete from the Purchaser’s systems, where electronically stored) all Confidential Information.

 

ARTICLE 13. — TERMINATION

 

13.1        Termination.

 

This Agreement may be terminated at any time after the Execution Date and prior to the actual occurrence of the Closing (or, with regard to the Supplemental Closing Assets only, prior to the actual occurrence of the Supplemental Closing) only:

 

(a)           by the mutual written consent of Seller and Purchaser;

 

(b)                                 by either Seller or Purchaser, at any time after April 20, 2018 by written notice to the other Party if the Closing has not occurred on or before such date; provided, however, that solely with regard to the Supplemental Closing Assets, by either Seller or Purchaser, at any time after August 15, 2018 by written notice to the other Party if the Supplemental Closing with regard to such Supplemental Assets has not occurred on or before such date);

 

72

 

(c)                                  by either Seller or Purchaser, by written notice to the other Party, if a Governmental Authority shall have issued an injunction, order or award or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement and such injunction, order, award or other action shall have become final and non-appealable;

 

(d)                                 by Seller, immediately on written notice to Purchaser, if

 

(i)                                     Purchaser fails to pay the Performance Deposit on the date due hereunder;

 

(ii)                                  Purchaser fails to pay the Adjusted Initial Payment Amount on the Closing Date, unless Closing is delayed because the conditions in Section 5.1(a) are not satisfied;

 

(iii)                               Purchaser otherwise breaches or fails to perform its representations, warranties or covenants contained in this Agreement, which breach or breaches or failure or failures to perform; (A) would, individually or in the aggregate, give rise to the failure of a condition set forth in Section 5.1(b); and (B) cannot be cured or, if curable, is not or are not cured within ten (10) days after receiving written notice from Seller;

 

(iv)                              Purchaser wrongfully fails to tender performance at Closing in breach of this Agreement, notwithstanding all of Purchaser’s conditions to Closing having been fully satisfied; provided that Purchaser’s failure to close shall not be considered wrongful if (i) Purchaser’s conditions under Section 5.1(a) are not satisfied through no fault of Purchaser and are not waived by Purchaser, or (ii) Purchaser has terminated this Agreement according to its right under Section 13.1(a), (b), (c), (e) or (f); or

 

(v)                                 fails to provide such additional collateral or security as required pursuant to any Material Contract in relation to a required consent as set forth in Section 4.6(a);

 

(e)                                  by Purchaser, immediately on written notice to Seller, if

 

(i)                                     Seller breaches or fails to perform its representations, warranties or covenants contained in this Agreement, which breach or breaches or failure or failures to perform; (A) would, individually or in the aggregate, give rise to the failure of a condition set forth in Section 5.1(a); and (B) cannot be cured or, if curable, is not or are not cured within ten (10) days after receiving written notice from Purchaser; or

 

(ii)                                  Seller wrongfully fails to tender performance at Closing or otherwise materially breaches this Agreement; provided that Seller’s failure to close shall not be considered wrongful if (i) Seller’s conditions under Section 5.1(b) are not satisfied through no fault of Seller or are not waived by Seller; or (ii) Seller has terminated this Agreement according to its rights under Section 13.1(a), (b), (c), (d) or (f).

 

(f)                                   by either Seller or Purchaser, if under the HSR Act or otherwise, the Federal Trade Commission or the U.S. Department of Justice shall have commenced or threatened to

 

73

 

commence any proceeding to delay or enjoin or seek damages in respect of the transactions evidenced by this Agreement (“threatened,” for purposes of this Section 13.1(d), means an actual vote of the Commissioners of the Federal Trade Commission to commence such a proceeding). For purposes of clarity, issuance of a second request by either the Federal Trade Commission or the U.S. Department of Justice shall not constitute a proceeding to delay or enjoin or seek damages in respect of the transactions evidenced by this Agreement;

 

provided, however, that no Party shall have the right to terminate this Agreement pursuant to clause (b), (d), or (e) above if that Party is at the time in material breach of any provision of this Agreement.

 

13.2        Effect of Termination.

 

(a)           If this Agreement is terminated pursuant to Section 13.1, this Agreement shall become void and of no further force and effect except for the Surviving Provisions.  Except for the rights and remedies of the Seller under Section 13.2(b) and the Purchaser under Section 13.2(c), neither Party shall have any other claims or liabilities with regard to termination of this Agreement.

 

(b)           If this Agreement is terminated pursuant to Section 13.1(d)(ii-v), Seller shall be entitled to retain the Performance Deposit as liquidated damages in lieu of all other damages and as Seller’s sole and exclusive remedy in such event.  Purchaser shall be entitled to the immediate return of the Performance Deposit if this Agreement is terminated for any other reason than pursuant to Section 13.1(d)(ii)-(v).

 

(c)           If this Agreement is terminated pursuant to Section 13.1(e)(i-ii), Purchaser shall be entitled to pursue all remedies available at law for damages or other relief, in equity or otherwise.  Seller shall also return the Performance Deposit to Purchaser immediately after the determination that the Closing will not occur as a result of the circumstances in Section 13.1(e)(i-ii).

 

(d)           If this Agreement is terminated, Purchaser shall return or destroy (whichever is required pursuant to the terms of the Confidentiality Agreement) to Seller on or before the fifth (5th) Business Day thereafter all copies of the Records and other information in the possession of Purchaser or obtained or generated by Purchaser.

 

ARTICLE 14. — DISCLAIMERS; WAIVERS; RELEASES

 

14.1        Sale “As Is” “Where Is”/ Release for Physical and Environmental Condition.

 

PURCHASER REPRESENTS, SUBJECT TO ANY ENVIRONMENTAL DEFECTS AND PURCHASER’S REMEDY RELATING THERETO IN ACCORDANCE WITH ARTICLE 3 OF THIS AGREEMENT AND SUBJECT TO ANY WARRANTY CLAIM THE PURCHASER MAY HAVE RELATING TO SECTION 6.1(Q) (INCLUDING THE INDEMNIFICATION IN ARTICLE 11 RELATION TO ANY CLAIM UNDER SECTION 6.1(Q), THAT IT HAS INSPECTED OR HAS HAD THE OPPORTUNITY TO INSPECT THE PROPERTIES AND AGREES TO ACCEPT THE PHYSICAL AND ENVIRONMENTAL CONDITION OF SAME ON AN “AS IS-WHERE IS” BASIS AND

 

74

 

WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND (WHETHER EXPRESS, STATUTORY, IMPLIED OR OTHERWISE). PURCHASER ACKNOWLEDGES ALSO THAT PHYSICAL CHANGES OCCURRING AFTER THE EFFECTIVE TIME IN THE PROPERTIES OR ADJACENT LANDS MAY HAVE OCCURRED AS A CONSEQUENCE OF THE OIL AND GAS DRILLING, PRODUCTION AND RELATED OPERATIONS CONDUCTED ON THE MINERAL INTERESTS.  THE PROPERTIES MAY CONTAIN UNPLUGGED OR IMPROPERLY PLUGGED WELLS, WELLBORES OR BURIED PIPELINES OR OTHER EQUIPMENT, THE LOCATIONS OF WHICH MAY NOT NOW BE KNOWN TO SELLER OR BE READILY APPARENT FROM A PHYSICAL INSPECTION OF THE PROPERTY, AND PURCHASER ASSUMES THE OBLIGATION AND LIABILITY TO PROPERLY PLUG, ABANDON, REMOVE AND/OR RESTORE THE SAME WITHOUT RECOURSE TO SELLER.

 

14.2        DISCLAIMER OF WARRANTIES FOR ASSETS.

 

SUBJECT TO ANY ENVIRONMENTAL DEFECTS AND PURCHASER’S REMEDY RELATING THERETO IN ACCORDANCE WITH ARTICLE 3 OF THIS AGREEMENT, PURCHASER ACKNOWLEDGES THAT NEITHER SELLER, NOR ANY MEMBER OF SELLER GROUP, OR ANY PERSON ACTING ON BEHALF OF SELLER, HAS MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF THE ASSETS (INCLUDING, WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (d) ANY RIGHTS OF PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE FINAL PURCHASE PRICE, (e) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (f) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM REDHIBITORY VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, AND (g) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, IT BEING THE EXPRESS INTENTION OF SELLER AND PURCHASER THAT THE ASSETS SHALL BE CONVEYED TO PURCHASER AS IS AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR AND PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO THE ASSETS AS PURCHASER DEEMS APPROPRIATE AND PURCHASER WILL ACCEPT THE ASSETS AS IS, IN THEIR PRESENT CONDITION AND STATE OF REPAIR.

 

14.3        DISCLAIMER REGARDING INFORMATION.

 

SELLER HEREBY EXPRESSLY NEGATES AND DISCLAIMS, AND PURCHASER, HEREBY WAIVES, AND ACKNOWLEDGES, THAT, EXCEPT AS PROVIDED FOR IN THIS AGREEMENT, NEITHER SELLER, NOR ANY MEMBER OF SELLER GROUP, OR ANY PERSON ACTING ON BEHALF OF SELLER, SHALL HAVE MADE, AND

 

75

 

PURCHASER IS NOT RELYING UPON, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR OTHER ASSURANCE RELATING TO (a) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR VERBAL) NOW, HERETOFORE, OR HEREAFTER FURNISHED TO PURCHASER BY OR ON BEHALF OF SELLER OR (b) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GEOLOGICAL OR GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY, QUANTITY, RECOVERABILITY OR COST OF RECOVERY OF ANY HYDROCARBON RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, OR THE ABILITY TO SELL OR MARKET ANY HYDROCARBONS AFTER  CLOSING.

 

14.4        DISCLAIMER REGARDING ASBESTOS AND NORM.

 

PURCHASER ACKNOWLEDGES THAT SOME OILFIELD PRODUCTION EQUIPMENT INCLUDED WITHIN THE ASSETS MAY CONTAIN ASBESTOS AND/OR NATURALLY OCCURRING RADIOACTIVE MATERIAL (“NORM”).  PURCHASER SPECIFICALLY ACKNOWLEDGES THAT NORM MAY AFFIX OR ATTACH ITSELF TO THE INSIDE OF WELLBORES, MATERIALS AND EQUIPMENT AS SCALE OR IN OTHER FORMS, AND THAT WELLS, MATERIALS AND EQUIPMENT INCLUDED WITHIN THE ASSETS AND/OR LOCATED ON A MINERAL INTEREST MAY CONTAIN NORM AND NORM-CONTAINING MATERIAL MAY HAVE BEEN DISPOSED OF ON OR OFF A PROPERTY.   PURCHASER UNDERSTANDS THAT, INASMUCH AS THE PRESENCE OF ASBESTOS AND/OR NORM MAY CONSTITUTE A HEALTH HAZARD, SPECIAL SAFETY AND HANDLING PROCEDURES MAY BE REQUIRED FOR THE REMOVAL AND DISPOSAL OF ASBESTOS AND NORM FROM THE PROPERTIES IF AND WHERE SUCH MAY BE FOUND.

 

14.5        DISCLAIMER AS TO TITLE TO ASSETS

 

SELLER SHALL CONVEY SELLER’S INTERESTS IN AND TO THE ASSETS TO PURCHASER OR PURCHASER’S DESIGNATED AFFILIATE WITH THE SPECIAL WARRANTY OF TITLE PURSUANT TO THE ASSIGNMENT BUT WITHOUT ANY OTHER WARRANTY OF TITLE, EXPRESS OR IMPLIED. SUBJECT TO ANY TITLE DEFECTS AND PURCHASER’S REMEDY RELATING THERETO IN ACCORDANCE WITH ARTICLE 4, SELLER DOES NOT MAKE OR PROVIDE (AND SELLER HEREBY EXPRESSLY DISCLAIMS) AND PURCHASER HEREBY WAIVES, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OR OTHER ASSURANCES CONCERNING THE DESCRIPTION OF THE MINERAL INTERESTS, INCLUDING LISTINGS OF NET MINERAL ACRES, WORKING INTERESTS OR NET REVENUE INTERESTS.

 

76

 

14.6        CONSPICUOUSNESS.

 

PURCHASER ACKNOWLEDGES THAT THE DISCLAIMERS, WAIVERS AND RELEASES CONTAINED IN THIS ARTICLE 14 AND ELSEWHERE IN THIS AGREEMENT ARE CONSPICUOUS.

 

ARTICLE 15. — ADMINISTRATIVE PROVISIONS

 

15.1        Expenses of Sale.

 

Except as otherwise specifically provided herein, each Party to this Agreement shall pay its own expenses (including without limitation, the fees and expenses of their respective agents, representatives, counsel and accountants) with respect to the negotiation, execution and the delivery of this Agreement and the consummation of the transactions under this Agreement.

 

15.2        Third Party Rights.

 

Except as to those indemnity obligations owed to the indemnified Persons listed in Section 11.1(a) or 11.1(b), the indemnity, release and waiver provisions in this Agreement in favor of Seller Group, and the provisions of Sections 2.6 and 7.4, notwithstanding any other provision of this Agreement, this Agreement shall not create benefits on behalf of any person who is not a Party to this Agreement (including without limitation, any broker or finder, creditor or other Person), and this Agreement shall be effective only as between the Parties hereto, their successors and permitted assigns.

 

15.3        Further Actions.

 

Purchaser and Seller further agree that they will, from time to time and upon reasonable request, 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 their obligations under this Agreement.

 

15.4        Assignment; Designation of Certain Affiliates to Receive Assets.

 

(a)           Except as provided in Section 2.5 and as set forth below, neither Party shall assign this Agreement or any of its rights or obligations under this Agreement prior to Closing without obtaining the prior written consent of the other Party, and any purported assignment by any Party without the prior written consent of the other Party shall be void; provided, however, that notwithstanding anything stated in this Agreement to the contrary, at or prior to Closing, Purchaser shall have the right, without consent or approval of Seller, to designate in writing one or more of Purchaser’s Affiliates to receive specified Assets at Closing directly from Seller, but such designation or receipt of such Assets by an Affiliate shall not alter or relieve Purchaser of its obligations under this Agreement with regard thereto.

 

(b)           After Closing, in the event that Purchaser sells or assigns all or a portion of the Properties, (i) this Agreement shall remain in effect between Purchaser and Seller regardless of such assignment, and such assignment shall not constitute a release or novation of any obligation or

 

77

 

liability owed by Purchaser to Seller under this Agreement; (ii) Purchaser shall require its successors and assigns to expressly assume the Assumed Obligations and all of its other duties, responsibilities and obligations under this Agreement, to the extent related or applicable to the Assets or the portion thereof acquired by them, but such assumption shall not release Purchaser from any such Assumed Obligation or other duty, responsibility or obligation, and such assumption by Purchaser’s successors and assigns shall be in a writing delivered to Seller; and (iii) for the avoidance of doubt, no such assignment will in any way relieve Purchaser of any obligations under Section 10.4, solely to the extent such obligations in Section 10.4 are surviving as of the time of said assignment.

 

15.5        Notices.

 

Any notice provided or permitted to be given under this Agreement shall be in writing, and may be sent by hand delivery, e-mail, express courier, delivery service addressed to the Party to be notified, postage prepaid, and registered or certified with a return receipt requested.  Notice shall be deemed to have been given and received only if and when actually received by the addressee and when delivered and receipted for, if hand-delivered, sent by express courier or delivery service.  For purposes of notice, the addresses of the Parties shall be as follows:

 

Seller:

 

SWEPI LP

Attn:  Permian Land Manager

150 N. Dairy Ashford

Houston, TX 77079

Telephone: (832)337-3409

Email: Jeff.Turnbull@shell.com

 

For Seller Legacy Representative:

SWEPI LP

Attn: Shell Legacy Representative

150 N. Dairy Ashford

Houston, TX 77079

 

Telephone: (832)762-2284

Email: Skip.Koshak@shell.com

 

Purchaser:

 

c/o Halcón Resources Corporation

Attn: Steve W. Herod

1000 Louisiana Street, Suite 1500

Houston, TX 77002

Telephone: (832) 538-0506

Email: sherod@halconresources.com

 

78

 

And

 

c/o Halcón Resources Corporation

Attn: David S. Elkouri

1801 California Street, Suite 3500

Denver, CO 80202

Telephone: (303) 297-2028

Email: delkouri@halconresources.com

 

or at such other address and number as either Party shall have previously designated by written notice given to the other Party in the manner hereinabove set forth. As a courtesy only, the Parties will use reasonable efforts to send a copy of the notice by email to the email address above, provided always that email delivery alone shall not constitute valid notice under this Agreement.

 

15.6        Public Announcements.

 

The Parties agree that prior to any Party making any public announcement or statement with respect to the transaction contemplated by this Agreement, such Party shall obtain the written approval of the other Party to the text of such announcement or statement, which approval may be withheld for any reason.  Nothing contained in this Section 15.6 shall be construed to require either Party to obtain approval of the other Party to disclose information with respect to the transaction contemplated by this Agreement to any Governmental Authority and/or the public to the extent required by applicable Law or stock exchange regulation; provided that a Party required to make such a disclosure shall consult with the other Party prior to making such disclosure.

 

15.7        Seller’s Time Limits; Waiver.

 

Time is of the essence in this Agreement and all time limits shall be strictly construed and enforced. Subject to the foregoing, however, the failure or delay of any Party in the enforcement of the rights granted under this Agreement shall not constitute a waiver of said rights nor shall it be considered as a basis for estoppel.  Except as otherwise limited by the time limits contained in this Agreement, such Party may exercise its rights under this Agreement despite any delay or failure to enforce the rights when the right or obligation arose.

 

15.8        Applicable Law.

 

The provisions of this Agreement and the relationship of the Parties shall be governed and interpreted according to the Laws of the State of Texas without giving effect to principles of conflicts of Laws.

 

15.9        Severance of Invalid Provisions.

 

In case of a conflict between the provisions of this Agreement and the provisions of any applicable laws or regulations, the provisions of the laws or regulations shall govern over the provisions of this Agreement. If, for any reason and for so long as, any clause or provision of this Agreement is held by a court of competent jurisdiction to be illegal, invalid, unenforceable or unconscionable under any present or future law (or interpretation thereof), the remainder of this Agreement shall

 

79

 

not be affected by such illegality or invalidity. Any such invalid provision shall be deemed severed from this Agreement as if this Agreement had been executed with the invalid provision eliminated.

 

15.10      Construction & Interpretation.

 

The interpretation and construction of the terms of this Agreement will be governed by the following conventions:

 

(a)           Headings for Convenience.  Except for the definition headings, all the table of contents, captions, numbering sequences, paragraph headings and punctuation used in this Agreement are inserted for convenience only and shall in no way define, limit or describe the scope or intent of this Agreement or any part thereof, nor have any legal effect.

 

(b)           Gender & Number.  The use of pronouns in whatever gender or number shall be deemed to be a proper reference to the Parties to this Agreement though the Parties may be individuals, business entities or groups thereof.  Any necessary grammatical changes required to make the provisions of this Agreement refer to the correct gender or number shall in all instances be assumed as though each case was fully expressed.

 

(c)           Independent Representation.  Each Party has had the benefit of independent legal representation with respect to the subject matter of this Agreement and has had the opportunity to exercise business discretion in relation to the negotiation of the details of the transactions contemplated hereby.  This Agreement is the result of arms’ length negotiations from equal bargaining positions. This Agreement shall be construed fairly and reasonably and not more strictly against one Party than another, on the basis of who drafted this Agreement or any provision hereof.

 

(d)           Section References.  Unless otherwise stated, references in this Agreement to articles, sections or subsections are references to the articles, sections or subsections of this Agreement.

 

15.11      Days.

 

If a deadline falls on a day that is not a Business Day, then the deadline will extend to the next Business Day.

 

15.12      Integrated Agreement.

 

This Agreement, the Exhibits and Schedules attached and incorporated herein, the Confidentiality Agreement, and the instruments delivered at or in connection with the Closing hereunder contain the final and entire agreement of the Parties with respect to the subject matter of this contract.  There are no representations, warranties or promises, oral or written, between the Parties other than those included in this Agreement or in any such Closing document.  Upon execution of this Agreement by all Parties, this Agreement shall supersede and replace all previous negotiations, understandings or promises, whether written or oral, relative to the subject of this Agreement.  Each of the Parties acknowledges that no other Party has made any promise, representation or warranty that is not expressly stated in this Agreement or in any Closing document.  This Agreement shall not be modified or changed (nor any provision of this Agreement waived) except

 

80

 

by a written amendment signed by all the Parties.  This Agreement is entire as to all the performances to be rendered under it, and breach of any provision shall constitute a breach of the entire Agreement.  A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement shall not in any way affect, limit or waive a Party’s rights under this Agreement at any time to enforce strict compliance thereafter with any other term or condition of this Agreement.

 

15.13      Binding Effect.

 

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.

 

15.14      Multiple Counterparts.

 

This Agreement may be executed by signing the original or a counterpart hereof.  If this Agreement is executed in multiple counterparts, each counterpart shall be deemed an original, and all of which when taken together shall constitute but one and the same agreement with the same effect as if all Parties had signed the same instrument.

 

15.15      Fair Notice Disclosure Statement.

 

PURCHASER’S ATTENTION IS DIRECTED TO CERTAIN PROVISIONS OF THIS AGREEMENT THAT REQUIRE PURCHASER TO DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS IRRESPECTIVE OF THE STRICT LIABILITY OF SELLER OR THE SOLE, JOINT OR CONCURRENT, ACTIVE OR PASSIVE, NEGLIGENCE OR GROSS NEGLIGENCE OF SELLER.

 

15.16      WAIVER OF CONSUMER RIGHTS UNDER THE DTPA.

 

PURCHASER HEREBY REPRESENTS AND ACKNOWLEDGES THAT IT IS A “BUSINESS CONSUMER” FOR THE PURPOSES OF THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT (SUBCHAPTER E OF CHAPTER 17 OF THE TEXAS BUSINESS AND COMMERCE CODE (THE “TEXAS DTPA”)), AND THAT IT HAS ASSETS OF TWENTY FIVE MILLION UNITED STATES DOLLARS ($25,000,000) OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GAAP OR IS OWNED BY AN ENTITY THAT HAS ASSETS OF MORE THAN TWENTY FIVE MILLION UNITED STATES DOLLARS ($25,000,000), AND THAT THEREFORE IT IS NOT A “CONSUMER” FOR PURPOSES OF THE TEXAS DTPA, THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL OF ITS CHOICE IN ENTERING INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH RESPECT TO THE PARTIES TO AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  PURCHASER HEREBY WAIVES THE PROVISIONS OF THE TEXAS DTPA, TO THE EXTENT ANY SUCH PROVISION MAY BE APPLICABLE, AND OF ANY OTHER APPLICABLE DECEPTIVE TRADE PRACTICES OR CONSUMER PROTECTION LEGISLATION OF ANY JURISDICTION, EXCEPT THAT PURCHASER DOES NOT WAIVE ANY PROVISION FOR

 

81

 

WHICH, BY EXPRESS PROVISION OF LAW, A WAIVER BY PURCHASER CANNOT BE EFFECTIVE.

 

ARTICLE 16. — DISPUTE RESOLUTION

 

16.1        Dispute Resolution.

 

(a)           In the event that any Arbitrable Dispute arises, the Parties shall first seek to resolve such dispute by negotiations as provided in this Article 16 between senior representatives who have authority to settle the controversy.  “Arbitrable Dispute” means (except for:  (i) disputes involving Title Defects, Environmental Defects or any cure relating thereto or involving Title Benefits, each of which will be resolved as provided in Section 3.2(g) or Section 4.4(j), as applicable, or (ii) any matters to be resolved by the Accounting Referee as provided in Section 8.3(b)), any and all disputes, claims, counterclaims, demands, causes of action, controversies and other matters in question arising out of or relating to this Agreement, the transactions contemplated by this Agreement or any alleged breach hereof, including any disputes regarding a Party’s indemnification obligations pursuant to Article 11 or relating to matters that are the subject of this Agreement or the relationship between the Parties under this Agreement, regardless of whether (i)  extra-contractual in nature, (ii) sounding in contract, tort or otherwise, (iii) provided for by law or otherwise, or (iv) any such matters could result in damages or any other relief, whether at law, in equity or otherwise; but the term “Arbitrable Dispute” does not include any claim for injunctive relief.  Any claim for injunctive relief can only be sought through a court of competent jurisdiction.  The sole and exclusive venue and forum for any action for injunctive relief brought in connection with this Agreement is any state or federal court of competent jurisdiction located in Harris County, Texas.

 

(b)           When an Arbitrable Dispute exists, each Party has the right to give the other Party written notice of the Arbitrable Dispute.

 

(c)           Senior representatives of the Parties shall meet at a mutually acceptable time and place within fifteen (15) days after a Party’s receipt of the notice of the Arbitrable Dispute in order to exchange relevant information and to attempt to resolve the matter.  If a senior representative intends to be accompanied to a meeting by an attorney, he or she shall give the other Party’s senior representatives at least three (3) Business Days’ notice of such intention so that he or she also can be accompanied by an attorney.  If a Party’s senior representative does not meet with the other Party’s senior representative within such fifteen (15) day period, the other Party may, at such Party’s sole option, proceed directly to arbitration under Section 16.2.

 

(d)           All offers, promises, conduct and statements, whether oral or written, made in the course of meetings between senior representatives, by any of the Parties, their agents, employees, experts and attorneys and by any CPR employees, are confidential, privileged and inadmissible for any purpose including impeachment, in any arbitration or other proceeding involving the Parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the meetings between senior representatives.

 

82

 

16.2        Arbitration Procedure.

 

(a)           Any Arbitrable Dispute not resolved by agreement of the Parties pursuant to Section 16.1 shall be resolved exclusively through final and binding arbitration using three (3) arbitrators applying by reference the arbitration rules of the International Institute for Conflict Prevention & Resolution (“CPR”) Non-Administered Arbitration Rules, as supplemented by the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration (“CPR Protocol”), as currently in effect on the date of this Agreement (collectively, the “Rules”).  If there is any inconsistency between the provisions of this Agreement and the Rules, the provisions of this Agreement shall control.

 

(b)           Arbitration must be initiated within the applicable time limits set forth in this Agreement and not thereafter or if no time limit is given in this Agreement, within the time period allowed by the applicable statute of limitations; provided, however, that if a Party files a notice of Arbitrable Dispute within the applicable time limits or limitations period but such Arbitrable Dispute is not resolved before the expiration of the applicable time limits or limitations period, the time period for initiating arbitration for that specific Arbitrable Dispute shall be extended for ninety (90) calendar days.  Arbitration, if initiated, must be initiated by a Party (“Claimant”) sending written notice on the other Party (“Respondent”) that the Claimant elects to refer the Arbitrable Dispute to binding arbitration.

 

(c)           Seller shall appoint one arbitrator and Purchaser shall appoint one arbitrator.  The two arbitrators so appointed shall select the third arbitrator, and failing agreement on selection of the third arbitrator by the two arbitrators within thirty (30) days after their appointment, the third arbitrator shall be appointed by the CPR in accordance with the Rules.  Each appointer of the first two arbitrators shall pay the compensation and expenses of the arbitrator it appoints.  Seller shall pay one-half of the compensation and expenses of the third arbitrator and Purchaser shall pay the other half.  All arbitrators must (i) be neutral persons who have never been officers, directors, employees, or consultants or had other business or personal relationships (except acting as arbitrator) with the Parties or any of their Affiliates, officers, directors or employees and (ii) have experience in or be knowledgeable about the matters in dispute.  The location of all arbitration proceedings shall be Houston, Texas.

 

(d)           The Parties and the arbitrators shall proceed diligently so that the award can be made as promptly as possible.  If the amount in controversy is less than or equal to one million United States Dollars ($1,000,000), the hearing shall commence within forty-five (45) Business Days after the selection of the third arbitrator.  If the amount in controversy exceeds one million United States Dollars ($1,000,000), the hearing shall commence at such time as agreed by the Parties and the arbitrators but no later than three (3) months after the selection of the third arbitrator.  Expedited discovery will be permitted if and as agreed by the Parties.  If the Parties are unable to agree, the arbitrators shall resolve any discovery disputes consistent with the Rules.

 

(e)           Except as provided in the Federal Arbitration Act, the decision of the arbitrators shall be binding on and non-appealable by the Parties.  In rendering any decision or award, the arbitrators must abide by all terms and conditions of this Agreement.

 

83

 

(f)            The Parties shall each bear their own costs and expenses (including attorneys’ fees) incurred in arbitrating any Arbitrable Dispute.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

SIGNATURE PAGES FOLLOW.]

 

84

 

IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date first above written, effective as of the Effective Time.

 

 

	
 
    	
SELLER:
    
	
 
    	
 
    	
 
    
	
 
    	
SWEPI LP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Christi Clancy
    
	
 
    	
 
    	
 
    
	
 
    	
Printed Name: Christi Clancy
    
	
 
    	
 
    
	
 
    	
Title: Attorney-in-Fact
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PURCHASER:
    
	
 
    	
 
    
	
 
    	
HALCÓN ENERGY PROPERTIES, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Steve W. Herod
    
	
 
    	
 
    	
 
    
	
 
    	
Printed Name: Steve W. Herod
    
	
 
    	
 
    
	
 
    	
Title: Executive Vice President, Corporate   DevelopmentExhibit 10.2

 

Execution Version

 

$200,000,000

 

HALCÓN RESOURCES CORPORATION

 

6.75% Senior Notes due 2025

 

Purchase Agreement

 

February 7, 2018

 

J.P. Morgan Securities LLC

As Representative of the

several Initial Purchasers listed

in Schedule 1 hereto

 

c/o J.P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

 

Ladies and Gentlemen:

 

Halcón Resources Corporation, a Delaware corporation (the “Company”), proposes to issue and sell to the several initial purchasers listed in Schedule 1 hereto (the “Initial Purchasers”), for whom you are acting as representative (the “Representative”), $200,000,000 principal amount of its 6.75% Senior Notes due 2025 (the “Securities”). The Securities will be issued as “Additional Securities” pursuant to that certain Indenture, dated as of February 16, 2017 (as supplemented and amended, the “Indenture”), among the Company, the guarantors listed therein (the “Guarantors”) and U.S. Bank National Association, as trustee (the “Trustee”), and will be irrevocably and unconditionally guaranteed, jointly and severally, by each of the Guarantors (the “Guarantees”). This Purchase Agreement (this “Agreement”) is to confirm the agreement concerning the purchase of the Securities from the Company by the Initial Purchasers.

 

The Securities will be offered and sold to the Initial Purchasers without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon an exemption pursuant to Section 4(a)(2) under the Securities Act. The Company and the Guarantors have prepared a preliminary offering memorandum dated February 6, 2018 (the “Preliminary Offering Memorandum”) and a pricing term sheet substantially in the form attached hereto as Annex D (the “Pricing Term Sheet”) setting forth the terms of the Securities omitted from the Preliminary Offering Memorandum and certain other information, and will prepare an offering memorandum dated the date hereof (the “Offering Memorandum”) setting forth information concerning the Company, the Guarantors, the Securities and the Guarantees. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Company to the Initial Purchasers pursuant to the terms of this Agreement. The Company hereby confirms that it has authorized the use of the Preliminary Offering Memorandum, the other Time of Sale Information (as defined below) and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers in the manner contemplated by this Agreement. Capitalized terms used but not defined herein shall have the meanings given to such

 

 

terms in the Preliminary Offering Memorandum. References herein to the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum shall be deemed to refer to and include any information or document incorporated by reference therein and any reference to “amend,” “amendment” or “supplement” with respect to the Preliminary Offering Memorandum or the Offering Memorandum shall be deemed to refer to and include any information or documents filed after such date and incorporated by reference therein. At or prior to the time when sales of the Securities were first made (the “Time of Sale”), the Company had prepared the following information (collectively, the “Time of Sale Information”): the Preliminary Offering Memorandum, as supplemented and amended by the written communications listed on Annex B hereto.

 

The Securities are being issued to finance the cash consideration for the acquisition (the “Acquisition”) of property and related assets in the Southern Delaware Basin located in Ward County, Texas from SWEPI LP (the “Seller”) pursuant to the Purchase and Sale Agreement between a wholly owned subsidiary of the Company and the Seller, dated February 6, 2018, and for general corporate purposes.

 

Holders (including subsequent transferees) of the Securities will have the registration rights set forth in the registration rights agreement in a form reasonably satisfactory to the Initial Purchasers (the “Registration Rights Agreement”) between the Company, the Guarantors and the Initial Purchasers to be dated the Closing Date (as defined herein), for so long as such Securities constitute “Transfer Restricted Securities” (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Guarantors will agree to file with the Securities and Exchange Commission (the “Commission”) under the circumstances set forth therein, a registration statement under the Securities Act relating to the Company’s 6.75% Senior Notes due 2025 (the “Exchange Securities”) and the Guarantors’ Exchange Guarantees (the “Exchange Guarantees”) to be offered in exchange for the Securities and the Guarantees. Such portion of the offering is referred to as the “Exchange Offer.” For purposes of this Agreement, “Operative Documents” means the Securities, the Guarantees, the Indenture, the Exchange Securities, the Exchange Guarantees and the Registration Rights Agreement. The “Transaction Documents” means the Operative Documents and this Agreement.

 

1.                                      Purchase and Resale of the Securities.

 

(a)                                 The Company agrees to issue and sell the Securities to the several Initial Purchasers as provided in this Agreement, and each Initial Purchaser, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase from the Company the respective principal amount of Securities set forth opposite such Initial Purchaser’s name in Schedule 1 hereto at a price equal to 101.5% of the principal amount thereof plus accrued interest, if any, from February 15, 2018 to the Closing Date. The Company will not be obligated to deliver any of the Securities except upon payment for all the Securities to be purchased as provided herein.

 

(b)                                 The Company understands that the Initial Purchasers intend to offer the Securities for resale on the terms set forth in the Time of Sale Information. Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that:

 

2

 

(i)                                     it is a qualified institutional buyer (a “QIB”) within the meaning of Rule 144A under the Securities Act (“Rule 144A”) and an accredited investor within the meaning of Rule 501(a) of Regulation D under the Securities Act (“Regulation D”);

 

(ii)                                  it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act; and

 

(iii)                               it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities as part of their initial offering except (the “Exempt Resales”):

 

(A)                               to persons whom it reasonably believes to be QIBs in transactions pursuant to Rule 144A and in connection with each such sale, it has taken or will take reasonable steps to ensure that the purchaser of the Securities is aware that such sale is being made in reliance on Rule 144A; or

 

(B)                               in accordance with the restrictions set forth in Annex C hereto.

 

(c)                                  Each Initial Purchaser acknowledges and agrees that the Company and, for purposes of the “no registration” opinions to be delivered to the Initial Purchasers pursuant to Sections 6(c) and 6(i), counsel for the Company and counsel for the Initial Purchasers, respectively, may rely upon the accuracy of the representations and warranties of the Initial Purchasers, and compliance by the Initial Purchasers with their agreements, contained in paragraph (b) above (including Annex C hereto), and each Initial Purchaser hereby consents to such reliance.

 

(d)                                 The Company acknowledges and agrees that the Initial Purchasers may offer and sell Securities to or through any affiliate of an Initial Purchaser and that any such affiliate may offer and sell Securities purchased by it to or through any Initial Purchaser.

 

(e)                                  The Company and the Guarantors acknowledge and agree that each Initial Purchaser is acting solely in the capacity of an arm’s length contractual counterparty to the Company and the Guarantors with respect to the offering of Securities contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company, the Guarantors or any other person. Additionally, neither the Representative nor any other Initial Purchaser is advising the Company, the Guarantors or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company and the Guarantors shall consult with their own advisors concerning such matters and shall be responsible for making their own independent investigation and appraisal of the

 

3

 

transactions contemplated hereby, and neither the Representative nor any other Initial Purchaser shall have any responsibility or liability to the Company or the Guarantors with respect thereto. Any review by the Representative or any Initial Purchaser of the Company, the Guarantors, and the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Representative or such Initial Purchaser, as the case may be, and shall not be on behalf of the Company, the Guarantors or any other person.

 

2.                                      Payment and Delivery.

 

(a)                                 Payment for and delivery of the Securities will be made at the offices of Vinson & Elkins L.L.P. at 10:00 A.M., New York City time, on February 15, 2018, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representative and the Company may agree upon in writing. The time and date of such payment and delivery is referred to herein as the “Closing Date.”

 

(b)                                 Payment for the Securities shall be made by wire transfer in immediately available funds to the account(s) specified by the Company to the Representative against delivery to the nominee of The Depository Trust Company (“DTC”), for the account of the Initial Purchasers, of one or more global notes representing the Securities (collectively, the “Global Note”), with any transfer taxes payable in connection with the sale of the Securities duly paid by the Company. The Global Note will be made available for inspection by the Representative not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date.

 

3.                                      Representations and Warranties of the Company and the Guarantors. The Company and the Guarantors jointly and severally represent and warrant to each Initial Purchaser that:

 

(a)                                 When the Securities and Guarantees are issued and delivered pursuant to this Agreement, such Securities and Guarantees will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Company or the Guarantors that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a U.S. automated inter-dealer quotation system.

 

(b)                                 Neither the Company nor any subsidiary of the Company is or, after giving effect to the offer and sale of the Securities and the application of the proceeds therefrom as described under “Use of Proceeds” in each of the Time of Sale Information and the Offering Memorandum, will be an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (the “Investment Company Act”).

 

(c)                                  Assuming the accuracy of your representations and warranties in Section 1(b), the purchase and resale of the Securities pursuant hereto (including pursuant to the Exempt Resales) are exempt from the registration requirements of the Securities Act. No form of general solicitation or general advertising within the meaning of Regulation D

 

4

 

(including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising) was used by the Company, the Guarantors, or any person acting on behalf of the Company or the Guarantors (other than you, as to whom the Company and the Guarantors make no representation) in connection with the offer and sale of the Securities.

 

(d)                                 No directed selling efforts within the meaning of Rule 902 under the Securities Act were used by the Company, the Guarantors, any affiliate of the Company or the Guarantors or any person acting on behalf of the Company or the Guarantors (other than you, as to whom the Company and the Guarantors make no representation) with respect to Securities sold outside the United States in accordance with Regulation S, and the Company and any person acting on its behalf (other than you, as to whom the Company and the Guarantors make no representation) has complied with and will implement the “offering restrictions” required by Rule 902 under the Securities Act.

 

(e)                                  Each of the Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum, each as of its date, contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act.

 

(f)                                   The Preliminary Offering Memorandum, the Time of Sale Information and the Offering Memorandum have been prepared by the Company and the Guarantors for use by the Initial Purchasers in connection with the Exempt Resales. No order or decree preventing the use of the Preliminary Offering Memorandum, the Time of Sale Information or the Offering Memorandum, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act has been issued, and no proceeding for that purpose has commenced or is pending or, to the knowledge of the Company or any of the Guarantors, is contemplated.

 

(g)                                  The Time of Sale Information did not, as of the Time of Sale, and will not, as of the Closing Date, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Time of Sale Information in reliance upon and in conformity with written information furnished to the Company through the Representative by or on behalf of any Initial Purchaser specifically for inclusion therein, which information is specified in Section 7(e).

 

(h)                                 The Offering Memorandum will not, as of its date or as of the Closing Date, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Offering Memorandum in reliance upon and in conformity with written information furnished to the Company

 

5

 

through the Representative by or on behalf of any Initial Purchaser specifically for inclusion therein, which information is specified in Section 7(e).

 

(i)                                     Neither the Company nor any Guarantor has made any offer to sell or solicitation of an offer to buy the Securities that would constitute a “free writing prospectus” (if the offering of the Securities was made pursuant to a registered offering under the Securities Act), as defined in Rule 405 under the Securities Act (a “Free Writing Offering Document”) without the prior consent of the Representative; each such Free Writing Offering Document the use of which has been previously consented to by the Initial Purchasers is listed on Annex B.

 

(j)                                    Each Free Writing Offering Document listed on Annex A hereto, when taken together with the Time of Sale Information, did not, as of the Time of Sale, and will not, as of the Closing Date, contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made as to information contained in or omitted from any Free Writing Offering Document in reliance upon and in conformity with written information furnished to the Company through the Representative by or on behalf of any Initial Purchaser specifically for inclusion therein, which information is specified in Section 7(e).

 

(k)                                 The documents incorporated by reference in the Time of Sale Information and the Offering Memorandum, at the time they were filed with the Commission, complied in all material respects with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and none of such documents, when read together with the other information in the Time of Sale Information, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and any further documents so filed and incorporated by reference in the Time of Sale Information and the Offering Memorandum, when such documents are filed with the Commission will conform in all material respects to the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder and will not, when read together with the other information in the Time of Sale Information, contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.

 

(l)                                     The statistical and market-related data relating to the Company included or incorporated by reference in the Time of Sale Information and the Offering Memorandum and the consolidated financial statements of the Company and its subsidiaries are based on or derived from sources that the Company believes to be reliable in all material respects.

 

(m)                             The Company has been duly incorporated, is validly existing and is in good standing under the laws of State of Delaware, with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Time of Sale Information and the Offering Memorandum; the Company is duly qualified as a

 

6

 

foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to qualify or to be in good standing would not have a material adverse effect on the business, properties, prospects, financial condition, stockholders’ equity or results of operations of the Company and its subsidiaries taken as a whole (a “Material Adverse Effect”); each subsidiary of the Company other than those subsidiaries which would not, individually or in the aggregate, constitute a “significant subsidiary” as defined in Item 1-02(w) of Regulation S-X (each such “significant subsidiary,” a “Subsidiary”) and each Guarantor is a corporation, partnership, limited liability company or business trust duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite entity power and authority to own, lease and operate its properties, except where the failure to qualify or be in good standing would not have a Material Adverse Effect. The Company does not own or control, directly or indirectly, any corporation, association or other corporate entity that, individually or in the aggregate would constitute a Subsidiary, other than the subsidiaries listed on Schedule 2 hereof. On a consolidated basis, the Company and its subsidiaries conduct their business as described in the Time of Sale Information and the Offering Memorandum and each Subsidiary and each Guarantor is duly qualified as a foreign corporation, partnership, limited liability company, business trust or other organization to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to qualify or to be in good standing would not result in a Material Adverse Effect.

 

(n)                                 The Company has the authorized capitalization as set forth in the Time of Sale Information and the Offering Memorandum, and all of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. Except as otherwise disclosed in the Time of Sale Information and the Offering Memorandum, all of the issued and outstanding capital stock or other ownership interests of each subsidiary of the Company (i) have been duly authorized and validly issued, (ii) are fully paid and non-assessable and (iii) are owned by the Company directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity except as described in the Time of Sale Information and the Offering Memorandum and except for such security interests, mortgages, pledges, liens, encumbrances, claims or equities that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(o)                                 The Company and each Guarantor has all requisite corporate, partnership or limited liability company power and authority, as applicable, to perform its obligations under the Indenture. The Indenture on the Closing Date is duly and validly authorized, executed and delivered by the Company and the Guarantors and, assuming due execution and delivery thereof in accordance with its terms by the Trustee, constitutes a valid and binding agreement of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with its terms, except as such enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights generally and by general equitable

 

7

 

principles (regardless of whether such enforceability is considered in a proceeding in equity or at law); and the Indenture conforms in all material respects to the requirements of the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), applicable to an indenture qualified thereunder. No qualification of the Indenture under the Trust Indenture Act is required in connection with the offer and sale of the Securities contemplated hereby or in connection with the Exempt Resales. The Indenture conforms to the description thereof in each of the Time of Sale Information and the Offering Memorandum.

 

(p)                                 The Company has all requisite corporate power and authority to execute, issue, sell and perform its obligations under the Securities. The Securities have been duly authorized by the Company and, when duly executed by the Company in accordance with the terms of the Indenture, assuming due authentication of the Securities by the Trustee, upon delivery to the Initial Purchasers against payment therefor in accordance with the terms hereof, will be validly issued and delivered and will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, except as such enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Securities will conform in all material respects to the description thereof in each of the Time of Sale Information and the Offering Memorandum.

 

(q)                                 The Company has all requisite corporate power and authority to execute, issue and perform its obligations under the Exchange Securities. The Exchange Securities have been duly and validly authorized by the Company and if and when issued and authenticated in accordance with the terms of the Indenture and delivered in accordance with the Exchange Offer provided for in the Registration Rights Agreement, will be validly issued and delivered and will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, except as such enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

(r)                                    Each Guarantor has all requisite corporate, partnership or limited liability company power and authority, as applicable, to execute, issue and perform its obligations under the Guarantees. The Guarantees have been duly and validly authorized and, on the Closing Date will have been duly and validly executed and delivered by the Guarantors upon the due execution, authentication and delivery of the Securities in accordance with the Indenture and the issuance of the Securities in the sale to the Initial Purchasers contemplated by this Agreement, and, when such Guarantees are duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute valid and binding obligations of the Guarantors entitled to the benefits of the Indenture, enforceable against the Guarantors in accordance with their terms, except as such enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights

 

8

 

generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Guarantees will conform in all material respects to the description thereof in each of the Time of Sale Information and the Offering Memorandum.

 

(s)                                   Each Guarantor has all requisite corporate, partnership or limited liability company power and authority, as applicable, to execute, issue and perform its obligations under the Exchange Guarantees. The Exchange Guarantees have been duly and validly authorized by the Guarantors and if and when executed and delivered by the Guarantors in accordance with the terms of the Indenture and upon the due execution and authentication of the Exchange Securities in accordance with the Indenture and the issuance and delivery of the Exchange Securities in the Exchange Offer contemplated by the Registration Rights Agreement, will be duly and validly issued and delivered and will constitute valid and binding obligations of the Guarantors entitled to the benefits of the Indenture, enforceable against the Guarantors in accordance with their terms, except as such enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors’ rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

(t)                                    The Company and each Guarantor has all requisite corporate, partnership or limited liability company power and authority, as applicable, to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly authorized by the Company and each Guarantor and, when executed and delivered by the Company and each Guarantor in accordance with the terms hereof and thereof, will be validly executed and delivered and (assuming the due authorization, execution and delivery thereof by the other parties thereto) will be the legally valid and binding obligations of the Company and each Guarantor in accordance with the terms thereof, enforceable against the Company and each Guarantor in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor’s rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and, as to rights of indemnification and contribution, by principles of public policy. The Transaction Documents conform in all material respects to the descriptions thereof in each of the Time of Sale Information and the Offering Memorandum.

 

(u)                                 The Company and each Guarantor has all requisite corporate, partnership or limited liability company power and authority, as applicable, to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Company and each of the Guarantors.

 

(v)                                 The issuance and sale of the Securities and the issuance of the Guarantees, the issuance of the Exchange Securities and the Exchange Guarantee, and the execution, delivery and performance by the Company and each of the Guarantors of each of the Transaction Documents to which each is a party, and compliance by the Company and each of the Guarantors with the terms thereof and the consummation of the transactions

 

9

 

contemplated by the Transaction Documents, and the application of the proceeds from the sale of the Securities as described under “Use of Proceeds” in each of the Time of Sale Information and the Offering Memorandum, will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, impose any lien, charge or encumbrance upon any property or assets of the Company, the Guarantors or their respective subsidiaries, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, license, lease or other agreement or instrument to which the Company, the Guarantors or any of their respective subsidiaries is a party or by which the Company, the Guarantors or any of their respective subsidiaries is bound or to which any of the property or assets of the Company, the Guarantors or any of their respective subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws (or similar organizational documents) of the Company, the Guarantors or any of their respective subsidiaries, or (iii) result in any violation by the Company, the Guarantors or any of their respective subsidiaries of any statute or any judgment, order, decree, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the Guarantors or any of their respective subsidiaries or any of their properties or assets, except, with respect to clauses (i) and (iii), conflicts or violations that would not reasonably be expected to have a Material Adverse Effect or would not, in the aggregate, reasonably be expected to have a material adverse effect on ability of the Company or any Guarantor to perform their obligations under this Agreement.

 

(w)                               No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental agency or body, domestic or foreign, having jurisdiction over the Company is required for the offering and sale of the Securities and the issuance of the Guarantees, the issuance of the Exchange Securities and the Exchange Guarantees, the execution, delivery and performance by the Company or any of the Guarantors of each of the Transaction Documents to which each is a party or the consummation by the Company of the other transactions contemplated by the Transaction Documents, except for the filing of the registration statement by the Company with the Commission pursuant to the Securities Act, as required by the Registration Rights Agreement, and for such consents, approvals, authorizations, orders, registrations, filings or qualifications that shall have been obtained or made on or prior to the Closing Date as described in this Agreement or as may be required by the securities or blue sky laws of the various states, the Securities Act and the securities laws of any jurisdiction outside the United States in which the Securities are offered.

 

(x)                                 Except for the Registration Rights Agreement and as disclosed in the Time of Sale Information and the Offering Memorandum, there are no contracts, agreements or understandings between the Company, any Guarantor and any person granting such person the right to require the Company or any Guarantor to file a registration statement under the Securities Act with respect to any securities of the Company or any Guarantor owned or to be owned by such person or to require the Company or any Guarantor to include such securities in the securities registered pursuant to the Registration Rights Agreement or in any securities being registered pursuant to any other registration statement filed by the Company or any Guarantor under the Securities Act.

 

10

 

(y)                                 Neither the Company, any Guarantor nor any other person acting on behalf of the Company or any Guarantor has sold or issued any securities that would be integrated with the offering of the Securities contemplated by this Agreement pursuant to the Securities Act, the rules and regulations thereunder or the interpretations thereof by the Commission.

 

(z)                                  Except as described in the Time of Sale Information or the Offering Memorandum, neither the Company, the Guarantors nor any of their respective subsidiaries has sustained, (i) since the date of the latest audited financial statements included and incorporated by reference in the Time of Sale Information and the Offering Memorandum, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, and, (ii) since such date, there has not been (x) any material change in the capital stock, partnership or limited liability interests, as applicable, or long-term debt, of the Company, the Guarantors or any of their respective subsidiaries or (y) any adverse change, or any development involving a prospective adverse change, in or affecting the business, properties, prospects, financial condition, stockholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, in the case of clause (i) or (ii)(y) above, except as could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(aa)                          The historical financial statements (including the related notes and supporting schedules) of each of the Company and its subsidiaries included or incorporated by reference in the Time of Sale Information and the Offering Memorandum comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as applicable, and present fairly in all material respects the financial condition, results of operations and cash flows of the entities purported to be shown thereby, at the dates and for the periods indicated, giving effect to “fresh start” accounting at all required dates and for all required periods, and have been prepared in conformity with accounting principles generally accepted in the United States applied on a consistent basis throughout the periods involved. The interactive data in eXtensible Business Reporting Language (“XBRL”) included or incorporated by reference in the Incorporated Documents fairly presents the financial information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto. The other financial information and financial data included and incorporated by reference in the Time of Sale Information and Offering Memorandum is, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. The pro forma combined financial statements included in the Time of Sale Information and Offering Memorandum include assumptions that provide a reasonable basis for presenting the significant effects directly attributable to the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma adjustments reflect an appropriate application of those adjustments to the historical consolidated financial statement amounts in the pro forma combined financial statements included in the Time of Sale Information and Offering Memorandum.  The pro forma combined financial statements included in the Time of Sale Information and Offering Memorandum

 

11

 

comply as to form in all material respects with the applicable accounting requirements of Article 11 of the Regulation S-X.

 

(bb)                          Deloitte & Touche LLP, who have certified certain financial statements of the Company, whose reports appear in the Time of Sale Information and the Offering Memorandum or are incorporated by reference therein, are independent registered public accountants as required by the Securities Act and the rules and regulations thereunder and the rules and regulations of the Public Company Accounting Oversight Board (the “PCAOB”) during the periods covered by the financial statements on which they reported contained in and incorporated by reference in the Time of Sale Information and the Offering Memorandum.

 

(cc)                            Netherland, Sewell & Associates (the “Company Reservoir Engineer”), whose report dated February 1, 2017 is summarized or excerpted in reports incorporated by reference, or included, in the Time of Sale Information and the Offering Memorandum, was, as of the date of such report, and is, as of the date hereof, an independent petroleum engineer with respect to the Company. The written engineering report prepared by the Company Reservoir Engineer dated February 1, 2017 setting forth the proved reserves attributed to the oil and gas properties of the Company and its subsidiaries accurately reflects in all material respects the interests of the Company and its subsidiaries in the properties therein as of December 31, 2016 and was prepared in accordance with the Commission’s rules and regulations relating to the reporting of oil and natural gas reserves; the information furnished by the Company to the Company Reservoir Engineer for purposes of preparing its report, including, without limitation, production, costs of operation and development, current prices for production, agreements relating to current and future operations and sales of production, was true, correct and complete in all material respects on the date supplied and was prepared in accordance with customary industry practices, as indicated in the letter of the Company Reservoir Engineer dated February 1, 2017.

 

(dd)                          The Company and its subsidiaries have defensible title to all of their interests in oil and gas properties (other than interests earned under farm-out, participation or similar agreements in which an assignment or transfer is pending) and all their interests in other real property and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except (i) such as are described in the Time of Sale Information and the Offering Memorandum, (ii) liens and encumbrances under operating agreements, unitization and pooling agreements, production sales contracts, farm-out agreements and other oil and gas exploration participation and production agreements, in each case that secure payment of amounts not yet due and payable for the performance of other unmatured obligations and are of a scope and nature customary in the oil and gas industry or arise in connection with drilling and production operations or (iii) would not have a Material Adverse Effect; except as described in the Time of Sale Information and the Offering Memorandum or as would not have a Material Adverse Effect, all of the leases and subleases of real property of the Company or any of its subsidiaries and under which the Company or any of its subsidiaries holds properties

 

12

 

described in the Time of Sale Information and the Offering Memorandum, are in full force and effect.

 

(ee)                            The Company and each of its subsidiaries have such permits, licenses, patents, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities (“Permits”) as are necessary under applicable law to own their properties and conduct their businesses in the manner described in the Time of Sale Information and the Offering Memorandum, except for any of the foregoing that would not, in the aggregate, reasonably be expected to have a Material Adverse Effect; each of the Company and its subsidiaries has fulfilled and performed all of its obligations with respect to the Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder or any such Permits, except for any of the foregoing that could not reasonably be expected to have a Material Adverse Effect.

 

(ff)                              The Company and its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as the Company believes are adequate for the conduct of their business and the value of their properties and is reasonably customary for companies engaged in similar industries, and all such insurance is in full force and effect. The Company has no reason to believe that it and its subsidiaries will not be able to (i) renew their existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct their business as currently conducted or proposed to be conducted and at a cost that would not, individually or in the aggregate, result in a Material Adverse Effect.

 

(gg)                            Other than as set forth in the Time of Sale Information and the Offering Memorandum, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which if determined adversely to the Company, or such subsidiary, would individually or in the aggregate, have a Material Adverse Effect or which would materially and adversely affect the consummation of the transactions contemplated under this Agreement or the Operative Documents or the performance by the Company or any Guarantor of their obligations hereunder or thereunder; and, to the Company’s and the Guarantors’ knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others.

 

(hh)                          There are no contracts or other documents that would be required to be described in a registration statement filed under the Securities Act or filed as exhibits to a registration statement of the Company pursuant to Item 601(10) of Regulation S-K, or a periodic report of the Company under the Exchange Act that would be incorporated by reference therein, that have not been described in the Time of Sale Information and the Offering Memorandum. The statements made in the Time of Sale Information and the Offering Memorandum, insofar as they purport to constitute summaries of the terms of the contracts and other documents that are so described, constitute accurate summaries of the terms of such contracts and documents in all material respects. Neither the Company, the Guarantors nor any of their respective subsidiaries has knowledge that any other party

 

13

 

to any such contract or other document has any intention not to render full performance as contemplated by the terms thereof.

 

(ii)                                  The statements made in the Time of Sale Information and the Offering Memorandum under the captions “Business” (as incorporated by reference from the Company’s Exchange Act Reports), “Certain United States Federal Income Tax Considerations” and “Certain Considerations for ERISA and Other U.S. Employee Benefit Plans,” insofar as they purport to constitute summaries of the terms of statutes, rules or regulations, legal or governmental proceedings or contracts and other documents, constitute accurate summaries of the terms of such statutes, rules and regulations, legal and governmental proceedings and contracts and other documents in all material respects.

 

(jj)                                No relationship, direct or indirect, that would be required to be described in a registration statement of the Company pursuant to Item 404 of Regulation S-K, exists between or among the Company or any Guarantor and their respective subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any Guarantor and their respective subsidiaries, on the other hand, that has not been described in the Time of Sale Information and the Offering Memorandum.

 

(kk)                          No labor disturbance by or dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company or any Guarantor, is imminent that could reasonably be expected to have a Material Adverse Effect.

 

(ll)                                  (i) Each “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Security Act of 1974, as amended (“ERISA”)) for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each a “Plan”) has been maintained in compliance with its terms and with the requirements of all applicable statutes, rules and regulations including ERISA and the Code in all material respects; (ii) with respect to each Plan subject to Title IV of ERISA (a) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur, (b) no “accumulated funding deficiency” (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, has occurred or is reasonably expected to occur, (c) the fair market value of the assets under each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan) and (d) neither the Company or any member of its Controlled Group has incurred, or reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(c)(3) of ERISA); and (iii) to the knowledge of the Company, each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

 

(mm)                  The Company and each of its subsidiaries has filed all federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof,

 

14

 

subject to permitted extensions, and paid all taxes due thereon, and (i) no tax deficiency has been determined adversely to the Company, the Guarantors or any of their respective subsidiaries, nor (ii) does the Company or any Guarantor have any knowledge of any tax deficiencies that could, in the case of clause (i) or (ii) in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(nn)                          There are no transfer taxes or other similar fees or charges under Federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement or the issuance by the Company or sale by the Company of the Securities.

 

(oo)                          Since the date as of which information is given in the Time of Sale Information and the Offering Memorandum, except as may otherwise be described in the Time of Sale Information and the Offering Memorandum, neither the Company nor any Guarantor has (i) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations that were incurred in the ordinary course of business, (ii) entered into any material transaction not in the ordinary course of business or (iii) declared or paid any dividend on its capital stock.

 

(pp)                          Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws (or similar organizational documents), (ii) is in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant, condition or other obligation contained in any indenture, mortgage, deed of trust, loan agreement, license or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject, or (iii) is in violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over it or its property or assets or has failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business, except in the case of clauses (ii) and (iii), to the extent any such conflict, breach, violation or default would not reasonably be expected to have a material adverse effect on the ability of the Company or any Guarantor to perform their obligations under any of the Transaction Documents.

 

(qq)                          The Company and each of its subsidiaries (i) are, and at all times prior hereto were, in compliance with all laws, regulations, ordinances, rules, orders, judgments, decrees, permits or other legal requirements of any governmental authority, including without limitation any international, national, state, provincial, regional, or local authority, relating to the protection of human health or safety, the environment, or natural resources, or to hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”) applicable to such entity, which compliance includes, without limitation, obtaining, maintaining and complying with all permits and authorizations and approvals required by Environmental Laws to conduct their respective businesses, and (ii) have not received notice of any actual or alleged violation of Environmental Laws, or of any potential liability for or other obligation concerning the presence, disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except in the case of clause (i) or (ii) where such non-compliance,

 

15

 

violation, liability, or other obligation could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as described in the Time of Sale Information and the Offering Memorandum, (A) there are no proceedings that are pending, or known to be contemplated, against the Company or any of its subsidiaries under Environmental Laws in which a governmental authority is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed (except for pending or contemplated proceedings which are not material to the Company and its subsidiaries and were not required to be disclosed in the documents incorporated by reference in the Time of Sale Information), (B) the Company, and its subsidiaries are not aware of any issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws or concerning hazardous or toxic substances or wastes, pollutants or contaminants, that could reasonably be expected to have a Material Adverse Effect, and (C) none of the Company or its subsidiaries anticipates material capital expenditures other than in the ordinary course of business relating to Environmental Laws.

 

(rr)                                None of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the sale of the Securities), will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System.

 

(ss)                              The statements contained in the Time of Sale Information and the Offering Memorandum under the caption “Description of the Notes,” insofar as they purport to constitute a summary of the terms of the Transaction Documents and under the captions “Description of Our Other Indebtedness” and “Plan of Distribution” insofar as they purport to describe the provisions of the documents referred to therein, are accurate in all material respects.

 

(tt)                                The Company and its affiliates have not taken, directly or indirectly, any action designed to or that has constituted or that could reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company or the Guarantors in connection with the offering of the Securities.

 

(uu)                          The Company and each of its subsidiaries maintain a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed by, or under the supervision of, the Company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. The Company and each of its subsidiaries maintains internal accounting controls that are sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States and to maintain accountability for its assets, (iii) access to the Company’s assets is permitted only in

 

16

 

accordance with management’s general or specific authorization, (iv) the recorded accountability for the Company’s assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences, and (v) the interactive data in XBRL included or incorporated by reference in the Time of Sale Information and the Offering Memorandum fairly presents the information called for in all material respects and is prepared in accordance with the Commission’s rules and guidelines applicable thereto.

 

(vv)                          (i) The Company and each of its subsidiaries have established and maintain disclosure controls and procedures (as such term is defined in Rule 13a-15 under the Exchange Act), (ii) such disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports they file or submit under the Exchange Act (assuming the Company was required to file or submit such reports under the Exchange Act) is accumulated and communicated to management of the Company and its subsidiaries, including their respective principal executive officers and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure to be made; and (iii) such disclosure controls and procedures are effective in all material respects to perform the functions for which they were established.

 

(ww)                      Since the date of the most recent balance sheet of the Company and its consolidated subsidiaries audited by Deloitte & Touche LLP and reviewed by the audit committee of the board of directors of the Company, (i) the Company has not been advised of by its auditors, nor has it identified (A) any material weaknesses in the design or operation of internal controls, and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the internal controls of the Company and each of its subsidiaries; and (ii) there have been no changes in internal controls or in other factors that have materially affected or are reasonably likely to materially affect internal controls.

 

(xx)                          No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company, except as described in the Time of Sale Information and the Offering Memorandum.

 

(yy)                          There is and has been no failure on the part of the Company or, to the knowledge of the Company and the Guarantors or any of their directors or officers, in their capacities as such, to comply with any applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith.

 

(zz)                            The section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” as incorporated by reference from the Company’s Exchange Act Reports in the Time of Sale Information and the Offering Memorandum accurately and fully describes in all material respects (A) the accounting policies that the Company believed as of the date thereof

 

17

 

were the most important in the portrayal of the Company’s financial condition and results of operations and that required management’s most difficult, subjective or complex judgments; (B) the judgments and uncertainties affecting the application of critical accounting policies; and (C) the likelihood that materially different amounts would be reported under different conditions or using different assumptions and an explanation thereof.

 

(aaa)                   Neither the Company nor any of its subsidiaries, nor, to the knowledge of the Company and each of the Guarantors, any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom, or any other applicable anti-bribery or anti-corruption law; or (iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce, policies and procedures designed to promote and ensure compliance with anti-bribery and anti-corruption laws to the extent such laws are applicable to the business, assets and operations of the Company and its subsidiaries.

 

(bbb)                   The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Anti-Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company or any of the Guarantors, threatened.

 

(ccc)                      Neither the Company nor any of its subsidiaries, directors, officers or employees, nor, to the knowledge of the Company or any of the Guarantors, any agent, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. government, (including, without limitation, the Office of Foreign

 

18

 

Assets Control of the U.S. Department of the Treasury (“OFAC”) or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person”), the United Nations Security Council (“UNSC”), the European Union, Her Majesty’s Treasury (“HMT”), or other relevant sanctions authority (collectively, “Sanctions”), nor is the Company or any of its subsidiaries located, organized or resident in a country or territory that is the subject or target of Sanctions, including, without limitation, Cuba, Iran, North Korea, Syria and Crimea (each, a “Sanctioned Country”); and the Company will not directly or indirectly use the proceeds of the offering of the Securities hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, initial purchaser, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in and will not engage in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.

 

(ddd)                   The Company has not taken any action or omitted to take any action (such as issuing any press release relating to any Securities without an appropriate legend) which may result in the loss by any of the Initial Purchasers of the ability to rely on any stabilization safe harbor provided by the Financial Services Authority under the Financial Services and Markets Act 2000 (the “FSMA”). The Company has been informed of the guidance relating to stabilization provided by the Financial Services Authority, in particular in Section MAR 2 Annex 2G of the Financial Services Handbook.

 

(eee)                      Immediately after the consummation of the issuance and sale of the Securities in accordance with the terms of this Agreement and the consummation of the Acquisition, each of the Company and each of the Guarantors will be Solvent. As used in this paragraph, the term “Solvent” means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of the Company and its subsidiaries and the Guarantors and their subsidiaries are not less than the total amount required to pay the probable liabilities of the Company and its subsidiaries and the Guarantors and their subsidiaries on their total existing debts and liabilities (including contingent liabilities) as they become absolute and matured, (ii) the Company and its subsidiaries and the Guarantors and their subsidiaries are able to realize upon their assets and pay their debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business, (iii) assuming the sale of the Securities as contemplated by this Agreement and the consummation of the Acquisition, the Time of Sale Information and the Offering Memorandum, the Company and its subsidiaries and the Guarantors and their subsidiaries are not incurring debts or liabilities beyond their ability to pay as such debts and liabilities mature and (iv) the Company and its subsidiaries and the Guarantors and their subsidiaries are not engaged in any business or transaction, and are not about to engage in any business or transaction, for which their property would constitute unreasonably small

 

19

 

capital after giving due consideration to the prevailing practice in the industry in which the Company and its subsidiaries and the Guarantors and their subsidiaries are engaged. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

 

(fff)                         As of the date hereof (i) all royalties, rentals, deposits and other amounts owed under the oil and gas leases constituting the oil and gas properties of the Company and its subsidiaries have been properly and timely paid (other than amounts held in suspense accounts pending routine payments or related to disputes about the proper identification of royalty owners), and no amount of proceeds from the sale or production attributable to the oil and gas properties of the Company and its subsidiaries are currently being held in suspense by any purchaser thereof, except where such amounts due could not, individually or in the aggregate, have a Material Adverse Effect, and (ii) there are no claims under take-or-pay contracts pursuant to which natural gas purchasers have any make-up rights affecting the interests of the Company and its subsidiaries in their oil and gas properties, except where such claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(ggg)                      Except as described in the Time of Sale Information and the Offering Memorandum, there are no material off-balance sheet transactions (including, without limitation, transactions related to, and the existence of, “variable interest entities” within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 810), arrangements, obligations (including contingent obligations), or any other relationships with unconsolidated entities or other persons, that would reasonably be expected to have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses.

 

(hhh)                   Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that could give rise to a valid claim against the Initial Purchasers for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Securities.

 

(iii)                               No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) included or incorporated by reference in the Time of Sale Information or the Offering Memorandum has been made without a reasonable basis at the time such statement was made or has been disclosed other than in good faith.

 

(jjj)                            Neither the Company nor any of its subsidiaries is in violation of or has received notice of any violation with respect to any federal or state law relating to discrimination in the hiring, promotion or pay of employees, nor any applicable federal or state wage and hour laws, the violation of any of which could reasonably be expected to have a Material Adverse Effect.

 

20

 

Any certificate signed by any officer of the Company or any Guarantor and delivered to the Representative or counsel for the Initial Purchasers in connection with the offering of the Securities shall be deemed a representation and warranty by the Company or any such Guarantor, jointly and severally, as to matters covered thereby, to each Initial Purchaser.

 

4.                                      Further Agreements of the Company and the Guarantors. The Company and the Guarantors jointly and severally covenant and agree with each Initial Purchaser that:

 

(a)                                 The Company will deliver, without charge, to the Initial Purchasers as many copies of the Preliminary Offering Memorandum, any other Time of Sale Information, any Free Writing Offering Document and the Offering Memorandum (including all amendments and supplements thereto) as the Representative may reasonably request.

 

(b)                                 Before finalizing the Offering Memorandum or making or distributing any amendment or supplement to any of the Time of Sale Information or the Offering Memorandum or filing with the Commission any document that will be incorporated by reference therein, the Company will furnish to the Representative and counsel for the Initial Purchasers a copy of the proposed Offering Memorandum or such amendment or supplement or document to be incorporated by reference therein for review, and will not distribute any such proposed Offering Memorandum, amendment or supplement or file any such document with the Commission to which the Representative reasonably objects.

 

(c)                                  Before making, preparing, using, authorizing, approving or referring to any Free Writing Offering Document, the Company and the Guarantors will furnish to the Representative and counsel for the Initial Purchasers a copy of such written communication for review and will not make, prepare, use, authorize, approve or refer to any such written communication to which the Representative reasonably objects.

 

(d)                                 The Company will advise the Representative promptly, and confirm such advice in writing, (i) of the issuance by any governmental or regulatory authority of any order preventing or suspending the use of any of the Time of Sale Information, any Free Writing Offering Document or the Offering Memorandum or the initiation or threatening of any proceeding for that purpose; (ii) of the occurrence of any event at any time prior to the completion of the initial offering of the Securities as a result of which any of the Time of Sale Information, any Free Writing Offering Document or the Offering Memorandum as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when such Time of Sale Information, Free Writing Offering Document or the Offering Memorandum is delivered to a purchaser, not misleading; and (iii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Securities for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its reasonable best efforts to prevent the issuance of any such order preventing or suspending the use of any of the Time of Sale Information, any Free Writing Offering Document or the Offering Memorandum or suspending any such qualification of the

 

21

 

Securities and, if any such order is issued, will obtain as soon as possible the withdrawal thereof.

 

(e)                                  If at any time prior to the Closing Date (i) any event shall occur or condition shall exist as a result of which any of the Time of Sale Information as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (ii) it is necessary to amend or supplement the Time of Sale Information to comply with law, the Company will immediately notify the Initial Purchasers thereof and forthwith prepare and, subject to paragraph (b) above, furnish to the Initial Purchasers such amendments or supplements to the Time of Sale Information (or any document to be filed with the Commission and incorporated by reference therein) as may be necessary so that the statements in any of the Time of Sale Information as so amended or supplemented (including such documents to be incorporated by reference therein) will not, in the light of the circumstances under which they were made, be misleading or so that any of the Time of Sale Information will comply with law.

 

(f)                                   If at any time prior to the completion of the initial offering of the Securities (i) any event shall occur or condition shall exist as a result of which the Offering Memorandum as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Offering Memorandum is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Offering Memorandum to comply with law, the Company will immediately notify the Initial Purchasers thereof and forthwith prepare and, subject to paragraph (b) above, furnish to the Initial Purchasers such amendments or supplements to the Offering Memorandum (or any document to be filed with the Commission and incorporated by reference therein) as may be necessary so that the statements in the Offering Memorandum as so amended or supplemented (including such documents to be incorporated by reference therein) will not, in the light of the circumstances existing when the Offering Memorandum is delivered to a purchaser, be misleading or so that the Offering Memorandum will comply with law.

 

(g)                                  The Company will qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representative shall reasonably request and will continue such qualifications in effect so long as required for the offering and resale of the Securities; provided that neither the Company nor any of the Guarantors shall be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

 

(h)                                 During the period from the date hereof through and including the date that is 60 days after the date hereof, the Company and each of the Guarantors will not, without the prior written consent of the Representative, offer, sell, contract to sell or otherwise dispose of any debt securities issued or guaranteed by the Company or any of

 

22

 

the Guarantors and having a tenor of more than one year except for the issuance of the Exchange Securities and the Exchange Guarantees in connection with the Exchange Offer.

 

(i)                                     The Company will apply the net proceeds from the sale of the Securities as described in each of the Time of Sale Information and the Offering Memorandum under the heading “Use of Proceeds.”

 

(j)                                    While the Securities remain outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Company and each of the Guarantors will, during any period in which the Company is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act, furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon the request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

 

(k)                                 The Company will assist the Initial Purchasers in arranging for the Securities to be eligible for clearance and settlement through DTC.

 

(l)                                     The Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been acquired by any of them, except for Securities purchased by the Company or any of its affiliates and resold in a transaction registered under the Securities Act.

 

(m)                             Neither the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D) will, directly or through any agent, sell, offer for sale, solicit offers to buy or otherwise negotiate in respect of, any security (as defined in the Securities Act), that is or will be integrated with the sale of the Securities in a manner that would require registration of the Securities under the Securities Act.

 

(n)                                 None of the Company or any of its affiliates or any other person acting on its or their behalf (other than the Initial Purchasers, as to which no covenant is given) will (i) solicit offers for, or offer or sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act or (ii) engage in any directed selling efforts within the meaning of Regulation S, and all such persons will comply with the offering restrictions requirement of Regulation S.

 

(o)                                 The Company and the Guarantors agree to comply with all the terms and conditions of the Registration Rights Agreement and all agreements set forth in the representation letters of the Company and the Guarantors to DTC relating to the approval of the Securities by DTC for “book entry” transfer.

 

(p)                                 Neither the Company nor any of the Guarantors will take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Securities.

 

23

 

5.                                      Certain Agreements of the Initial Purchasers. Each Initial Purchaser, severally and not jointly, hereby represents and agrees that it has not and will not use, authorize use of, refer to, or participate in the planning for use of, any written communication that constitutes an offer to sell or the solicitation of an offer to buy the Securities other than (i) the Preliminary Offering Memorandum and the Offering Memorandum, (ii) any written communication that contains either (a) no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) or (b) “issuer information” that was included (including through incorporation by reference) in the Time of Sale Information or the Offering Memorandum, (iii) any written communication listed on Annex A or prepared pursuant to Section 4(c) (including any electronic road show) above, (iv) any written communication prepared by such Initial Purchaser and approved by the Company and the Representative in advance in writing or (v) any written communication relating to or that contains the preliminary or final terms of the Securities or their offering or other information that was included (including through incorporation by reference) in the Time of Sale Information or the Offering Memorandum.

 

6.                                      Conditions of Initial Purchasers’ Obligations. The respective obligations of each of the Initial Purchasers hereunder are subject to the accuracy, when and on and as of the date hereof and on the Closing Date of the representations and warranties of the Company and each of the Guarantors contained herein, to the performance by the Company and each of the Guarantors of their respective covenants and other obligations hereunder and to the following additional conditions:

 

(a)                                 The Initial Purchasers shall not have discovered and disclosed to the Company on or prior to the Closing Date that the Time of Sale Information or the Offering Memorandum, or any amendment or supplement thereto, contains an untrue statement of a fact which, in the opinion of Vinson & Elkins L.L.P., counsel to the Initial Purchasers, is material or omits to state a fact which, in the opinion of such counsel, is material and is necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading.

 

(b)                                 All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Securities, the Guarantees, the Operative Documents, the Indenture, the Time of Sale Information and the Offering Memorandum, and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Initial Purchasers, and the Company and the Guarantors shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.

 

(c)                                  Mayer Brown LLP shall have furnished to the Initial Purchasers its written opinion, as counsel to the Company and the Guarantors, addressed to the Initial Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers, substantially in the form of Exhibit A hereto.

 

(d)                                 David Elkouri, General Counsel of the Company, shall have furnished to the Initial Purchasers his written opinion, as counsel to the Company and the Guarantors, addressed to the Initial Purchasers and dated the Closing Date, in form and substance

 

24

 

reasonably satisfactory to the Initial Purchasers, substantially in the form of Exhibit B hereto.

 

(e)                                  The Initial Purchasers shall have received from Vinson & Elkins L.L.P., counsel for the Initial Purchasers, such opinion, dated the Closing Date, with respect to the issuance and sale of the Securities, the Time of Sale Information, the Offering Memorandum and other related matters as the Initial Purchasers may reasonably require, and the Company shall have furnished to such counsel such documents and information as such counsel reasonably requests for the purpose of enabling them to pass upon such matters.

 

(f)                                   At the time of execution of this Agreement, the Initial Purchasers shall have received from Deloitte & Touche LLP a letter, in form and substance satisfactory to the Initial Purchasers, addressed to the Initial Purchasers and dated the date hereof (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission and (ii) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Time of Sale Information, as of a date not more than three days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and (iii) covering such other matters as are ordinarily covered by accountants’ “comfort letters” to underwriters in connection with registered public offerings.

 

(g)                                  With respect to the letter of Deloitte & Touche LLP, referred to in the preceding paragraph and delivered to the Initial Purchasers concurrently with the execution of this Agreement (the “initial letter”), the Company shall have furnished to the Initial Purchasers a “bring-down letter” of such accountants, addressed to the Initial Purchasers and dated the Closing Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the Closing Date (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in each of the Time of Sale Information or the Offering Memorandum, as of a date not more than three days prior to the date of the Closing Date), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter, and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter.

 

(h)                                 Except as described in the Time of Sale Information and the Offering Memorandum, (i) neither the Company, any Guarantor nor any of their respective subsidiaries shall have sustained, since the date of the latest audited financial statements included and incorporated by reference in the Time of Sale Information and the Offering Memorandum, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, or (ii) since such date, there shall not have been any

 

25

 

change in the capital stock or long-term debt of the Company, any Guarantor or any of their respective subsidiaries or any change, or any development involving a prospective change, in or affecting the business, properties, prospects, financial condition, stockholders’ equity or results of operations of the Company, the Guarantors and their respective subsidiaries, taken as a whole, the effect of which, in any such case described in clause (i) or (ii), is, individually or in the aggregate, in the judgment of the Representative, so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities being delivered on the Closing Date on the terms and in the manner contemplated in the Time of Sale Information and the Offering Memorandum.

 

(i)                                     At the time of execution of this Agreement, the Initial Purchasers shall have received from the Company Reservoir Engineer an initial letter (an “initial expert letter”), in form and substance satisfactory to the Initial Purchasers, addressed to the Initial Purchasers and dated the date hereof and a subsequent letter dated as of the Closing Date, which such letter shall cover the period from any initial expert letter to the Closing Date, confirming that they are independent with respect to the Company and stating the conclusions and findings of such firm with respect to matters pertaining to the Company’s use of the reports of proved reserves from the Company Reservoir Engineer.

 

(j)                                    The Company and each Guarantor shall have furnished or caused to be furnished to the Initial Purchasers dated as of the Closing Date a certificate of the Chief Executive Officer and Chief Financial Officer of the Company and each Guarantor, or other officers satisfactory to the Initial Purchasers, as to such matters as the Representative may reasonably request, including, without limitation, a statement that:

 

(i)                                     The representations, warranties and agreements of the Company and the Guarantors in Section 3 are true and correct on and as of the Closing Date, and the Company and the Guarantors have complied with all its agreements contained herein and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and

 

(ii)                                  They have examined the Time of Sale Information and the Offering Memorandum, and, in their opinion, (A) the Time of Sale Information, as of the Time of Sale and as of the Closing Date, and the Offering Memorandum, as of its date and as of the Closing Date, did not and do not contain any untrue statement of a material fact and did not and do not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and (B) since the date of the Time of Sale Information and the Offering Memorandum, no event has occurred which should have been set forth in a supplement or amendment to the Time of Sale Information and the Offering Memorandum.

 

(k)                                 Subsequent to the earlier of the Time of Sale and the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Company’s or any Guarantor’s debt securities by any “nationally recognized statistical rating organization,” as such term is used in Section 15E of the Exchange Act,

 

26

 

and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect to, its rating of the Securities or of any other debt securities issued or guaranteed by the Company or any of the Guarantors (in each case, other than an announcement with positive implications of a possible upgrading).

 

(l)                                     The Initial Purchasers shall have received a counterpart of the Registration Rights Agreement that shall have been executed and delivered by a duly authorized officer of the Company and each of the Guarantors.

 

(m)                             The Securities shall be eligible for clearance and settlement through DTC.

 

(n)                                 The Indenture shall have been duly executed and delivered by a duly authorized officer of the Company, each of the Guarantors and the Trustee.

 

(o)                                 The Securities and the notation of guarantees shall be executed by the Company and the Guarantors in substantially the respective forms set forth in the Indenture and the Securities shall be authenticated and delivered by the Trustee in accordance with the Indenture.

 

All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers.

 

7.                                      Indemnification and Contribution.

 

(a)                                 The Company and each Guarantor, hereby agrees, jointly and severally, to indemnify and hold harmless each Initial Purchaser, its affiliates, directors, officers and employees and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Securities), to which that Initial Purchaser, affiliate, director, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Free Writing Offering Document, the Preliminary Offering Memorandum, the Time of Sale Information or the Offering Memorandum or in any amendment or supplement thereto, (B) in any Blue Sky application or other document prepared or executed by the Company or any Guarantor (or based upon any written information furnished by the Company or any Guarantor) specifically for the purpose of qualifying any or all of the Securities under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a “Blue Sky Application”), or (C) in any materials or information provided to investors by, or with the approval of, the Company or any Guarantor in connection with the marketing of the offering of the Securities (“Marketing Materials”), including any road show or investor presentations made to investors by the Company (whether in person or electronically) or

 

27

 

any materials prepared, or approved, by the Company for the purpose of compliance with the Canadian securities laws, or (ii) the omission or alleged omission to state in any Free Writing Offering Document, the Preliminary Offering Memorandum, the Time of Sale Information or the Offering Memorandum, or in any amendment or supplement thereto, or in any Blue Sky Application or in any Marketing Materials, any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Initial Purchaser and each such affiliate, director, officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by that Initial Purchaser, affiliate, director, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and the Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Offering Memorandum, the Time of Sale Information or Offering Memorandum, or in any such amendment or supplement thereto, or in any Blue Sky Application or in any Marketing Materials, in reliance upon and in conformity with written information concerning such Initial Purchaser furnished to the Company through the Representative by or on behalf of any Initial Purchaser specifically for inclusion therein, which information consists solely of the information specified in Section 7(e). The foregoing indemnity agreement is in addition to any liability that the Company or the Guarantors may otherwise have to any Initial Purchaser or to any affiliate, director, officer, employee or controlling person of that Initial Purchaser.

 

(b)                                 Each Initial Purchaser, severally and not jointly, hereby agrees to indemnify and hold harmless the Company, each Guarantor, their respective officers and employees, each of their respective directors, and each person, if any, who controls the Company or any Guarantor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company, any Guarantor or any such director, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Free Writing Offering Document, Preliminary Offering Memorandum, the Time of Sale Information or the Offering Memorandum or in any amendment or supplement thereto, (B) in any Blue Sky Application, or (C) in any Marketing Materials, or (ii) the omission or alleged omission to state in any Free Writing Offering Document, Preliminary Offering Memorandum, the Time of Sale Information or the Offering Memorandum, or in any amendment or supplement thereto, or in any Blue Sky Application or in any Marketing Materials any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchaser furnished to the Company through the Representative by or on behalf of that Initial Purchaser specifically for inclusion therein, which information is limited to the information set forth in Section

 

28

 

7(e). The foregoing indemnity agreement is in addition to any liability that any Initial Purchaser may otherwise have to the Company, any Guarantor or any such director, officer, employee or controlling person.

 

(c)                                  Promptly after receipt by an indemnified party under paragraphs (a) or (b) of this Section 7 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under paragraphs (a) or (b) of this Section 7, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability that it may have under paragraphs (a) or (b) of this Section 7 except to the extent it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure and; provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party otherwise than under this paragraph (a) or (b) of this Section 7. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Initial Purchasers shall have the right to employ counsel to represent jointly the Initial Purchasers or their respective affiliates, directors, officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Initial Purchasers against the Company or any Guarantor under this Section 7, if (i) the Company, the Guarantors and the Initial Purchasers shall have so mutually agreed; (ii) the Company and the Guarantors have failed within a reasonable time to retain counsel reasonably satisfactory to the Initial Purchasers; (iii) the Initial Purchasers or their respective affiliates, directors, officers, employees and controlling persons shall have reasonably concluded, based on the advice of counsel, that there may be legal defenses available to them that are different from or in addition to those available to the Company and the Guarantors; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Initial Purchasers or their respective affiliates, directors, officers, employees or controlling persons, on the one hand, and the Company and the Guarantors, on the other hand, and representation of both sets of parties by the same counsel would present a conflict due to actual or potential differing interests between them, and in any such event the fees and expenses of such separate counsel shall be paid by the Company and the Guarantors. No indemnifying party shall (x) without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or

 

29

 

proceeding and does not include a statement as to, or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party, or (y) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment.

 

(d)                                 If the indemnification provided for in this Section 7 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 7(a) or 7(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other, from the offering of the Securities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors, on the one hand, and the Initial Purchasers, on the other, with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by the Company and the Guarantors, on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Securities purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Securities under this Agreement as set forth on the cover page of the Offering Memorandum. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Guarantors, or the Initial Purchasers, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. For purposes of the preceding two sentences, the net proceeds deemed to be received by the Company shall be deemed to be also for the benefit of the Guarantors, and information supplied by the Company shall also be deemed to have been supplied by the Guarantors. The Company, the Guarantors, and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Initial Purchaser shall be

 

30

 

required to contribute any amount in excess of the amount by which the net proceeds from the sale of the Securities initially purchased by it exceeds the amount of any damages that such Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers’ obligations to contribute as provided in this Section 7(d) are several in proportion to their respective purchase obligations and not joint.

 

(e)                                  The Initial Purchasers severally confirm and the Company and the Guarantors acknowledge and agree that the paragraph relating to stabilization and short positions by the Initial Purchasers appearing under the heading “Plan of Distribution” in the Time of Sale Information and the Offering Memorandum are correct and constitute the only information concerning such Initial Purchasers furnished in writing to the Company or any Guarantor by or on behalf of the Initial Purchasers specifically for inclusion in any Free Writing Offering Document, the Preliminary Offering Memorandum, the Time of Sale Information, the Offering Memorandum, or in any amendment or supplement thereto or in any Blue Sky Application or in any Marketing Materials.

 

(f)                                   The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity.

 

8.                                      Termination. This Agreement may be terminated in the absolute discretion of the Representative, by notice to the Company, if after the execution and delivery of this Agreement and on or prior to the Closing Date (i) trading generally shall have been suspended or materially limited on the New York Stock Exchange or the over-the-counter market; (ii) trading of any securities issued or guaranteed by the Company or any of the Guarantors shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representative, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum.

 

9.                                      Defaulting Initial Purchaser.

 

(a)                                 If, on the Closing Date, any Initial Purchaser defaults on its obligation to purchase the Securities that it has agreed to purchase hereunder, the non-defaulting Initial Purchasers may in their discretion arrange for the purchase of such Securities by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Initial Purchaser, the non-defaulting Initial Purchasers do not arrange for the purchase of such Securities, then the Company shall be

 

31

 

entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Initial Purchasers to purchase such Securities on such terms. If other persons become obligated or agree to purchase the Securities of a defaulting Initial Purchaser, either the non-defaulting Initial Purchasers or the Company may postpone the Closing Date for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Initial Purchasers may be necessary in the Time of Sale Information, the Offering Memorandum or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Time of Sale Information or the Offering Memorandum that effects any such changes. As used in this Agreement, the term “Initial Purchaser” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 9, purchases Securities that a defaulting Initial Purchaser agreed but failed to purchase.

 

(b)                                 If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Company as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Company shall have the right to require each non-defaulting Initial Purchaser to purchase the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder plus such Initial Purchaser’s pro rata share (based on the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder) of the Securities of such defaulting Initial Purchaser or Initial Purchasers for which such arrangements have not been made.

 

(c)                                  If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Company as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchased exceeds one-eleventh of the aggregate principal amount of all the Securities, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement shall terminate without liability on the part of the non-defaulting Initial Purchasers. Any termination of this Agreement pursuant to this Section 9 shall be without liability on the part of the Company or the Guarantors, except that the Company and each of the Guarantors will continue to be liable for the payment of expenses as set forth in Section 10 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.

 

(d)                                 Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Company, the Guarantors or any non-defaulting Initial Purchaser for damages caused by its default.

 

10.                               Payment of Expenses.

 

(a)                                 Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and each of the Guarantors jointly and severally agree to pay or cause to be paid all costs and expenses incident to

 

32

 

the performance of their respective obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities and any taxes payable in that connection; (ii) the costs incident to the preparation and printing of the Preliminary Offering Memorandum, any other Time of Sale Information, any Free Writing Offering Document and the Offering Memorandum (including any amendment or supplement thereto) and the distribution thereof; (iii) the costs of reproducing and distributing each of the Transaction Documents; (iv) the fees and expenses of the Company’s and the Guarantors’ counsel, independent accountants and reserve engineers; (v) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Securities under the laws of such jurisdictions as the Representative may designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related fees and expenses of counsel for the Initial Purchasers); (vi) any fees charged by rating agencies for rating the Securities; (vii) the fees and expenses of the Trustee and any paying agent (including related fees and expenses of any counsel to such parties); (viii) all expenses and application fees incurred in connection with the approval of the Securities for book-entry transfer by DTC and (ix) all expenses incurred by the Company in connection with any “road show” presentation to potential investors.

 

(b)                                 If (i) this Agreement is terminated pursuant to Section 8, (ii) the Company for any reason fails to tender the Securities for delivery to the Initial Purchasers or (iii) the Initial Purchasers decline to purchase the Securities for any reason permitted under this Agreement, the Company and each of the Guarantors jointly and severally agree to reimburse the Initial Purchasers for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred by the Initial Purchasers in connection with this Agreement and the offering contemplated hereby.

 

11.                               Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors, employees and any controlling persons referred to herein, and the affiliates of each Initial Purchaser referred to in Section 7 hereof. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor merely by reason of such purchase.

 

12.                               Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company, the Guarantors and the Initial Purchasers contained in this Agreement or made by or on behalf of the Company, the Guarantors or the Initial Purchasers pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company, the Guarantors, the Initial Purchasers, and the affiliates, directors, officers and employees and each person, if any, who controls the Company, any Guarantors or any Initial Purchaser in the manner described in Section 7.

 

13.                               Certain Defined Terms. For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forth in Rule 405 under the

 

33

 

Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed in New York City; (c) the term “subsidiary” has the meaning set forth in Rule 405 under the Securities Act; (d) the term “Exchange Act” means the Securities Exchange Act of 1934, as amended; and (e) the term “written communication” has the meaning set forth in Rule 405 under the Securities Act.

 

14.                               Compliance with USA Patriot Act. In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Initial Purchasers are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Initial Purchasers to properly identify their respective clients.

 

15.                               Miscellaneous.

 

(a)                                 Any action by the Initial Purchasers hereunder may be taken by J.P. Morgan Securities LLC on behalf of the Initial Purchasers, and any such action taken by J.P. Morgan Securities LLC shall be binding upon the Initial Purchasers.

 

(b)                                 All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Initial Purchasers shall be given to the Representative c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: 212-270-1063); Attention: Brian Tramontozzi, with a copy to Vinson & Elkins L.L.P., 1001 Fannin Street, Suite 2500, Houston, Texas 77002, Attention: James M. Prince. Notices to the Company and the Guarantors shall be delivered or sent by mail, telex, overnight courier or facsimile transmission to Halcón Resources Corporation, 1000 Louisiana Street, Suite 6700, Houston, Texas 77002, Attention: David Elkouri, with a copy to Mayer Brown LLP, 700 Louisiana Street, Suite 3400, Houston, Texas 77002, Attention: William T. Heller IV.

 

(c)                                  This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

(d)                                 The Company and each of the Guarantors hereby submit to the exclusive jurisdiction of the U.S. federal and New York state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. The Company and each of the Guarantors waive any objection which it may now or hereafter have to the laying of venue of any such suit or proceeding in such courts. Each of the Company and each of the Guarantors agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Company and each Guarantor, as applicable, and may be enforced in any court to the jurisdiction of which Company and each Guarantor, as applicable, is subject by a suit upon such judgment.

 

34

 

(e)                                  Each of the parties hereto hereby waives any right to trial by jury in any suit or proceeding arising out of or relating to this Agreement.

 

(f)                                   This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.

 

(g)                                  No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.

 

(h)                                 The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

 

[Signature page follows]

 

35

 

If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.

 

	
 
    	
Very   truly yours,
    
	
 
    	
 
    
	
 
    	
HALCÓN RESOURCES   CORPORATION
    
	
 
    	
 
    
	
 
    	
By
    	
/s/ Floyd   C. Wilson
    
	
 
    	
 
    	
Floyd C.   Wilson
    
	
 
    	
 
    	
Chairman,   Chief Executive Officer and President
    
	
 
    	
 
    	
 
    
	
 
    	
HALCÓN ENERGY   PROPERTIES, INC.
    
	
 
    	
HALCÓN FIELD   SERVICES, LLC
    
	
 
    	
HALCÓN   HOLDINGS, INC.
    
	
 
    	
HALCÓN OPERATING   CO., INC.
    
	
 
    	
HALCÓN RESOURCES   OPERATING, INC.
    
	
 
    	
HALCÓN PERMIAN, LLC
    
	
 
    	
 
    
	
 
    	
By
    	
/s/ Floyd   C. Wilson
    
	
 
    	
 
    	
Floyd C.   Wilson
    
	
 
    	
 
    	
Chief   Executive Officer and President
    

 

[Signature Page to Purchase Agreement]

 

 

Accepted: As of the date first written above

 

	
J.P. MORGAN   SECURITIES LLC
    	
 
    
	
 
    	
 
    
	
For   itself and on behalf of the
    	
 
    
	
several   Initial Purchasers listed
    	
 
    
	
in Schedule 1   hereto.
    	
 
    
	
 
    	
 
    
	
By
    	
/s/ Jack   Smith
    	
 
    
	
 
    	
Jack   Smith
    	
 
    
	
 
    	
Managing   Director
    	
 
    

 

[Signature Page to Purchase Agreement]

 

 

Schedule 1

 

	
Initial Purchaser
    	
 
    	
Principal Amount
    	
 
    
	
J.P. Morgan Securities LLC
    	
 
    	
$
    	
65,000,000
    	
 
    
	
BMO Capital Markets Corp.
    	
 
    	
30,000,000
    	
 
    
	
Goldman Sachs & Co. LLC
    	
 
    	
30,000,000
    	
 
    
	
Wells Fargo Securities, LLC
    	
 
    	
30,000,000
    	
 
    
	
Merrill Lynch, Pierce,   Fenner & Smith
    Incorporated
    	
 
    	
15,000,000
    	
 
    
	
Natixis Securities Americas LLC
    	
 
    	
15,000,000
    	
 
    
	
RBC Capital Markets, LLC
    	
 
    	
15,000,000
    	
 
    
	
Total
    	
 
    	
$
    	
200,000,000
    	
 
    

 

 

Schedule 2

 

LIST OF GUARANTORS

 

	
Guarantor
    	
 
    	
State of Incorporation or
   Organization
    
	
Halcón Energy Properties, Inc.
    	
 
    	
Delaware
    
	
Halcón Field Services, LLC
    	
 
    	
Delaware
    
	
Halcón Holdings, Inc.
    	
 
    	
Delaware
    
	
Halcón Operating Co., Inc.
    	
 
    	
Texas
    
	
Halcón Resources Operating, Inc.
    	
 
    	
Delaware
    
	
Halcón Permian, LLC
    	
 
    	
Delaware
    

 

 

ANNEX A

 

FREE WRITING OFFERING DOCUMENTS

 

1.                                      The Company’s Road Show Presentation: see attached.

 

 

ANNEX B

 

ADDITIONAL TIME OF SALE INFORMATION

 

1.                                      Term sheet containing the terms of the Securities, substantially in the form of Annex D.

 

 

ANNEX C

 

RESTRICTIONS ON OFFERS AND SALES OUTSIDE THE UNITED STATES

 

In connection with offers and sales of Securities outside the United States:

 

(a)                                 Each Initial Purchaser acknowledges that the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act.

 

(b)                                 Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that:

 

(i)                                     Such Initial Purchaser has offered and sold the Securities, and will offer and sell the Securities, (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance with Regulation S under the Securities Act (“Regulation S”) or Rule 144A or any other available exemption from registration under the Securities Act.

 

(ii)                                  None of such Initial Purchaser or any of its affiliates or any other person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and all such persons have complied and will comply with the offering restrictions requirement of Regulation S.

 

(iii)                               At or prior to the confirmation of sale of any Securities sold in reliance on Regulation S, such Initial Purchaser will have sent to each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchases Securities from it during the distribution compliance period a confirmation or notice to substantially the following effect:

 

The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the date of original issuance of the Securities, except in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act. Terms used above have the meanings given to them by Regulation S.

 

(iv)                              Such Initial Purchaser has not and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its affiliates or with the prior written consent of the Company.

 

 

Terms used in paragraph (a) and this paragraph (b) and not otherwise defined in this Agreement have the meanings given to them by Regulation S.

 

 

ANNEX D

 

 

HALCÓN RESOURCES CORPORATION

 

$200,000,000
 6.75% Senior Notes due 2025

 

Pricing Supplement dated February 7, 2018 to the Preliminary Offering Memorandum dated February 6, 2018 of Halcón Resources Corporation (the “Preliminary Offering Memorandum”). This Pricing Supplement is qualified in its entirety by reference to the Preliminary Offering Memorandum. The information in this Pricing Supplement supplements the Preliminary Offering Memorandum and supersedes the information in the Preliminary Offering Memorandum to the extent it is inconsistent with the information in the Preliminary Offering Memorandum. The information in the Preliminary Offering Memorandum will be modified to the extent affected by the changes disclosed herein. Capitalized terms used in this Pricing Supplement but not defined have the meanings given them in the Preliminary Offering Memorandum.

 

The Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any other jurisdiction. The Notes may not be offered or sold in the United States or to U.S. persons (as defined in Regulation S) except in transactions exempt from, or not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold only to (1) persons reasonably believed to be “qualified institutional buyers” as defined in Rule 144A under the Securities Act and (2) outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act.

 

	
Issuer
    	
Halcón   Resources Corporation
    
	
 
    	
 
    
	
Guarantors
    	
The Notes   will be jointly and severally guaranteed by all the Issuer’s current   subsidiaries and by any future restricted subsidiaries that guarantee the   Issuer’s indebtedness under a credit facility.
    
	
 
    	
 
    
	
Title of Securities
    	
6.75%   Senior Notes due 2025 (the “Notes”)
    
	
 
    	
 
    
	
Aggregate Principal   Amount
    	
$200,000,000
    
	
 
    	
 
    
	
 
    	
The Notes   offered hereby will be part of the same series of notes as the 6.75% Senior   Notes due 2025 issued and sold by Halcón Resources Corporation
    

 

Annex D-1

 

	
 
    	
on February 9, 2017, of which $425,005,000 aggregate   principal amount is currently outstanding. Upon issuance of the Notes offered   hereby, the aggregate principal amount of the Notes outstanding will be   $625,005,000.
    
	
 
    	
 
    
	
Distribution
    	
144A / Regulation S with registration rights as described in the   Preliminary Offering Memorandum
    
	
 
    	
 
    
	
Maturity Date
    	
February 15, 2025
    
	
 
    	
 
    
	
Issue Price
    	
103%, plus accrued interest, if any, from February 15, 2018
    
	
 
    	
 
    
	
Coupon
    	
6.75%
    
	
 
    	
 
    
	
Yield to Worst
    	
6.046%
    
	
 
    	
 
    
	
Spread to Treasury
    	
348 basis points
    
	
 
    	
 
    
	
Benchmark Treasury
    	
UST 2.00% due February 15, 2023
    
	
 
    	
 
    
	
Interest Payment   Dates
    	
February 15 and August 15 of each year
    
	
 
    	
 
    
	
Record Dates
    	
February 1 and August 1
    
	
 
    	
 
    
	
Trade Date
    	
February 7, 2018
    
	
 
    	
 
    
	
Settlement Date
    	
February 15, 2018 (T+6)
    
	
 
    	
 
    
	
 
    	
It is expected that delivery of the Notes will be made against   payment therefor on or about February 15, 2018, which is the sixth   business day following the date hereof (such settlement cycle being referred   to as “T+6”). Under Rule 15c6-1 under the Securities Exchange Act of   1934, as amended, trades in the secondary market generally are required to   settle in two business days unless the parties to any such trade expressly   agree otherwise. Accordingly, purchasers who wish to trade the Notes on the   date of pricing or the next succeeding three business days will be required,   by virtue of the fact that the notes initially will settle in T+6, to specify   an alternative settlement cycle at the time of any such trade to prevent   failed settlement. Purchasers of the Notes who wish to trade the Notes on the   date of pricing or the next three succeeding business days should consult   their own advisors.
    

 

Annex D-2

 

	
Optional Redemption
    	
On or after February 15, 2020, at the following redemption   prices (expressed as a percentage of principal amount), plus accrued and   unpaid interest, if any, on the Notes redeemed during the twelve-month period   indicated beginning on February 15 of the years indicated below:
    
	
 
    	
 
    
	
 
    	
Year
    	
 
    	
Price
    	
 
    	
 
    
	
 
    	
2020
    	
 
    	
105.063
    	
%
    	
 
    
	
 
    	
2021
    	
 
    	
103.375
    	
%
    	
 
    
	
 
    	
2022
    	
 
    	
101.688
    	
%
    	
 
    
	
 
    	
2023 and thereafter
    	
 
    	
100.000
    	
%
    	
 
    
	
 
    	
 
    
	
Make-Whole Redemption
    	
Make-whole redemption at Treasury Rate + 50 basis points prior   to February 15, 2020
    
	
 
    	
 
    
	
Change of Control
    	
101% plus accrued and unpaid interest
    
	
 
    	
 
    
	
Concurrent Equity Offering
    	
On February 6, 2018, the Issuer priced its public offering   of 8,000,000 shares of its common stock, par value $0.0001 per share, for   anticipated proceeds of approximately $52.5 million, net of underwriters’   fees and estimated expenses, or $6.90 per share of common stock. The   underwriters have an option for 30 days to purchase from the Issuer up to an   additional 1,200,000 shares of its common stock. This offering is not   conditioned upon the closing of such concurrent common stock offering. This   Pricing Supplement shall not be deemed to be an offer to sell or a   solicitation of an offer to buy the securities offered in such concurrent   common stock offering.
    
	
 
    	
 
    
	
Use of Proceeds
    	
The Issuer estimates the net proceeds of this offering will be   approximately $202.6 million after deducting the initial purchasers’   discounts and commissions and estimated offering expenses payable by the Issuer.   The Issuer intends to use the net proceeds from this offering, together with   the net proceeds from the concurrent common stock offering, to fund the cash   consideration for the acquisition of the West Quito Draw Properties and for   general corporate purposes, including to fund its 2018 drilling program. If   the acquisition of the West Quito Draw Properties does not close, the Issuer   will use the net proceeds from this offering,
    

 

Annex D-3

 

	
 
    	
together with the net proceeds from the concurrent stock   offering, for general corporate purposes, including funding working capital,   capital expenditures or acquisitions.
    
	
 
    	
 
    
	
CUSIP and ISIN
    	
Rule 144A CUSIP:                            40537Q   AQ3
    
	
 
    	
 
    
	
 
    	
Regulation S CUSIP:                 U4057P   AK1
    
	
 
    	
 
    
	
 
    	
Rule 144A ISIN:                                       US40537QAQ38
    
	
 
    	
 
    
	
 
    	
Regulation S ISIN:                            USU4057PAK13
    
	
 
    	
 
    
	
Ratings*
    	
 
    
	
 
    	
 
    
	
Denominations
    	
Minimum denominations of $2,000 and integral multiples of $1,000   in excess thereof
    
	
 
    	
 
    
	
Joint Bookrunners
    	
J.P. Morgan Securities LLC
    
	
 
    	
BMO Capital Markets Corp.
    
	
 
    	
Goldman Sachs & Co. LLC
    
	
 
    	
Wells Fargo Securities, LLC
    
	
 
    	
Merrill Lynch, Pierce, Fenner & Smith
    
	
 
    	
Incorporated
    
	
 
    	
Natixis Securities Americas LLC
    
	
 
    	
RBC Capital Markets, LLC
    

 

* A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.

 

Amendments to the Preliminary Offering Memorandum

 

Plan of Distribution

 

The following information is added under the “Plan of Distribution” header as the first full paragraph on page 112:

 

If any of the initial purchasers or their affiliates has a lending relationship with us, certain of those initial purchasers or their affiliates routinely hedge, and certain other of those initial purchasers or their affiliates may hedge, their credit exposure to us consistent with their customary risk management policies.  Typically, these initial purchasers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby.  Any such credit default swaps or short positions could adversely affect future trading prices of the notes offered hereby.

 

Annex D-4

 

This material is confidential and is for your information only and is not intended to be used by anyone other than you. This information does not purport to be a complete description of these Notes or the offering. Please refer to the Preliminary Offering Memorandum for a complete description.

 

This communication is being distributed solely to persons reasonably believed to be Qualified Institutional Buyers, as defined in Rule 144A under the Securities Act, and outside the United States solely to Non-U.S. persons as defined under Regulation S.

 

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

 

Any disclaimer or other notice that may appear below is not applicable to this communication and should be disregarded. Such disclaimer or notice was automatically generated as a result of this communication being sent by Bloomberg or another email system.

 

Annex D-5

 

Exhibit A

 

FORM OF OPINION OF MAYER BROWN

 

1.                                      The Company and each Guarantor is a corporation or limited liability company or limited partnership, as applicable, validly existing and in good standing under the laws of the state of its incorporation or organization, with corporate, limited liability company or partnership power and authority, as applicable, to own its properties and conduct its business as described in the Time of Sale Information.

 

2.                                      Based solely on certificates of public officials, the Company and each Guarantor and Subsidiary was duly qualified or licensed to do business and is in good standing as a foreign corporation, limited liability company or limited partnership, as applicable, in each jurisdiction listed on the Schedule attached to such opinion as of the respective dates specified in such Schedule.

 

3.                                      The Company and each of the Guarantors:

 

(a)                                 has taken all corporate, limited liability company or limited partnership action, as applicable, necessary to authorize the execution, delivery and performance of the Transaction Documents; and

 

(b)                                 has duly executed and delivered such Transaction Documents (other than the Exchange Securities and the Exchange Guarantees).

 

4.                                      Assuming the due authentication of the Securities by the Trustee in accordance with the Indenture and payment for the Securities by the Initial Purchasers in accordance with this Agreement:

 

(a)                                 the Securities will be the valid and binding obligations of the Company, enforceable against it in accordance with its terms and entitled to the benefits of the Indenture, and

 

(b)                                 the Guarantees will be the valid and binding obligations of the Guarantors enforceable against the Guarantors in accordance with their terms,

 

in each case, subject to customary enforceability exceptions.

 

5.                                      Assuming the due payment for the Securities by the Initial Purchasers in accordance with this Agreement and that the Exchange Securities and the Exchange Guarantees are duly executed by the Company and the Guarantors (as applicable) and are duly authenticated by the Trustee, upon the issuance and delivery of the Exchange Securities in exchange for an equal principal amount of Securities tendered in the Exchange Offer as contemplated by the Registration Rights Agreement:

 

(a)                                 the Exchange Securities will be the valid and binding obligations of the Company, enforceable against it in accordance with its terms and entitled to the benefits of the Indenture; and

 

Exhibit A-1

 

(b)                                 the Exchange Guarantees will be the valid and binding obligations of the Guarantors enforceable against the Guarantors in accordance with their terms;

 

in each case, subject to customary enforceability exceptions.

 

6.                                      The Indenture constitutes the valid and binding obligation of the Company and each Guarantor that is a party thereto, enforceable against each such party in accordance with its terms, subject to customary enforceability exceptions.

 

7.                                      The Registration Rights Agreement constitutes the valid and binding obligation of the Company and each Guarantor that is a party thereto, enforceable against the Company and each Guarantor in accordance with its terms, other than with regard to the indemnification provisions thereof for which no opinion is given, subject to customary enforceability exceptions.

 

8.                                      The application of the proceeds from the Securities by the Company as described under “Use of Proceeds” in the Time of Sale Information and the Offering Memorandum, the execution and delivery by the Company and each Guarantor of the Transaction Documents to which it is a party do not, and the performance by each such party of its obligations under the Transaction Documents to which it is a party will not:

 

(a)                                 in the case of the Company and the Guarantors, violate its certificate of incorporation or bylaws, certificate of formation, limited liability company agreement or limited partnership agreement, as applicable;

 

(b)                                 breach or result in a default or the creation of any lien under any agreement or instrument listed in a Schedule attached to such opinion (the “Applicable Contracts”) (except that we express no opinion with respect to any financial covenants and other similar provisions in any Applicable Contract requiring financial calculations or determinations to ascertain compliance therewith); or

 

(c)                                  result in a violation by any such party of any Applicable Laws, the Delaware General Corporation Law, the Delaware Limited Liability Company Act or the Delaware Revised Uniform Limited Partnership Act or any judgment, order, writ or decree of any court or arbitrator or governmental or regulatory authority known to us under Applicable Law.

 

9.                                      No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body under Applicable Law, or any third party that is a party to an Applicable Contract, is required for: (a) the due execution, delivery or performance by the Company or any Guarantor of any Transaction Document to which it is a party or (b) the application of the proceeds from the Securities by the Company as described under “Use of Proceeds” in the Time of Sale Information and the Offering Memorandum, in each case except (A) for any authorization, approval, notice, filing or qualification (i) required under any state blue sky laws, (ii) required in connection with the Company’s and the Guarantors’ performance of their obligations under the Registration Rights Agreement, (iii) that will have been obtained or made on or prior to the Closing Date and (iv) that the failure to make or obtain would not result in a Material Adverse Effect or impair the ability of the Company and the Guarantors to consummation the transactions contemplated by the Transaction Documents and perform their

 

Exhibit A-2

 

obligations thereunder and (B) we express no opinion with respect to financial covenants and other similar provisions in any Applicable Contract requiring financial calculations or determinations to ascertain compliance therewith.

 

10.                               None of the Company or any Guarantor is, or as a result of the transactions contemplated by the Transaction Documents is or will be after applying the proceeds from the offering as described in the Time of Sale Information and the Offering Memorandum, required to be registered as an investment company under the Investment Company Act.

 

11.                               Based upon the representations, warranties and agreements of the Company, the Guarantors and the Initial Purchasers in the Purchase Agreement, it is not necessary in connection with the offer and sale of the Securities or the Guarantees to the Initial Purchasers under the Purchase Agreement, or in connection with the initial offer, resale or delivery of the Securities and the Guarantees by the Initial Purchasers in the manner contemplated by the Purchase Agreement, to register the Securities or the Guarantees under the Securities Act, or to qualify the Indenture under the TIA, except for any registration or qualification of the Securities that may be required in connection with the exchange offer contemplated by the Time of Sale Information and the Offering Memorandum and the Registration Rights Agreement it being understood that no opinion is expressed as to any subsequent resale of any Securities.

 

12.                               The statements set forth under the heading “Description of the Notes” in the Time of Sale Information and the Offering Memorandum insofar as such statements purport to summarize the terms of the Indenture, the Securities and the Guarantees, accurately summarize such documents in all material respects.

 

13.                               The statements set forth under the headings “Description of Our Other Indebtedness,” “Certain United States Federal Income Tax Considerations,” “Certain Considerations for ERISA and Other U.S. Employee Benefit Plans” and “Plan of Distribution” in the Time of Sale Information and the Offering Memorandum, in each case insofar as such statements purport to constitute summaries of certain provisions of statutes, rules, regulations or documents, accurately summarize such provisions in all material respects.

 

14.                               A Texas state court or a federal court sitting in the State of Texas and applying Texas conflicts-of-laws principles would give effect to the choice of New York law to govern the Transaction Documents.

 

15.                               The authorized capital stock of the Company is as set forth in the Time of Sale Information and the Offering Memorandum.

 

Such counsel shall also furnish to the Initial Purchasers a written statement, addressed to the Initial Purchasers and dated the Closing Date, in form and substance satisfactory to the Initial Purchasers, to the effect that such counsel reviewed the Time of Sale Information and the Offering Memorandum and participated in conferences with officers and other representatives of the Company and the Guarantors, representatives of the Initial Purchasers and counsel for the Initial Purchasers, and representatives of the independent public accountants and independent reserve engineers for the Company at which the contents of the Time of Sale Information and the Offering Memorandum and related matters were discussed. The purpose of such counsel’s

 

Exhibit A-3

 

professional engagement was not to establish or confirm factual matters set forth in Time of Sale Information or the Offering Memorandum, and such counsel has not undertaken to verify independently any of such factual matters. Moreover, many of the determinations required to be made in the preparation of the Time of Sale Information and the Offering Memorandum involve matters of a non-legal nature. Subject to the foregoing, such counsel confirm to you, on the basis of the information such counsel gained in the course of performing the services referred to above, nothing came to such counsel’s attention that caused it to believe that:

 

(a)                                 the Time of Sale Information, as of 3:15 p.m., eastern time on February 7, 2018, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or

 

(b)                                 the Offering Memorandum, as of its date and as of the date hereof, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

provided that such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Time of Sale Information or the Offering Memorandum (except as otherwise specifically stated in paragraphs 12 and 13), and such counsel does not express any belief with respect to the financial statements and related notes and schedules and other financial data, accounting data, information or assessments of or reports on the effectiveness of internal control over financial reporting, or oil and gas reserves or prospects, production data or related geological data, contained in or omitted from the Time of Sale Information or the Offering Memorandum.

 

Exhibit A-4

 

Exhibit B

 

FORM OF OPINION OF COMPANY’S GENERAL COUNSEL

 

1.                                      All of the issued shares of capital stock or other equity interests of each of the Company and its subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and (in the case of capital stock or other equity interests of the Company’s subsidiaries) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except for (i) such liens, encumbrances, equities or claims as described in the Time of Sale Information and the Final Offering Memorandum and (ii) such liens, encumbrances, equities or claims as could not, in the aggregate, reasonably be expected to have a Material Adverse Effect (as defined in the Purchase Agreement).

 

2.                                      To the knowledge of such counsel, there are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject that could reasonably be expected to have a Material Adverse Effect or could reasonably be expected to have a material adverse effect on the Company’s performance of the Agreement or the consummation by the Company of the transactions contemplated therein.

 

Exhibit B-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00279-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00279-of-00352.parquet"}]]