Purchase and Sale Agreement
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THIS AGREEMENT dated effective the 25th day of March 2003.
BETWEEN;
HAWKEYE DRILLING CO., a Louisiana corporation having its
mailing address at P.O. Box 98, Waskom, Texas, 75692
(hereinafter referred to as "Vendor")
AND
UNIVERSAL DOMAINS INCORPORATED, a Canada federal corporation having
its principal office at Suite 502 - 828 Howe Street, Vancouver,
British Columbia, V6Z 1R3
(hereinafter referred to as "Purchaser")
WHEREAS Vendor owns and operates certain oil and gas Assets and other interests
in Puckett Field, Rankin and Smith Counties, Mississippi; and
WHEREAS the Vendor had entered into a Letter of Intent with Exeter International
and Exeter International had subsequently assigned all rights and obligations to
the Letter of Intent to the Purchaser; and
WHEREAS Vendor has agreed to sell the Assets to Purchaser and Purchaser has
agreed to purchase from Vendor the Assets on and subject to the terms and
conditions of this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the mutual
covenants and agreements set out, the Parties covenant and agree as follows:
1. DEFINITIONS
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1.1 DEFINITIONS. In this Agreement, the following terms have the following
respective meanings, unless the context otherwise requires:
(a) "ABANDONMENT AND RECLAMATION OBLIGATION" means the abandonment of any
Wells, Tangible Interests or Miscellaneous Interests including,
without limitation, any closing, decommissioning, dismantling and
removing of any tangible depreciable property, Assets on the Lands, or
lands pooled, unitized or adjacent therewith, in connection with such
abandonment, and restoring the surface of the Lands, or lands pooled
or unitized therewith, all in compliance with laws, regulations,
orders and directives of governmental authorities having jurisdiction
with respect to the said abandonment or the said restoration of the
surface of the lands;
(b) "AGREEMENT" means this document together with the recitals and
Schedules attached hereto;
(c) "ASSETS" means an undivided seventy-five percent (75%) of Vendor's
entire interest in the Petroleum and Natural Gas Rights, the Tangible
Interests, and the Miscellaneous Interests;
(d) "BUSINESS DAY" means a day other than a Saturday, Sunday or any
statutory holiday in British Columbia or the States of Mississippi,
Louisiana or Texas;
(e) "CARRIED INTEREST" means working, leasehold or mineral interests in
the Lands owned by one party but whose proportionate costs,
obligations and liability with respect to exploration, development
and/or production of the minerals in, on or under such Lands has been
assumed by another party;
(f) "CASH PAYMENT" means the total sum of Two Hundred Twenty-Five Thousand
Dollars ($225,000) to be paid to Vendor, or its designees and assigns
in such partial amounts and timing of payment as the Vendor, or its
designees and assigns, may declare:
(i) from up to 50% of the gross production revenue earned from
existing wells on the Lands, including the Earning Well; or
(ii) from additional "restricted" shares of the Purchaser to be
issued to the Vendor in such a number of shares as equal to
$225,000 divided by the Market Price of the shares of the
Purchaser at the time of issuance; or
(iii) from a combination of (i) or (ii) above.
Purchaser will also have the option of making all or any of the Cash
Payment from the Purchaser's cash reserves at any time prior to or on
the Second Closing Date;
(g) "CLOSING" means the exchange of documents and consideration on the
First or Second Closing Date as contemplated herein;
(i) "FIRST CLOSING DATE" means 7 o'clock p.m. (Pacific Time) on the
date which is seven (7) Business Days after the execution date
of this Agreement unless such date is amended by agreement in
writing by the Parties;
(ii) "SECOND CLOSING DATE" means 7 o'clock p.m. (Pacific Time) on
the date which is seven (7) Business Days after the Earning
Well has been either completed as a well capable of production
in paying quantities or abandoned, unless such date is amended
by agreement in writing by the Parties
(h) "CONVEYANCE DOCUMENTS" means the documents described in Clause 4.4
required to complete the transfer and assignment of the Assets;
(i) "CONSULTING AGREEMENT" means the consulting agreement substantially in
the form of Schedule "I" attached hereto and as required in accordance
with Clause 13.6;
(j) "DOCUMENTS OF TITLE" means collectively any and all certificates of
title, leases, permits, licenses, unit agreements, assignments, trust
declarations, royalty agreements, operating agreements or procedures,
participation agreements, farmin and farmout agreements, sale and
purchase agreements, pooling agreements and other agreements by virtue
of which Vendor is entitled to, as of the First Closing Date, the
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Petroleum and Natural Gas Rights, the Tangible Interests, and the
Miscellaneous Interests, and includes, if applicable, all renewals and
extensions of such documents and all documents issued in substitution
therefor;
(k) "DOLLARS" or "$" means United States dollars;
(l) "EARNING WELL" means the new well designated and described in, and to
be drilled under, the Farmout Agreement;
(m) "EARNING WELL DRILLING FUNDS" means five hundred thousand dollars
($500,000), which is the amount of dollars Purchaser will be required
to raise and deliver to Operator prior to the drilling of the Earning
Well for the estimated cost to drill, test, and set casing on the
Earning Well;
(n) "EFFECTIVE DATE" means the 1st day of the month after either the First
or Second Closing Date occurs and shall be the effective date for all
Conveyance Documents executed at the respective Closing;
(o) "ENVIRONMENTAL DAMAGE" means any one or more of the following:
(i) ground water, surface water or aquifer contamination,
(ii) soil contamination,
(iii) corrosion or deterioration of structures, equipment, fences,
gathering lines or any other Tangible Interests;
(iv) emissions of toxic or hazardous substances, and
(v) the effects of non-compliance with any environmental law,
regulation, order or directive of any governmental authority
having jurisdiction at the relevant time;
(p) "ESCROW AGENT" means a mutually agreed upon third party escrow agent
whose escrow obligations are set forth in the Escrow Agreement
attached as Schedule "H";
(q) "FARMOUT AGREEMENT" means the Farmout agreement substantially in the
form and containing the terms set out in Schedule "K";
(r) "FINAL ADJUSTMENT" means those further accounting and adjustments,
contemplated pursuant to Clause 3.10.1(b) of this Agreement, to be
made subsequent to the Closing Date;
(s) "GENERAL. CONVEYANCE" means an assignment of part or all the Assets in
substantially in the form of, and containing the terms in, Schedule
"C" attached hereto and as required in accordance with Clause 4.4;
(t) "INTERIM ADJUSTMENTS" means those interim accounting and adjustments,
contemplated pursuant to Clause 3.10.1(a) of this Agreement, to be
made on the Closing Date;
(u) "KNOWLEDGE", for purposes of Clauses 9.1 and 10.1, means Vendor or
Purchaser, as the case may be, shall be deemed to actually know or
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have knowledge of a matter, circumstance or thing when such matter,
circumstance or thing has come to the attention of:
(i) an officer of such corporation (who as at the date hereof and
at the Closing Date is an officer of such corporation); or
(ii) with respect to Vendor's records, a senior employee of Vendor
with responsibility for matters to which the matter,
circumstance or thing relates (who as of the date hereof is a
senior employee of such corporation with such responsibility);
or
(iii) with respect to examination of Vendor's records made available
for inspection trader this Agreement, an employee or consultant
of Purchaser with the responsibility for conducting due
diligence review and evaluation of said records in connection
with and as a part of this transaction
under circumstances which a reasonable person having experience in the
oil and gas industry would take cognizance of the matter, circumstance
or thing;
(v) "LANDS" means the lands in which Vendor is shown to have an interest
as set forth and described in Schedule "A";
(w) "LETTER OF INTENT" means the letter of intent dated February 20, 2003
and accepted on February 21, 2003 between Exeter International and the
Vendor;
(x) "MARKET PRICE" means the average closing price of the Purchaser's
common shares as quoted for trading on the OTC Bulletin Board for the
30 trading days previous to the date from which it is measured;
(y) "MISCELLANEOUS INTERESTS" means the entire undivided right, title,
estate and interest of Vendor, at the Effective Date, in and to all
property, assets and rights, to the extent pertaining to Petroleum and
Natural Gas Rights or Tangible Interests (excluding therefrom
materials and supplies used in connection with operations where the
costs have not been charged to the joint account of Persons having an
interest therein and also excluding Petroleum and Natural Gas Rights
or Tangible Interests), but including without limitation to the
generality of the foregoing:
(i) all Documents of Title and other agreements to the extent
relating to Petroleum and Natural Gas Rights or Tangible
Interests or any rights in relation thereto, including, without
limitation, royalty agreements, joint operating agreements, gas
processing agreements, gas transmission agreements, gas
balancing agreements, common stream agreements, natural gas
transportation agreements and agreements for the construction,
ownership and operation of facilities;
(ii) all books, maps, records, documents, well, plant and other
reports files, technical and seismic data, information, records
and non-interpretative production and engineering information
which relates directly to Petroleum and Natural Gas Rights or
Tangible Interests, that Vendor either has in its custody or to
which Vendor has access, but excluding:
(A) tax, legal and financial records of the Vendor;
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(B) economic evaluations, engineering, geophysical and
geological information, to the extent which Vendor is
contractually prohibited from selling or disclosing to
other Persons;
(iii) all well licenses issued in connection with the Wells;
(iv) all rights of Vendor as seller under the Production Sales
Agreements, but only to the extent such Production Sales
Agreements are severable if they contain more lands or zones
than the relevant Lands or lands pooled or unitized therewith
(the "relevant lands") having a term exceeding thirty-one (31)
days but only to the extent such agreements are severable if
they contain more lands or zones than the relevant Lands;
(v) all subsisting rights to enter upon, use and occupy the surface
of any of the Lands, or to carry out operations thereon or
therein and any other lands with which the Lands have been
pooled or unitized or on which Tangible Interests are situate,
including easements, right of way agreements and agreements for
road crossing rights;
(vi) all oil, condensate, natural gas, and natural gas liquids
produced after the Effective Date, including without limitation
inventory, including "line fill" and inventory below pipeline
connection in tanks, attributable to the interests conveyed;
(vii) all surface use agreements, easements, rights-of-ways,
licenses, authorizations, permits and similar rights and
interest applicable to, or used or useful in connection with,
any or all of the interests conveyed herein.
(z) "OPERATING AGREEMENT" means the operating agreement substantially in
the form of Schedule "J" attached hereto and as required in accordance
with Clause 13.5;
(aa) "OPERATOR" has the agreement given to such term in the Operating
Agreement.
(bb) "PARTIES" means all parties to this Agreement, and "PARTY" means any
of them;
(cc) "PERMITTED ENCUMBRANCES" means:
(i) existing easements, rights of way, servitude's or other similar
rights in lands;
(ii) the rights reserved to or vested in any government or other
public authority by the terms of any statutory provision, to
terminate any Documents of Title or to require annual or other
periodic payments as a condition of the continuance thereof;
(iii) the right reserved to any governmental authority to levy taxes
on Petroleum Substances or the income or revenue therefrom and
governmental requirements as to production rates on the
operations of any property;
(iv) rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or
regulate any of the Assets in any manner, and all applicable
laws, rules and orders of any governmental authority;
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(v) undetermined or inchoate liens incurred or created as security
in favor of the Person conducting the operation of any of the
Assets for Vendor's proportion of the costs and expenses of
such operations;
(vi) liens for taxes, assessments or governmental charges, which are
not due or which are not delinquent;
(vii) mechanics', builders' or materialmen's liens in respect of
services rendered or goods supplied for which payment is not at
the time due;
(viii) the reservations, limitations, provisos and conditions in any
original grants from a governmental authority of any of the
Lands or interests therein and statutory exceptions to title;
(ix) agreements and plans relating to pooling or unitization;
(x) liens granted in the ordinary course of business to a public
utility, municipality or governmental authority in connection
with operations conducted with respect to the Assets;
(xi) the terms and conditions of the Documents of Title;
(xii) royalty burdens under the Leases set forth in Schedule A and
other encumbrances set forth in Schedule "D";
(xiii) Vendor Royalty Interest;
(xiv) Production Sales Agreements and any other agreements for the
sale of production from the Petroleum and Natural Gas Rights to
the extent that such agreements are terminable on not greater
than 30 days notice without an early termination penalty or
other cost;
(xv) trust obligations in the ordinary course of business; and
(xvi) the Mortgage held by Vendor as security for payment of the Cash
Payment;
(xvii) all reservations, conditions and requirements, whether or not
satisfied, set forth in any title opinions covering the Lands
provided to the Purchaser or its designated representative
during Purchasers review under Section 5 of this Agreement.
(dd) "PERSON" means any natural person, firm, corporation, partnership,
trustee, trust, unincorporated association, government or government
agency not a Party, and pronouns used in connection therewith have a
similar extended meaning;
(ee) "PETROLEUM AND NATURAL GAS RIGHTS" means the entire undivided right,
title and interest of the Vendor at the Effective Date, in and to
(i) all oil, gas and mineral leases or other mineral interests
covering the Lands ("Leases"), including without limitation the
Leases specifically described in Schedule "A";
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(ii) the Petroleum Substances in the Lands or any lands pooled or
unitized therewith attributable to the Leases;
(iii) the right to explore for and product the Petroleum Substances;
and
(iv) any royalty or other rights to receive revenue from the sale of
Petroleum Substances in the Lands;
(ff) "PETROLEUM SUBSTANCES" means petroleum, natural gas and related
hydrocarbons, sulfur, and all other substances whether liquid, solid
or gaseous and whether hydrocarbons or not, insofar as the rights to
such substances or the proceeds therefrom are granted by the Documents
of Title;
(gg) "PURCHASE PRICE" means the sum referred to in Clause 3.5;
(hh) "RESTRICTED SHARES" means the common shares of the stock of Purchaser
to be issued to Vendor as described in Clause 3.2(a) (iii) and such
additional shares issued pursuant to Clause 13.8;
(ii) "RIGHTS OF FIRST REFUSAL" means a right of first refusal, pre-emptive
right of purchase or similar right whereby any Person, other than
Vendor, would have the right to acquire or purchase all or a portion
of the Assets as a consequence of Vendor having agreed to sell the
Assets to Purchaser in accordance herewith;
(jj) "PRODUCTION SALES AGREEMENTS" means those agreements for the sale of
production from the Petroleum and Natural Gas Rights;
(kk) "SEISMIC DATA" means all records, reports and data associated with all
seismic lines within a one (1) mile perimeter surrounding the Lands
set forth on the plats which Vendor may currently have in its
possession as part of its data base and may include the following:
(i) all permanent records of basic field data including, but not
limited to, any and all microfilm or paper copies of seismic
driller's reports, monitor records, observer's reports and
survey notes and any and all copies of magnetic field tapes
or conversions thereof;
(ii) all permanent records of the processed field data including,
but not limited to any and all microfilm or paper copies of
shot point maps, pre and post-stacked records sections
including amplitude, phase and structural displays, post-stack
data manipulations including filters, migrations and wavelet
enhancements, and any and all copies of final stacked tapes and
any manipulations and conversions thereof; and
(iii) in the case of 3D seismic, in addition to the foregoing, all
permanent records or bin locations, bin fold, static
corrections, surface elevations and any other relevant
information
(ll) "TAKE OR PAY AMOUNT" means an amount equal to the Take or Pay payments
outstanding at the Effective Date in respect of production sales
agreements attributable to the Assets;
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(mm) "TANGIBLE INTERESTS" means the entire undivided interest of Vendor at
the Effective Date in and to
(i) all well-bores and casing associated with the Wells situated
within the Lands, or lands pooled or unitized; and
(ii) all tangible depreciable equipment, facilities and other
personal property situated in, on or off the Lands (or lands
pooled or unitized therewith) and to the extent that they are
used or intended for use in connection with producing,
gathering, processing, treating, storing, compressing or
transporting Petroleum Substances produced from the Wells and
Lands, including, without limitation, all tangible depreciable
property and assets which form part of the Wells, but excluding
items such as tubing and casing, etc. stored on the Lands as
inventory or surplus material.
(nn) "TERMINATION OF THE FARMOUT AGREEMENT" means the termination or
cancellation of the Farmout Agreement under its terms because of
Purchaser's failure to find or otherwise cause the timely commencement
of operations on the Earning Well.
(oo) "VENDOR ROYALTY INTEREST" means the difference between the royalty
interest encumbering the Leases one day prior to the Effective Date
and twenty-five percent (25%) which interest shall be retained by
Vendor in and pursuant to any General Conveyance under or pursuant to
this Agreement.
(pp) "VENDOR'S CARRIED INTEREST" means Vendor's retained twenty-five
Percent (25%) interest in the Petroleum and Natural Gas Rights, the
Tangible Interests, and the Miscellaneous Interests excluded from the
Assets, of which the proportionate costs, obligations and liability
will be assumed by Purchaser in the General Conveyances for all
purposes with respect to the existing Wells on the Lands and for the
drilling, completion, testing and connection to pipeline or other
purchaser of the Earning Well.
(qq) "WELLS" means all producing, suspended, or shut-in wells and all water
source or injection wells located within or on the Lands or on any
lands with which the Lands have been pooled or unitized, including
without limitation, those wells as set forth and described in Schedule
"D" and any other wells in which the Vendor's interest in the
Petroleum and Natural Gas Rights have terminated and the Abandonment
and Reclamation Obligations remain.
(rr) "WORKOVER FUNDS" means the fifty thousand dollars ($50,000) tendered
by Purchaser at the First Closing Date pursuant to Clause 3.2(a)(ii).
1.2 DERIVATIVES. When a capitalized derivative of a term defined herein is
used, it shall have the corresponding meaning of the defined term, unless
the context otherwise requires.
1.3 INTERPRETATION. If Closing does not occur, each provision of this Agreement
which presumes Purchaser has acquired the Assets shall be construed as
having been contingent upon Closing having occurred.
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2. SCHEDULES
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2.1 LIST OF SCHEDULES. The following are the Schedules attached to and made a
part of this Agreement:
(a) Schedule "A" - Lands and Leases
(b) Schedule "B" - Officer's Certificates
(c) Schedule "C" - Assignment and Bill of Sale
(d) Schedule "D" - Wells and Other Tangible and Miscellaneous Interests
(e) Schedule "E" - Deed of Trust, Mortgage, Assignment and Security
Agreement ("Mortgage")
(f) Schedule "F" - Loan Agreement and Production Payment Obligation (for
the Cash Payment)
(g) Schedule "G" - Registration Rights Agreement
(h) Schedule "H" - Escrow Agreement for Restricted Shares
(i) Schedule "I" - Consulting Agreement
(j) Schedule "J" - Operating Agreement
(k) Schedule "K" - Farmout Agreement
2.2 CONFLICTS. In the event of any conflicts between the provisions of the body
of this Agreement and the Schedules, the provisions of the body of this
Agreement shall prevail. In the event of any conflicts between the
provisions of this Agreement and the Documents of Title, the provisions of
the Documents of Title shall prevail.
3. PURCHASE AND SALE
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3.1 ASSETS TO BE PURCHASED AND SOLD. In accordance with the terms and
conditions of this Agreement, Vendor agrees to sell to Purchaser and
Purchaser agrees to purchase from Vendor, 100% of the Assets, subject to
Permitted Encumbrances and the obligation to bear Vendor's Carried Interest
for the consideration set forth in Clause 3.2 below,
(a) On the First Closing Date, Vendor shall deliver to the Purchaser and
Purchaser will acquire
(i) a General Conveyance of an undivided fifty percent (50%)
interest in the Assets; and
(ii) a farm-in of the remaining undivided fifty percent (50%)
interest in the Assets under the terms of the Farmout
Agreement;
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(b) On the Second Closing Date, if the conditions precedent are met,
Vendor shall deliver to Purchaser and Purchaser will acquire a General
Conveyance of the remaining fifty percent (50%) undivided interest in
the Assets.
3.2 CONSIDERATION FOR THE ASSETS. Purchaser will deliver to Vendor, as
consideration for the acquisition of the Assets, the following
consideration to be paid in the following manner:
(a) At the First Closing Date, for the first undivided fifty percent (50%)
interest in the Assets:
(i) Payment of a non-refundable fee of thirty thousand dollars
($30,000), by wire or Cashier's Check to Vendor;
(ii) Payment of the Workover Funds ($50,000) to the trust account of
Fraser and Company, Solicitors and Attorneys for Purchaser
("Trustee"), in trust for disbursement to Vendor pursuant to
Clause 13.12;
(iii) Issuance of such number of common shares of Purchaser that is
equal to the greater of either 15,000,000 common shares or an
undiluted 20% of the issued and outstanding shares of the
Purchaser (such calculation to include the number of common
share issued to Vendor under this Agreement in the
denominator), and will be "restricted stock" as defined under
Rule 144 of the Securities Act of 1933, will be issued to
Vendor as of the Effective Date and will be delivered to the
Escrow Agent under the Escrow Agreement (Schedule "H"), but
under the terms and conditions of the Registration Rights
Agreement (Schedule "G");
(iv) Execution of a Loan Agreement and Production Payment Obligation
for the Cash Payment in substantially the same form and terms
as set out in Schedule G;
(v) Execution of the Mortgage and related financing statements
securing the Loan Agreement and Production Payment Obligation
in substantially the same form and terms as set out in Schedule
E; and
(vi) Assumption of costs and liability associated with Vendor's
Carried Interest as described in Clause 3.6.
(b) At the Second Closing Date, assuming all conditions precedent have
been met and the Purchaser is not in breach of any of its obligations
under this Agreement or under the Agreements, for the second undivided
fifty percent (50%) interest in the Assets;
(i) As a condition precedent, having funded, drilled and tested all
potentially productive zones in the Earning Well pursuant to
the terms and provisions of the Farmout Agreement; and
(ii) Fully paying or otherwise satisfying the Loan Agreement and
Production Payment Obligation for the Cash Payment.
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3.3 PURCHASED ASSETS ONLY. Unless specifically included in the definition of
Assets, all of the other property and assets of Vendor shall be excluded
from the purchase and sale provided for in this Agreement.
3.4 RESTRICTED SHARES LEGEND. Vendor agrees and acknowledges that the
certificates evidencing the Restricted Shares may bear a legend
substantially in the following form, or as may be required by applicable
securities laws:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933 (the "Act") and are "restricted stock" as that
term is defined in Rule 144 under the Act. The shares may not be offered
for sale, sold or otherwise transferred except pursuant to the effective
registration statement under the act or pursuant to an exemption from
registration under the Act, the availability of which is to he established
to the satisfaction of the Company.
3.5 PURCHASE PRICE. The purchase price of the Assets is deemed to be the
equivalent of the cumulative value of the consideration paid by Purchaser
described in Clause 3.2 at each closing as of the respective Closing Dates.
3.6 VENDOR'S CARRIED INTEREST. All costs, obligations and liability
attributable to Vendor's proportionate reserved undivided twenty-five
percent (25%) working interest in the Petroleum and Natural Gas Rights, the
Tangible Interests, and the Miscellaneous Interests shall be assumed and
paid for by Purchaser with respect to
(a) all existing Wells; and
(b) the Earning Well, until the initial non-test production.
Vendor will be responsible for all costs, obligations and liabilities
associated with this carried working interest pursuant to the Operating
Agreement to be executed as one of the Conveyance Documents as follows:
(a) As to the Earning Well, from and after the initial non-test production
of Earning Well; and
(b) all operations on any new well or wells drilled on the Lands under and
3.7 EARLY PAYMENT OF CASH PAYMENT. Purchaser may elect at its sole and absolute
discretion to make the Cash Payment partially or in full from its own cash
reserves, from the issuance of its shares, or from production revenue as
all particularly described in Clause 1.1(f).
3.8 ESCROW AND RELEASE OF SHARES. The Restricted Shares shall be delivered to
the Escrow Agent and released to Vendor on the date which is one year from
the First Closing Date or to the Purchaser pursuant to termination as
described in Clause 17.2
3.9 ADJUSTMENTS ON AND SUBSEQUENT TO CLOSING DATE.
3.9.1 BASIS OF ADJUSTMENTS. All benefits and obligations of every kind and
nature payable or paid and received or receivable in respect of the Assets,
including without limitation, royalty payments, maintenance, development,
operating and capital costs and the proceeds for the sale of production,
shall, except as otherwise provided herein, be apportioned between Vendor
and Purchaser as of the respective Effective Date. Costs and expenses
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accruing between the First and Second Closing Dates will be apportioned
equally between Purchaser and Vendor. Costs and expenses for work done,
services provided and goods and services supplied shall be deemed to accrue
for the purposes of this Article when the work is done and the goods or
services are provided, regardless of when such costs and expenses become
payable.
(a) INTERIM ADJUSTMENTS.
At least five (5) Business Days after the respective Closing Date,
Vendor shall provide to Purchaser an interim accounting and adjustment
in draft form, together with the information in support thereof, for
review and examination by Purchaser. This interim accounting and
adjustment shall be made by Vendor based upon all revenues, royalties,
operating costs and capital costs accruing to Purchaser and received
by the Vendor for the period commencing after the respective Effective
Date. All revenues received by the Vendor, which were not accounted
for as of the Closing and which are due to the Purchaser, shall after
deducting any obligations or costs attributable to the Purchaser, be
paid to the Purchaser within thirty (30) days of the receipt by
Vendor.
(b) FINAL ADJUSTMENT.
Within six (6) months following the respective Effective Date a
further accounting shall be prepared by Vendor in regard to all
charges and credits to be adjusted between Vendor and Purchaser on a
item by item basis after the respective Closing Date as soon as
reasonably practicable. All revenues which are received or receivable
by Vendor from the Assets and which are due to Purchaser shall, after
deducting the obligations and costs for which Purchaser is
responsible, be paid to Purchaser either on the Closing if they have
been received on or before the respective Closing Date or within (30)
days of receipt thereof, if they are received after such Closing Date.
Any monies received by Vendor shall be received as agent for and on
behalf of Purchaser. The Vendor shall not be obligated to make any
further adjustments after the six (6) months unless a specified
request in writing is received within six (6) months following the
respective Closing Date identifying in reasonable detail an adjustment
required by this Agreement. The aforesaid six (6) month time frame
does not apply to sub-clauses (c) and (d) hereof.
3.9.2 RENTALS AND TAXES. Notwithstanding the provisions of Clause 3.9.1,
rentals and all similar payments made by Vendor to preserve the Documents
of Title, freehold mineral taxes and property taxes shall be apportioned as
between Vendor and Purchaser on a per diem basis as of the respective
Effective Date, whether paid by Vendor before or after the Effective Date
if relating to the period after the respective Effective Date, unless
Vendor elects to waive such apportionment of all or any portion of those
payments which have been paid by Vendor and relate to the period after the
Effective Date. Purchaser shall include in its income the proceeds and
expenses related to Petroleum Substances produced on or after the Effective
Date and shall be responsible for the payment of all income tax payable in
respect thereto.
3.9.3 PRODUCTION. With the exception of sulphur, all Petroleum Substances
in inventory (i.e. which have been produced from the Lands and are in tanks
or in any other form of storage) and to which Vendor is entitled at the
Effective Date of the First Closing Date do not comprise part of the Assets
and remain the property of Vendor. The proceeds from the sale therefrom
shall accrue and belong to Vendor. Sales of Petroleum Substances shall be
deemed to occur on a "first in, first out" basis. Vendor shall reimburse
Purchaser for any reasonable charges paid by Purchaser to Persons for
storage or sale of such inventory of Vendor, including costs of
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transporting such inventory to the point of sale and royalties payable in
respect of such inventory, notwithstanding the provisions of Clause 3.9.1.
3.9.4 ACCOUNTS RECEIVABLE. Purchaser shall provide all reasonable
assistance to Vendor with respect to the collection from others of any
accounts receivable of Vendor which relate to the Assets and which accrued
prior to the Effective Date.
4. CLOSING, SHARES AND CONVEYANCE DOCUMENTS
- ---------------------------------------------
4.1 TRANSFER OF POSSESSION. Possession of 50% of the Assets is deemed to pass
from Vendor to Purchaser on the Effective Date of the First Closing Date,
4.2 PLACE OF CLOSING. Unless otherwise agreed in writing by the Parties,
Closing shall take place at the offices of Purchaser's lawyers at 1200 -
999 West Hastings Street, Vancouver, British Columbia, V6C 2W2.
4.3 CLOSING AND DELIVERY OF SHARES. On the First Closing Date, Purchaser shall
deliver the Restricted Shares to the Escrow Agent.
4.4 CONVEYANCE DOCUMENTS.
(a) Vendor shall execute and deliver to Purchaser on the First Closing
Date, the following Conveyance Documents:
(i) General Conveyance of fifty percent (50%) of the Assets in the
form of Schedule "C" hereto;
(ii) Farmout Agreement (Schedule "K"); and
(iii) Operating Agreement (Schedule "J").
(b) Purchaser shall execute and deliver to Vendor on the First Closing
Date, the following Conveyance Documents:
(i) General Conveyance (Schedule "C") assuming liability and casts
attributable to Vendor's Carried Interest;
(ii) Loan Agreement and Production Payment Obligation for the Cash
Payment (Schedule "F");
(iii) Mortgage (Schedule "E");
(iv) Farmout Agreement (Schedule "K"); and
(v) Operating Agreement (Schedule "J").
(c) Vendor shall execute and deliver to Purchaser on the Second Closing
Date, the following Conveyance Documents:
(i) General Conveyance of fifty percent (50%) of the Assets in the
form of Schedule "C" hereto; and
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(ii) A release and discharge of the Mortgage
(d) Within five (5) Business Days after the First Closing Date, the
Parties shall also execute the Consulting Agreement (Schedule "I").
4.5 COST OF RECORDATION. Purchaser shall bear all costs incurred in recording
all Conveyance Documents relating to the Assets and all costs of preparing
and recording any further Conveyance Documents Purchaser may reasonably
require following Closing, including any fees or penalties which are
levied, to the Purchaser or Vendor, due to the late or incorrect filing by
the Purchaser. Vendor shall bear all costs of recording discharges or
releases of security interests registered against Vendor's interest in the
Assets.
4.6 SUBORDINATION OF AUXILIARY DOCUMENTS. All documents executed by the Parties
and delivered pursuant to the provisions of this Article 4, or otherwise
pursuant to this Agreement, are subordinate to the provisions hereof and
the provisions hereof shall govern and prevail in the event of conflict.
4.7 CANCELLATION OF LETTER OF INTENT. Upon execution of the Agreement by the
Parties, the Letter of Intent is cancelled, deemed void, and of no further
effect.
5. PURCHASER'S REVIEW AND TITLE DEFECTS
- -----------------------------------------
5.1 ACCESS FOR INVESTIGATION. Vendor has allowed and shall continue to allow
Purchaser and its employees, consultants, agents, legal counsel,
accountants or other representatives, between the date of execution of this
Agreement and the First Closing Date, to have access during normal business
hours of Vendor to the premises of Vendor and at the location of the Assets
in order to inspect:
(a) all the books, accounts, and other production data of Vendor relating
to the operations of and revenues resulting from the operation of the
Assets in Vendor's possession;
(b) Documents of Title material correspondence and files pertaining to the
Assets, title opinions (if any) and technical operating data of Vendor
pertaining thereto; and
(c) the tangible portion of the Assets;
to enable Purchaser to carry out its due diligence, subject always to
contractual restrictions imposed upon Vendor relating to disclosure.
5.2 NOTICE OF TITLE DEFECTS. Purchaser shall undertake a title review of the
Assets. As soon as reasonably practicable after completion of its title
review and, in any event, no later than two (2) Business Days prior to the
Closing Date, Purchaser shall give Vendor written notice of all defects and
omissions which, in the reasonable opinion of Purchaser, materially and
adversely affect the title of Vendor to at least fifteen percent (15%) in
value of the Assets and which Purchaser does not waive (all of which are
referred to as "Title Defects"). Title Defects do not include the Permitted
Encumbrances. Such notice shall include a description of each Title Defect
and the interest affected thereby and to the extent reasonably possible,
Purchaser's requirements for the rectification or curing thereof. Failure
to include any Title Defects in a written notice when required, shall be
deemed to be a waiver of such Title Defects.
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5.3 CURING TITLE DEFECTS. Vendor shall diligently make reasonable efforts to
cure or remove all Title Defects of which Purchaser has timely notified
Vendor. If such Title Defects can not be cured by Vendor to the
satisfaction of Purchaser within thirty (30) days of such notice, then
Purchaser has ten (10) days to elect in writing to terminate this Agreement
under Clause 17.1 and in that event Purchaser shall be released from all
obligations, other than those specified in Article 8. Failure to timely
deliver such written election to Vendor is a waiver of said Title Defect.
6. CLOSING CONDITIONS
- -----------------------
6.1 PURCHASER'S CONDITIONS TO FIRST CLOSING. The obligation of Purchaser to
complete the purchase of fifty percent (50%) of the Assets on the First
Closing Date, shall be subject to the fulfillment of each of the following
conditions precedent by the times set forth below or if not stated, at, or
prior to, the First Closing Date:
(a) MATERIAL COMPLIANCE OF REPRESENTATIONS AND WARRANTIES AND OFFICER'S
CERTIFICATE. All of the representations and warranties of Vendor made
in this Agreement shall be true and correct in all respects as of the
Closing Date, and Vendor shall have delivered to Purchaser officer's
certificates in the form of Schedule "B" and dated as of the Closing
Date;
(b) MATERIAL COMPLIANCE BY VENDOR. Vendor shall have performed or complied
with, in all material respects, the terms and conditions' of this
Agreement to the extent they are to be performed at or prior to the
Closing Date;
(c) DELIVERY OF CONVEYANCE DOCUMENTS. Vendor shall have executed and
delivered the Conveyance Documents on the Closing Date;
(d) NO SUBSTANTIAL DAMAGE. On the Closing Date, no substantial physical
damage shall have occurred to the Assets which would have a material
adverse effect on the aggregate value of the Assets;
(e) NO SECURITY INTERESTS. Purchaser receiving recordable discharges or
letters of no interest from the respective lender in respect of any
and all security interests which are recorded against the Assets, or
any part thereof, and which are not to be assumed by Purchaser;
(f) RIGHTS OF FIRST REFUSAL. No Rights of First Refusal relating to the
Assets shall remain in effect as of the Closing Date, either having
been exercised by the holder thereof or having been waived by the
holder thereof or having expired prior to the Closing Date, after
proper notice being given.
(g) DELIVERY OF TITLE. Prior to the First Closing Date, Vendor shall
deliver to Purchaser all necessary transfers, novations, assignments
and consents from other Persons required to transfer all of its right,
title, and interest to fifty percent (50%) of the Assets from Vendor
to Purchaser free and clear of any liens, mortgages, encumbrances,
equities or claims created by, through, or under Vendor, except for
the Permitted Encumbrances.
The foregoing conditions are inserted for the sole benefit of Purchaser. In
the event that any of the foregoing conditions are not fulfilled or met at
or prior to the First Closing Date, Purchaser may terminate this Agreement
under Clause 17.1, and in that event Purchaser shall be released from all
Purchase and Sale Agreement
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obligations, other than those specified in Article 8, and unless Purchaser
can show that the condition or conditions, the non-performance thereof by
Vendor has caused Purchaser to terminate this Agreement, are or were
reasonably capable of being performed by Vendor, then Vendor shall also be
released from all obligations, except those specified in Article 8;
provided that any condition may be waived in writing, in whole or in part,
by Purchaser without prejudice to its right of termination in the event of
non-fulfillment of any other condition or conditions. Except as provided in
Clause 17.2, after the First Closing Date, Purchaser may not rescind or
terminate this Agreement and Purchaser's remedies, if any, shall be limited
to damages.
6.2 VENDOR'S CONDITIONS TO FIRST CLOSING. The obligation of Vendor to complete
the sale of fifty percent (50%) of the Assets on the First Closing Date
shall be subject to the fulfillment of each of the following conditions
precedent at or prior to the First Closing Date:
(a) MATERIAL COMPLIANCE OF REPRESENTATIONS AND WARRANTIES AND OFFICERS'
CERTIFICATE. All of the representations and warranties of Purchaser
made in this Agreement shall be true and correct in all material
respects as of the Closing Date, and Purchaser shall have delivered to
Vendor an officer's certificate in the form of Schedule "H" and dated
as of the Closing Date;
(b) MATERIAL COMPLIANCE BY PURCHASER. Purchaser shall have performed or
complied with, in all material respects, the terms and conditions of
this Agreement to the extent they are to be performed at or prior to
the Closing Date;
(c) DELIVERY OF DOCUMENTS. Purchaser shall have executed and delivered to
Vendor at least one copy of the Conveyance Documents;
(d) DELIVERY OF RESTRICTED SHARES. On the Effective Date, Purchaser shall
issue and deliver the Restricted Shares to the Escrow Agent.
6.3 CONDITIONS FOR BENEFIT OF VENDOR. The foregoing conditions are inserted for
the sole benefit of Vendor. In the event that any of the foregoing
conditions are not fulfilled or met at or prior to the First Closing Date,
Vendor may terminate this Agreement under Clause 17.1, and in that event
Vendor shall be released from all obligations, except those specified in
Article 8, and unless Vendor can show that the condition or conditions the
non-performance thereof by Purchaser has caused Vendor to terminate this
Agreement, are or were reasonably capable of being performed or caused to
be performed by Purchaser, then Purchaser shall also be released from all
obligations except those specified in Article 8; provided that any
condition may be waived in whole or in part by Vendor without prejudice to
its right of termination in the event of non-fulfillment of any other
conditions. Except as provided in Clause 17.2, after the First Closing
Date, Purchaser may not rescind or terminate this Agreement and Purchaser's
remedies, if any, shall be limited to damages.
6.4 PURCHASER'S CONDITIONS TO SECOND CLOSING. Prior to the Second Closing, the
Earning Well will be capable of producing in paying quantities as such term
is normally understood for wells in the area of the Earning Well.
(a) DELIVERY OF CONVEYANCE DOCUMENTS. Vendor shall have executed and
delivered the Conveyance Documents on the Second Closing Date;
(b) DELIVERY OF TITLE. Prior to the Second Closing Date, Vendor shall
deliver to Purchaser all necessary transfers, novations, assignments
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and consents from other Persons required to transfer all of its right,
title, and interest to the second fifty percent (50%) of the Assets
from Vendor to Purchaser free and clear of any liens, mortgages,
encumbrances, equities or claims created by, through, or under Vendor,
except for the Permitted Encumbrances.
6.4 VENDORS CONDITIONS TO SECOND CLOSING. The obligation of Vendor to complete
the sale of fifty percent (50%) of the Assets on the Second Closing Date
shall be subject to the fulfillment of each of the following conditions
precedent at or prior to the Second Closing Date:
(a) Purchaser shall have performed or complied with, in all material
respects, the terms and conditions of this Agreement to the extent
they are to be performed at or prior to the Second Closing Date;
(b) Purchaser shall have funded, drilled and tested all potentially
productive zones of the Earning Well; and
(c) Purchaser shall fully pay or otherwise satisfy the Loan Agreement and
Production Payment Obligation for the Cash Payment.
6.5 DILIGENCE WITH RESPECT TO CONDITIONS. Each Party shall proceed diligently,
honestly and in good faith and use reasonable efforts in order to satisfy
its respective conditions set forth in Article 6.
6.6 EXTENSION OF CLOSING DATE. The Parties may mutually agree to extend either
of the Closing Dates.
7. MAINTENANCE OF ASSETS
- --------------------------
7.1 LIMITATIONS ON VENDOR. From the execution of this Agreement by the Parties
until the Second Closing Date or Termination of the Farmout Agreement,
Vendor:
(a) shall, to the extent it is Operator of the Assets, maintain and
operate the Assets in a proper and prudent manner in accordance with
the terms of the Operating Agreement;
(b) from and after expenditure of the Workover Funds, shall not, without
the prior written consent of Purchaser:
(i) voluntarily assume or initiate any obligation, or make any
commitment with respect to the Assets, if the amount of such
obligation or commitment is estimated to exceed ten thousand
dollars ($10,000);
(ii) surrender or abandon any of the Assets;
(iii) amend any Document of Title or enter into any new agreement of
a material nature, respecting the Assets;
(iv) sell any of the Assets except sales of the production of
Petroleum Substances in the ordinary course of business;
(v) except for Permitted Encumbrances, encumber any of the Assets;
or
Purchase and Sale Agreement
Page 17 of 33
(vi) exercise any Rights of First Refusal or area of mutual interest
option arising out of the Assets,
except Vendor may without the prior written consent of Purchaser
exceed the guidelines set forth in Clause 7.1 (b) (i), if reasonably
required to protect life or property in an emergency situation, to
comply with laws or to preserve the value of the Assets if proper and
prudent and in accordance with generally accepted oil and gas
practices and procedures, in which case, Vendor shall promptly notify
Purchaser of such action and the estimated cost thereof.
7.2 LIMITATION ON PURCHASER. Until the First Closing Date, Purchaser shall not
be entitled to propose to Vendor, or to cause Vendor to propose to others,
the conduct of any operations, or the exercise of any right or option in
relation to the Assets, except with the written consent of Vendor which may
be withheld at Vendor's sole discretion. Vendor shall give prompt notice of
any proposal made to it to Purchaser.
7.3 LIMITATIONS AFTER THE FIRST CLOSING. After the First Closing Date, the
following shall apply with respect to those Assets for which novation is
not completed:
(a) Vendor shall promptly forward to Purchaser copies of all information
and documents it receives from others with respect to such Assets;
(b) Vendor shall promptly remit to Purchaser, after having received from
others, its proportional share of all revenues (less expenses paid by
Vendor), which have accrued after the Effective Date in respect of
such Assets; and
(c) Vendor shall make such elections and respond to all notices received
in respect of such Assets in accordance with the Operating Agreement.
7.4 RATIFICATION OF VENDOR'S ACTIONS. From and after the First Effective Date
and until Purchaser is the registered owner of one-half of the Assets
pursuant to the Documents of Title delivered at the First Closing, Vendor
shall be deemed to be agent of Purchaser with respect to one-half of the
Assets to be delivered at the First Closing, and Purchaser ratifies all
actions taken or lack of action taken by Vendor in connection with the
Assets on behalf of Purchaser in accordance with the terms and provisions
of this Agreement other than those actions for which Vendor has been
grossly negligent or where Vendor is guilty of willful misconduct. Any act
or omission of Vendor, its directors, agents or employees, shall not be
considered gross negligence or willful misconduct if done or omitted in
accordance with the instructions or written concurrence of Purchaser.
7.5 PURCHASER LIABILITY AND INDEMNITY TO VENDOR. If the First Closing occurs,
Purchaser hereby agrees to indemnify and save harmless Vendor, its
directors, agents and employees, from and against all liabilities, losses,
costs (including legal costs on a solicitor/client basis), claims, damages
and expenses which may be brought against or suffered by Vendor or its
directors agents or employees, in relation to operations as a result of
Vendor maintaining the Assets from and after the Effective Date of the
First Closing as agent for Purchaser pursuant to this Article 7, provided
such liability, loss, cost (including legal costs on a solicitor/client
basis), claim, damage, or expense is not a direct result of the gross
negligence or willful misconduct of Vendor, its directors, agents or
employees. Any act or omission of Vendor, its directors, agents or
employees, shall not be considered gross negligence or willful misconduct
if done or omitted in accordance with the instructions or concurrence of
Purchaser.
Purchase and Sale Agreement
page 18 of 33
8. CONFIDENTIALITY OF PURCHASER
- ---------------------------------
8.1 CONFIDENTIALITY. Until the First Closing Date, or in the event of
termination of this Agreement without consummation of the transactions
contemplated herein, Purchaser shall keep confidential all information
respecting the Assets obtained from Vendor. Such confidential information
respecting the Assets shall be used only for the purposes of this
acquisition and disclosed only to those of its employees, agents, legal
counsel, accountants or other representatives on a "need to know" basis.
Upon Closing, Purchaser's rights to use or disclose such information shall
be subject only to confidentiality provisions contained in any operating or
other existing agreements that may apply thereto in respect of the Assets.
Any information obtained as a result of such access which does not relate
to the Assets shall continue to be treated as confidential and shall not be
used by Purchaser without the prior written consent of Vendor. The
restrictions on disclosure and use of information obtained in connection
with this Agreement shall not apply to information, to the extent it:
(a) is or becomes publicly available through no act or omission of
Purchaser or its employees, agents, consultants, advisors or other
representatives;
(b) is subsequently obtained lawfully from a Person who, after reasonable
inquiry, Purchaser does not know is bound to Vendor to restrict the
use or disclosure of such information;
(c) is already in Purchaser's possession at the time of disclosure,
without any restriction on its disclosure; or
(d) is required to be disclosed pursuant to the applicable legislation,
regulations, or rules or by the direction of any court, tribunal or
administrative body having jurisdiction.
Specific items of information shall not be considered to be in the public
domain merely because more general information respecting the Assets is in
the public domain.
8.2 PURCHASER'S REPRESENTATIVES. If Purchaser employs consultants, advisors or
agents to assist in its review of the items listed in Clause 5.1, Purchaser
shall be responsible to Vendor for ensuring that such consultants, advisors
and agents comply with the restrictions on the use and disclosure of
information set forth in Clause 8.1 and Purchaser shall be liable to Vendor
for all damages, costs or expenses Vendor may suffer or incur as a result
of any unauthorized use or disclosure of such confidential information in
contravention of this Clause 8.2 by such representatives of Purchaser.
8.3 RETURN OF CONFIDENTIAL INFORMATION. If the First Closing does not occur and
this Agreement is terminated, then all documents, geological and seismic
data, lease or well files, working papers and other written material
obtained from Vendor in connection with this Agreement shall be returned to
Vendor forthwith. No copies of such information are to be retained by
Purchaser.
9. REPRESENTATIONS AND WARRANTIES OF VENDOR
- ---------------------------------------------
9.1 REPRESENTATIONS AND WARRANTIES OF VENDOR. Vendor hereby represents and
warrants to Purchaser that:
Purchase and Sale Agreement
Page 19 of 33
(a) STANDING. It is a corporation duly organized and validly existing
under the laws of its jurisdiction of incorporation and in good
standing under the laws of the State of Mississippi;
(b) REQUISITE AUTHORITY. It has all necessary corporate power, authority
and capacity to enter into and execute this Agreement, to sell the
Assets and to perform its other obligations under this Agreement;
(c) NO CONFLICTS. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will
not violate, nor be in conflict with, its charter, bylaws or similar
controlling documents of Vendor, or any provision of any agreement or
instrument of a material nature to which it is a party or is bound, or
any judgment, decree, order, statute, rule or regulations applicable
to it and of which it is aware is in effect in Louisiana, except
requirements of Documents of Title to obtain consents of other Persons
who are parties thereto to the sale of the Assets pursuant hereto;
(d) EXECUTION AND ENFORCEABILITY OF DOCUMENTS. This Agreement has been
duly executed and delivered by it and all other documents required
hereunder to be executed and delivered by it at any Closing pursuant
hereto shall be duly executed and delivered. This Agreement does, and
such documents will, constitute legal, valid and binding obligations
of it enforceable in accordance with their respective terms, subject
to the qualification that their enforceability may be limited by rules
of equity and by insolvency, bankruptcy and other laws of general
application affecting the enforcement of creditors' rights;
(e) FINDER'S FEES. It has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of
this transaction for which Purchaser shall have any obligation or
liability;
(f) LAWSUITS. To its Knowledge, based upon an examination of its records,
no suit, action or other proceeding is in existence, pending or
threatened against or by it before any court or governmental agency
which would materially adversely affect, Vendor's title to or
ownership of the Assets or the values of the Assets;
(g) ENCUMBRANCES. The Assets will, to its Knowledge, at the Closing Date,
be free and clear of any liens, encumbrances and adverse claims
created by, through or under Vendor except for the Permitted
Encumbrances, those disclosed in the Documents of Title, those Title
Defects waived by Purchaser and as otherwise set out on Schedules "A"
and "D" hereto;
(h) KNOWLEDGE OF DEFAULT. To its Knowledge based upon an examination of
its records, it has not received notice of any material default under
any Documents of Title which default is continuing as of the Closing
Date and would adversely impact upon the value of the Assets or any
part thereof or subject the Documents of Title to cancellation or
termination;
(i) PRODUCTION SALES AGREEMENTS. There are no Production Sales Agreements
or arrangements under which it, or any Person acting on its behalf, is
obligated to sell or deliver Petroleum Substances allocable to the
Purchase and Sale Agreement
Page 20 of 33
Petroleum and Natural Gas Rights to any Person, other than contracts
which are terminable without penalty on less than thirty-two (32)
days' notice;
(j) TAKE OR PAY AMOUNT. To its Knowledge, there are no Take or Pay Amounts
outstanding as of the Effective Date;
(k) REDUCTION OF INTEREST. Except for Permitted Encumbrances and as
disclosed in the Documents of Title, to its Knowledge, the Petroleum
and Natural Gas Rights are not subject to reduction by virtue of the
conversion or other alteration of the interest of any Person under
existing agreements created by, through or under Vendor;
(l) GOOD STANDING UNDER AGREEMENTS. To its Knowledge based upon an
examination of its records, Vendor is not in breach in any material
respect under any material agreements and instruments having
application to the Assets or any part thereof to which it is a party
or is bound;
(m) CARRIED INTERESTS. Except as disclosed in the Documents of Title, to
its Knowledge based upon an examination of its records, there are no
Carried Interests other than Vendor's Carried Interest and the
interests of non-consenting owners of drilling rights in the wells who
have been integrated under state law;
(n) PRODUCTION PENALTY. Except as disclosed in Schedule "A", to its
Knowledge based upon an examination of its records, the Wells related
to the Lands are not subject to a production penalty whereby the
production proceeds allocable to Vendor's interest are payable to a
third party until an amount calculated in respect of certain costs and
expenses paid by such third party are recovered by such third party;
(o) PAYMENT OF TAXES. To its Knowledge based upon an examination of its
records, all ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of the
Assets or the production of Petroleum Substances from the Lands or the
receipt of proceeds therefrom payable by it to the Effective Date have
been paid and discharged;
(p) LAWS. To its Knowledge, it has not received notice of default in any
material respect of any decrees, statutes and regulations of
governmental authorities which relate to the Assets, the default or
failure of which would have a material adverse effect on the value of
the Assets or any part thereof;
(q) JUDGMENTS AND LAWS. To its Knowledge, Vendor is not in default of any
judgment, order, writ, injunction or decree of any court, government
department, commission or other administrative agency and it is, to
its Knowledge, substantially complying, in all material respects, with
all decrees, statutes and regulations of governmental authorities, the
default or failure of which by it would have an adverse effect on the
value of the Assets or any part thereof,
(r) ENVIRONMENTAL MATTERS. To its Knowledge, based upon an examination of
its records, it has not received while serving as Operator:
(i) any orders or directives which relate to environmental matters
and which require any work, repairs, construction or capital
expenditures with respect to the Assets;
Purchase and Sale Agreement
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(ii) any demand or notice with respect to the breach of any
environmental law applicable to the Assets, including, without
limitation, any regulations respecting the use, storage,
treatment, transportation or disposition of petroleum
substances or contaminants; or
(iii) order, directive, notice, or demand from any third parries with
respect to Abandonment and Reclamation Obligation, other than
as disclosed in Schedule "A",
which orders, directives, demands or notices remain outstanding as of
the Closing Date;
(s) ENVIRONMENTAL CLAIMS. To its Knowledge based upon an examination of
its records, while serving as Operator, Vendor has not received any
notice of any claim by any third party (including governmental
authorities) of pollution or other Environmental Damage arising from
drilling, production or similar operations on the Lands or lands
pooled or unitized therein or of any claim requesting that any action
be taken to prevent pollution or other Environmental Damage from
drilling, production or other operations on the Lands or lands pooled
or unitized therewith which notice or claim retrains outstanding as of
the date hereof;
(t) OIL AND GAS FIELD PRACTICE. To its Knowledge, where Vendor was the
operator at the relevant time, the Wells related to the Lands have, in
all material respects, been drilled and if completed, completed and if
abandoned, abandoned in compliance with all statutes, rules and
regulations existing at the relevant time;
(u) RIGHTS OF FIRST REFUSAL. To its Knowledge, based upon an examination
of its records, no Rights of First Refusal relating to the Assets
shall remain in effect as of the Closing Date, either having been
waived or exercised by the holder thereof or having expired after
proper notice being given;
(v) DISCLOSURE OF DOCUMENTS. To its Knowledge, all documents and
agreements affecting the title to the Assets or production of revenue
from the Assets will have been made available by vendor to Purchaser;
(w) ROYALTIES. To its knowledge, all royalties payable by Vendor in
respect of the Petroleum and Natural Gas Rights have been properly
paid as of the Effective Date;
(x) MISSISSIPPI STATE OIL AND GAS BOARD. To its Knowledge, Vendor is not
in breach of any orders or directives of the Mississippi State Oil and
Gas Board, nor is Vendor aware of any other matter, which would result
in an undue delay or an inability to register the transfer of well
licenses for the Wells;
(y) EXISTING ROYALTIES. To its Knowledge, any previously existing royalty
interests encumbering the Petroleum and Natural Gas Rights is less
than or equal to a 25% royalty interest; and
(z) WORKING INTEREST ON EARNING WELL. To the best of its Knowledge, the
Assets and Vendor's Carried Interest on the unit to be formed for
Earning Well will comprise at least 89.44% of the Earning Well unit
ownership.
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9.2 NO WARRANTY OF TITLE. Except as specifically set forth in Article 9.1,
Vendor does not warrant title to the Assets or purport to convey any better
title than it now has or is entitled to receive.
9.3 NO OTHER VENDOR REPRESENTATIONS OR WARRANTIES. Except as and to the extent
set forth in Clause 9.1, Vendor does not make, and Purchaser does not rely
on any representation or warranty whatsoever. Without limiting the
generality of the foregoing, Vendor does not make any representation or
warranty with respect to:
(a) the quality, quantity or recoverability of the Petroleum Substances
within or under the Lands or any lands pooled or unitized therewith;
(b) the value of the Assets or the future revenues applicable thereto;
(c) any economic evaluations respecting the Assets; or
(d) the quality, condition, merchantability or serviceability of all or
any of the Tangible Interests, or their suitability for any particular
purpose.
10. REPRESENTATIONS AND WARRANTIES OF PURCHASER
- ------------------------------------------------
10.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
and warrants to Vendor that:
(a) STANDING. It is a corporation duly organized and validly existing
under the laws of its jurisdiction of incorporation and, as of the
First Closing Date, will be qualified to do business in the State of
Mississippi;
(b) REQUISITE AUTHORITY. It has all necessary corporate power, authority
and capacity to enter into this Agreement and to purchase and pay for
the Assets, on the terms described herein and to perform its other
obligations under this Agreement;
(c) NO CONFLICTS. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will
not violate nor be in conflict with its charter, bylaws or similar
controlling documents of it, or any provision of any agreement or
instrument to which it is a party or is bound, or any judgment,
decree, order, statute, rule or regulation applicable to Purchaser in
effect in Canada or the United States of America of which it is aware;
(d) EXECUTION AND ENFORCEABILITY OF DOCUMENTS. This Agreement has been
duly executed and delivered by it and all other documents required
hereunder to be executed and delivered by it at any Closing pursuant
hereto shall be duly executed and delivered. This Agreement does, and
such documents, will, constitute legal, valid and binding obligations
of it enforceable in accordance with their respective terms, subject
to the qualification that their enforceability may be limited by rules
of equity and by insolvency, bankruptcy and other laws of general
application affecting the enforcement of creditors' rights;
(e) FINDER'S FEES. It has not incurred any liability, contingent or
otherwise, for brokers' or finders' fees in respect of this
transaction for which Vendor shall have any obligation or liability;
Purchase and Sale Agreement
Page 23 of 33
(f) PURCHASER AS PRINCIPAL. It is acquiring the Assets in its capacity as
a principal;
(g) FINANCING CAPABILITY OF PURCHASER. It either now has, or will have at
First Closing Date, sufficient funds to close the transactions hereby
contemplated upon the First Closing Date and will have, within sixty
(60) days of Vendor receiving the necessary permit from the State Oil
and Gas Board to drill the Earning Well, the Earning Well Drilling
Funds;
(h) ISSUED AND OUTSTANDING SHARES. As of the First Closing Date, the
issued and outstanding share capital of the Purchaser (excluding the
Restricted Shares) is 58,944,776 common shares, of which 18,638,835
common shares are registered under the Securities Act of 1933, and
there are no other issued and outstanding securities issuable or
convertible into common shares of the Purchaser; and
(i) PUBLIC COMPANY. As of the First Closing Date, the Purchaser is a
public company registered under the Securities Exchange Act of 1934
and its common shares are quoted for trading an the OTC Bulletin Board
under the symbol "UDCCF".
(j) AUTHORITY TO ISSUE STOCK. As of the First Closing Date, Purchaser has
all corporate and regulatory authority necessary to properly and
validly issue the Restricted Shares to Vendor.
10.2 PURCHASER'S OWN EXAMINATION AND EVALUATION. Purchaser acknowledges that it
will make its own independent investigation, analysis, evaluation and
inspection of Vendor's interest in the Assets, including a review of
Vendor's title thereto and the state and condition thereof, and, other than
Vendors representation and warranties in Section 9.1, will have relied
solely on its own investigation, analysis, evaluation and inspection as to
its assessment of the condition, quantum and value of the Assets and
Vendor's title thereto.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
- -----------------------------------------------
11.1 DATES REPRESENTATIONS AND WARRANTIES APPLY. The representations and
warranties of the Parties set forth in Clauses 9.1 and 10.1 shall be true
or performed, as the case may be, as of the First Closing Date.
11.2 LIMITATION OF LIABILITY. The representations and warranties contained
herein shall survive the Closing Dates, notwithstanding the delivery of any
covenants, representations and warranties in any other agreements prior or
subsequent thereto, and shall remain in full force and effect for the
benefit of Purchaser with respect to Clause 9.1 and for the benefit of
Vendor with respect to Clause 10.1, but no claim or action in respect of
any breach of such representation or warranty shall be made unless the
Party making such claim or bringing such action has given notice of such
claim (including reasonable particulars of the misrepresentations or
breach) to the other within twelve (12) months following the Closing Date.
Notwithstanding any other provision of this Agreement:
(a) a Party shall not be entitled to any payment from the other Party for
breach of any covenants, representations or warranties referred to in
Clauses 9.1 and 10.1 for misrepresentation pursuant to this Agreement
or for indemnification pursuant to Clause 12.1, unless a claim(s) by
such Party exceeds in aggregate Two Thousand Five Hundred Dollars
($2,500.00); and
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(b) the maximum aggregate liability of Vendor to Purchaser for any
breaches of any covenants, representations or warranties referred to
in Clause 9.1, for misrepresentation pursuant to this Agreement and in
respect of any claims for indemnity pursuant to Clause 12.1, shall not
in any event exceed the lesser of One Million Dollars ($1,000,000) or
the Purchase Price, except in the event of fraud on the part of the
Vendor.
11.3 KNOWLEDGE BY PURCHASER. Purchaser shall have no remedy or cause of action
for a breach of representation or warranty for any circumstance, matter or
thing of which the Purchaser has knowledge, as defined in Clause 1.1(u).
11.4 NOT TRANSFERABLE. The representations and warranties set forth in Clauses
9.1 and 10.1 are made for the exclusive benefit of Purchaser and Vendor, as
the case may be, and are not transferable and may not be the subject of any
rights of subrogation in favor of any other Person.
12. INDEMNITY
- --------------
12.1 INDEMNITY OF VENDOR. Subject to Clause 11.2, Vendor shall indemnify
Purchaser and its directors, employees and agents from and against all
Losses which Purchaser, its directors, employees or agents, pays or pay to
third parties solely and exclusively as a consequence of a breach, as of
the Closing Date, of any representations and warranties of Vendor contained
in Clause 9.1 of this Agreement, excepting any Losses, if and to the extent
caused by the gross negligence or willful default of Purchaser, its
successors, agents or assigns. The indemnity granted by Vendor in this
Clause 12 is not a title warranty and does not provide an extension of any
representation or warranty contained in Clause 9.1 or any additional remedy
with regard to the breach by Vendor of any representation or warranty.
Furthermore, the indemnity of Vendor to Purchaser granted pursuant to this
Clause 12 shall only apply to claims of indemnity made by Purchaser to
Vendor by giving written notice to Vendor within twelve (12) months
following the First Closing Date and, in any event, the maximum aggregate
liability and indemnity of Vendor to Purchaser for losses suffered by
Purchaser pursuant hereto and as a result of any breaches of any
representations or warranties shall not exceed the Purchase Price, except
in the event of fraud on the part of the Vendor.
12.2 INDEMNITY OF PURCHASER. Subject to Clause 11.2, Purchaser shall indemnify
Vendor and its directors, employees and agents from and against all Losses
which Vendor, its directors, employees or agents, pays or pay to third
parties solely and exclusively as a consequence of a breach, as of the
Closing Date, of any representations and warranties of Purchaser contained
in Clause 10.1 of this Agreement, excepting any Losses, if and to the
extent caused by the gross negligence or willful default of Vendor, its
successors, agents or assigns. The indemnity granted by Purchaser in this
Clause 12 is not a title warranty and does not provide an extension of any
representation or warranty contained in Clause 10.1 or any additional
remedy with regard to the breach by Purchaser of any representation or
warranty. Furthermore, the indemnity of Purchaser to Vendor granted
pursuant to this Clause 12 shall only apply to claims of indemnity made by
Vendor to Purchaser by giving written notice to Purchaser within twelve
(12) months following the First Closing Date and, in any event, the maximum
aggregate liability and indemnity of Purchaser to Vendor for Losses
suffered by Vendor pursuant hereto and as a result of any breaches of any
representations or warranties shall not exceed the Purchase Price, except
in the event of fraud on the part of the Purchaser.
12.3 For the purpose of this Article 12, "Losses" means losses, costs, claims,
damages, expenses and liabilities and includes, without limitation, legal
fees and costs on a solicitor and client basis.
Purchase and Sale Agreement
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13. ONGOING COVENANTS OF PURCHASER
- -----------------------------------
13.1 DOCUMENTS OF TITLE. On and after the First Closing Date, Purchaser agrees
with Vendor it shall be bound by, observe and perform, as they become due,
all covenants, obligations and liabilities respecting the share of Assets
acquired by Purchaser, including, without limitation, the performance of
all obligations of Vendor under the Documents of Title and other agreements
respecting such Assets.
13.2 VENDOR'S ACCESS TO RECORDS. On and after the First Closing Date, Purchaser
hereby agrees to allow Vendor, its employees, agents, legal counsel,
accountants and other representatives, to have access to the premises of
Purchaser during normal business hours of Purchaser in order to inspect and
take copies of such information delivered by Vendor to Purchaser in
accordance with Clause 5.1, if reasonably required by Vendor, in connection
with any governmental audit, any potential or threatened legal or
administrative proceeding by or against Vendor in relation to the Assets,
or to enable Vendor to comply with a law or the requirement of any
governmental authority. Nothing herein shall prevent Vendor from making and
retaining copies of any such documents at any time. Vendor shall hold all
information and documents confidential pursuant to Section 8 of this
Agreement and same shall only be used by Vendor for the purpose specified
by Vendor.
13.3 INITIATION OF AUDITS. On and after the Closing Date up until Final
Adjustments are made, Purchaser shall advise Vendor of the initiation and
results of any governmental audit in relation to the Assets to the extent
it relates to any matters accruing prior to the Effective Date.
13.4 VENDOR RIGHT TO NOMINATE DIRECTOR. After the First Closing Date, Vendor
shall have the right to nominate one (1) director to the board of directors
of Purchaser. After the Second Closing Date, Vendor shall have the right to
nominate two (2) directors, being a total of fifty percent (50%), to the
board of directors of the Purchaser.
13.5 VENDOR OPERATOR STATUS. As of the Effective Date, Vendor shall be retained
by Purchaser as the operator on the Lands until the Second Closing Date or,
thereafter, such date as Purchaser may deem necessary for the ongoing
operations on the Lands. After the Second Closing Date, such determination
will be in the Purchaser's sole and absolute discretion. The parties agree
to enter into an Operator Agreement substantially in the form attached as
Schedule "J" on the First Closing Date. The Operating Agreement shall
govern all oilfield operations pertaining to the Assets from and after the
Effective Date of the First Closing Date.
13.6 CONSULTING AGREEMENT. Within five (5) Business Days after the First Closing
Date, the Parties will execute a Consulting Agreement substantially in the
form attached as Schedule "I" whereby Vendor and Whitney Pansano will each
be engaged to perform consulting services for the benefit of the Purchaser
in its oil and gas activities and in particular for the Assets.
13.7 LEASES IN GOOD STANDING. Purchaser agrees to use its commercially
reasonable best efforts to keep all leasehold interests of the Lands in
good standing, and in the event such leasehold terms will expire, Purchaser
agrees to assign such leasehold interests to Vendor, prior to the
expiration of the lease, at no cost to the Vendor.
13.8 ADJUSTMENT OF SHARES FOR DILUTION; NO MERGER OR REDEMPTION WITHOUT
APPROVAL. Except with respect to the issuance of common shares by Purchaser
pursuant to this Agreement or to Vendor or Whitney Pansano (or their
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designees) pursuant to any consulting or similar arrangement with such
persons, the Restricted Shares will be adjusted for dilution as follows:
(a) If, during the two-year period following the Effective Date, excluding
shares issued pursuant to Permitted Issuances, Purchaser issues in the
aggregate more than 5,000,000 shares of common stock or securities
that may be converted into more than 5 000,000 shares of common stock
of the Purchaser, the Purchaser will issue sufficient additional
shares to Vendor so that, on a fully diluted basis. Vendor will have
the same percentage of shares that Vendor possesses on the Effective
Date (excluding from such calculation, shares issued pursuant to the
Permitted Issuances). For the purposes of this Section, shares issued
pursuant to "Permitted Issuances" are shares of common stock issued
pursuant to consulting or similar arrangements with Vendor or Whitney
Pansano and up to 3 million shares issued within 4 months of the date
hereof for the purpose of raising up to $500,000 as the Earning Well
Drilling Funds.
(b) For so long as the Vendor owns the common shares issued pursuant to
this Agreement, the Purchaser will not undertake one transaction or a
series of transaction by which it will undergo a merger, acquisition,
consolidation or combination with another entity without the approval
of Vendor.
(c) For so long as the Vendor owns the common shares issued pursuant to
this Agreement, the Purchaser will not redeem or repurchase and will
not agree or arrange to redeem or repurchase any of its issued and
outstanding security interests without the approval of Vendor.
(d) Purchaser shall register the Restricted Shares in accordance with the
terms and conditions of the Registration Rights Agreement.
13.9 VENDOR'S OPTION TO REGAIN TITLE. Purchaser grants to Vendor an option to
receive a re-assignment of all Assets held by Purchaser for the sum of Ten
Dollars ($10) in the event of bankruptcy or insolvency of Purchaser as
determined by a bankruptcy court or court appointed administrator, and
subject to applicable creditor laws. In the event that Purchaser decides to
abandon any one leasehold interest on the Lands, Purchaser will give Vendor
thirty (30) days written notice that Vendor may purchase the leasehold
interest at no cost before transferring it to a third party.
13.10 OPERATING OBLIGATIONS.
(a) For so long as Vendor owns any of the Restricted Stock, Purchaser
agrees that it will not and will not permit any subsidiaries to:
(i) fail to file any report timely with all information and
disclosures as required under United States securities laws;
(ii) fail to engage or cause to be engaged a market maker to support
the price and active trading of the Purchaser's publicly traded
stock;
(iii) fail to use its best efforts to stay and maintain its common
shares publicly traded on the OTCBB or NASDAQ National Market
System quotation service;
Purchase and Sale Agreement
Page 27 of 33
(iv) amend or otherwise change its certificate of incorporation or
By-laws or equivalent organizational documents;
(v) increase the number of Board of Directors of Purchaser above
four persons; or
(vi) authorize or enter into any agreement or otherwise make any
commitment to do any of the foregoing.
(b) From the date of this Agreement until either (i) until the Purchaser's
board of directors consists of at least 50 percent of persons
nominated by Vendor or (ii) so long as Vendor owns any of the
Restricted Stock, which ever occurs first, Purchaser agrees that it
will not and will not permit any subsidiaries to:
(i) sell, pledge, dispose of, transfer, lease, license, guarantee
or encumber, including by operation of Law or authorize the
sale, pledge, disposition, transfer, lease, license, guarantee
or encumbrance of, any material property or assets (including
intellectual property and real property), except pursuant to
existing contracts or commitments or the sale or purchase of
goods in the ordinary course of business consistent with past
practice and except for the sale of VCL Communications;
(ii) declare, set aside, make or pay any dividend or other
distribution (whether payable in cash, stock, property or a
combination thereof) with respect to any of its capital stock
or enter into any agreement with respect to the voting of its
capital stock;
(iii) reclassify, combine, split, exchange, recapitalize, subdivide
or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock, or other securities;
(iv) dissolve, liquidate or otherwise terminate the existence in
good standing of the Purchaser or any of its subsidiaries under
applicable law; or
(v) authorize or enter into any agreement or otherwise make any
commitment to do any of the foregoing
13.11 EARNING WELL DRILLING FUNDS. Purchaser covenants and agrees that it will
use its best efforts to raise the Earning Well Drilling Funds within four
months from the date of this Agreement. In the event less than all of the
Earning Well Drilling Funds are used to drill, test, complete and equip
said Well (or to drill, test and plug said Well), Purchaser agrees that the
balance of said Funds will be used to pay, at purchaser's election in
writing to Vendor,
(a) Purchaser's Proportionate Share of any workover costs on the Wells in
excess of the Workover Funds; or
(b) All or part of the principal due on the Cash Payment.
13.12 WORKOVER FUNDS. The Workover Funds shall be made available to fully
reimburse Vendor for all workover costs incurred on the wells after the
First Closing Date which are attributable to that portion of the Assets in
the possession of Purchaser and Vendor's Carried Interest (collectively
"Purchaser's Proportionate Share"). Trustee of the Funds shall disburse
funds to Vendor equal to Purchaser's Proportionate Share of all invoices
Purchase and Sale Agreement
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for such charges submitted by Vendor, within twenty (20) days of receipt of
said invoices. Timely payment of each invoice is of the essence of this
provision. Should any invoice not be timely paid, Vendor shall have the
right and option to terminate this Agreement under Clause 17.2 (a).
13.13 RESTRICTION ON TRANSFER OF ASSETS. Purchaser covenants and agrees that
until it delivers to Vendor the Earning Well Drilling Funds, Purchaser
shall not sell, assign, transfer, convey, mortgage, grant an option in
respect of, or grant a right to purchase or in any manner whatsoever
transfer, alienate or otherwise dispose of, all or any part of the
undivided 50% interest in the Assets acquired at on the First Closing Date.
14. ONGOING COVENANT OF VENDOR
- -------------------------------
(a) Vendor covenants and agrees that until the Second Closing Date or
Termination of the Farmout Agreement, Vendor shall not sell, assign,
transfer, convey, mortgage, grant an option in respect of, or grant a right
to purchase or in any manner whatsoever transfer, alienate or otherwise
dispose of, all or any part of its remaining undivided 50% interest in the
Assets. Upon vesting of the additional 50% interest in the Assets to
Purchaser, Vendor covenants and agrees to do or cause all necessary acts as
may be required to deliver or transfer to Purchaser, the undivided
additional 50% interest in the Assets, in the name of the Purchaser.
15. NO MERGER
- --------------
The representations and warranties set forth in Clauses 9.1 and 10.1 and
the indemnities set forth in Article 12 (all subject to Article 11) and the
covenants in Articles 13 and 14 shall be deemed to apply to all
assignments, transfers and other Conveyance Documents and there shall not
be any merger of any representation, warranty, indemnity or covenant in
such assignments, transfers or other Conveyance Documents, notwithstanding
any rule of law, equity or statute to the contrary and all such rules are
hereby waived.
16. NOTICE
- -----------
16.1 METHOD OF NOTICE. Any notice, communication or other document (hereinafter
called "Notice") required or permitted to be given under this Agreement by
one Party to the other shall be in writing and shall be sufficiently given
and received if:
(a) personally served on the Person to whose attention the Notice is to be
addressed pursuant to Clause 15.2, at the time of actual delivery, or,
if delivered by hand to a responsible Person at the address of the
Party to which such Notice is directed, two (2) hours following
delivery to such Party; provided that if such time of deemed receipt
is not within the normal business hours of the recipient Party, then
such Notice shall be deemed received at the next commencement of
business on a day that business is normally conducted by the recipient
Party;
(b) sent by telecopy (or by any other like method of telefacsimile by
which a written message may be sent) and directed to the Person to
whose attention the Notice is to be addressed pursuant to Clause 15.2
at that Party's telecopier number set forth below, and such Notice so
given shall be deemed to have been received by the recipient, if the
time of transmission is stated, two (2) hours following the time so
stated; provided that if such time of deemed receipt is not within the
normal business hours of the recipient Party, then such Notice shall
Purchase and Sale Agreement
Page 29 of 33
be deemed received at the next commencement of business an a day that
business is normally conducted by the recipient Party; or
(c) mailed by first class registered post, postage prepaid, to the other
Party (such Notice so served shall be doomed to have been received by
the recipient Party on the fourth (4th) Business Day of such recipient
Party following the date of mailing thereof; provided that in the
event of an actual or threatened postal strike or other labor
disruption that may affect the trail service, Notices shall not be
mailed.
(d) sent via any courier or delivery entity in the business of delivering
correspondence.
16.2 ADDRESS FOR NOTICE. The address for Notice for each of the Forties shall be
as follows:
VENDOR: PURCHASER:
------- ----------
Hawkeye Drilling Company Universal Domains Incorporated
P.O. Box 98, Waskom, Texas 75692 Suite 502 - 828 Howe Street,
Attention: Keith Robertson, President Vancouver, B.C. V6Z 1R3
Fax: 903/687-3397 and 225/261-3997 Attention: Alan Brown, President
AND Fax: 604-683-2688
Whitney J. Pansano
515 Oak Street
Mendenhall, Mississippi 39114
Fax: 601-847-0128
16.3 CHANGES ADDRESS FOR NOTICE. Any Party may, from time to time, change its
address for Notice by giving written Notice to the other.
17. TERMINATION
- ----------------
17.1 Prior to the First Closing Date, this Agreement may be terminated and the
Parties released from all obligations of this Agreement except Section 8,
only in accordance with Clause 5.3, Clause 6.1, Clause 6.2, or by mutual
agreement of the Parties.
17.2 After the First Closing Date, this Agreement may be terminated as follows:
(a) In the Event of Termination of the Farmout Agreement or failure for
any reason to timely pay an invoice for Workover Funds under Clause
13.12, Vendor may, by written notice to Purchaser, terminate the
Agreement and at its sale and absolute discretion instruct the Escrow
Agent to deliver the Restricted Shares back to Purchaser for
cancellation. Upon such instruction, Purchaser shall, within five (5)
business days, execute a General Conveyance of all of its right, title
and interest in the Assets back to Vendor, or its designee. At this
time the Parties will be released from all other obligations of this
Agreement, except Section 8;
(b) In the event the Earning Well is drilled and all potentially
productive zones are tested, but can not be completed as a well
capable of producing in paying quantities, Purchaser shall have the
option, but not the obligation, to terminate the Agreement, by written
notice, with the following mandatory consequences:
Purchase and Sale Agreement
Page 30 of 33
(i) Upon such notice, Vendor shall, within five (5) business days,
instruct the Escrow Agent to deliver the Restricted Shares back
to Purchaser for cancellation;
(ii) Purchaser shall forfeit any balance remaining of the Earning
Well Drilling Funds and said balance shall be applied to,
first, plug the Earning Well and, if any remains, to set-off
all or a part of the balance due on the Cash Payment;
(iii) Vendor shall keep any other shares of the stock of Purchaser it
has acquired; and
(iv) Any principal on the Cash Payment still due and owing after
set-off from the Earning Well Drilling Funds shall be
recoverable out of a non-recourse production payment equal to
fifty percent (50%) of the gross proceeds (less severance
taxes) from Assets owned by Purchaser until the Cash Payment is
fully satisfied;
(v) Purchaser shall retain the 50% share of Assets acquired under
Clause 3.2(a);
(vi) the Parties will be released from all other obligations of this
Agreement, except this provision and Section 8; and
(c) By mutual agreement of the Parties.
18. MISCELLANEOUS PROVISIONS
- -----------------------------
18.1 PUBLIC ANNOUNCEMENTS. No Party shall release any information concerning
this Agreement and the transaction herein provided for without the prior
written consent of Vendor, which will not be withheld unreasonably. Nothing
contained herein shall prevent any Party at any time from furnishing
information to any governmental agency or regulatory authority or to the
public if required by applicable law or if such Party considers it to be
advisable in the circumstances, provided that the Parties shall advise each
other in advance of any public statement which they propose to make
regarding the said transaction. Nothing herein contained shall prevent
Vendor from furnishing information relating to the said transaction or the
identity of Purchaser in connection with the procurement of the consent of
other Persons or in sending notices concerning any Right of First Refusal
where required pursuant to any Documents of Title.
18.2 HEADINGS AND DESCRIPTIONS. The headings of all Articles, Clauses and
Subclauses are inserted for convenience of reference only and shall not
affect the construction or interpretation of this Agreement, or any
provision thereof. Use of words "Article", "Clause" or "Subclause" in this
Agreement refers to an Article, Clause or Subclause of this Agreement
unless a contrary intention is specifically stated.
18.3 SINGULAR/PLURAL. Whenever the singular or masculine or neuter is used in
this Agreement or in the Schedules, it shall be interpreted as meaning the
plural or feminine or body politic or corporate or vice versa, as the
context requires.
18.4 CONFLICTS AND ENTIRE AGREEMENT. The provisions contained in all documents
and agreements collateral hereto shall at all times be read subject to the
provisions of this Agreement and, in the event of conflict between the
provisions contained in any documents or agreements collateral hereto and
the provisions of this Agreement, the provisions of this Agreement shall
prevail unless otherwise expressly provided herein.
Purchase and Sale Agreement
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18.5 WAIVER. Any waiver of any term or condition of this Agreement or consent to
any departure from this Agreement by one Party to the other shall be
effective only if in writing and only in the specific instance and for the
specific purpose for which it is given.
18.6 APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws in effect in the State of Mississippi.
18.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the Parties with respect to the transactions contemplated herein, contains
all of the representations and warranties of the respective Parties and
supersedes all prior agreements, documents, writing and verbal
understandings between the Parties with respect to the sale of the Assets.
18.8 AMENDMENTS. This Agreement may not be amended or modified in any respect,
except by written instrument executed by the Parties.
18.9 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement and of
every part thereof.
18.10 FURTHER ASSURANCES. After Closing, the Parties shall do all things and
provide all assurances, as may be reasonably required to consummate the
transactions contemplated by this Agreement, and each Party shall provide
those further documents or instruments as may be reasonably required by the
other Parties to give effect to this Agreement and to carry out its
provisions.
18.11 ASSIGNMENT. Prior to Closing, neither this Agreement nor any rights or
obligations under it shall be assignable by any Party without the prior
written consent of the other Parties. After the Closing Date, no
assignment, transfer of the Agreement of all or any portion of the Assets,
by Purchaser shall relieve Purchaser from the obligations to Vendor herein,
unless Vendor otherwise agrees. Subject thereto, this Agreement shall enure
to the benefit of and be binding upon the Parties, and their respective
successors and permitted assigns.
18.12 COSTS. Except as provided in this Agreement, the Purchaser and Vendor will
each be solely responsible for and bear all of their own respective
expenses, including, without limitation, expenses of legal counsel,
accountants, and other advisors, incurred at any time in connection with
pursuing or consummating this Agreement and the transactions contemplated
thereby.
18.13 INDEPENDENT ADVICE.
(a) Vendor acknowledges that Fraser and Company does not represent the
Vendor and agrees that Vendor has had the opportunity to obtain
independent legal, accounting, investment and tax advice prior to the
execution and delivery of this Agreement, and in the event that the
Vendor does not avail itself of that opportunity prior to signing this
Agreement, such Vendor did so voluntarily and without any undue
pressure or influence and agrees that any failure to obtain
independent legal, accounting, investment or tax advice shall not be
used as a defense to the enforcement of the Vendor's obligations under
this Agreement.
(b) Purchaser acknowledges that Adams and Reese, LLP does not represent
the Purchaser and agrees that Purchaser has had the opportunity to
obtain independent legal, accounting, investment and tax advice prior
to the execution and delivery of this Agreement, and in the event that
the Purchaser does not avail itself of that opportunity prior to
signing this Agreement, such Purchaser did so voluntarily and without
Purchase and Sale Agreement
Page 32 of 33
any undue pressure or influence and agrees that any failure to obtain
independent legal, accounting, investment or tax advice shall not be
used as a defense to the enforcement of the Purchaser's obligations
under this Agreement.
18.14 COUNTERPART EXECUTION. This Agreement may be executed by the parties
hereto in as many counterparts as tray be necessary or by telecopied
facsimile and each such agreement or telecopied facsimile so executed shall
he deemed to be an original and, provided that all of the parties have
executed a counterpart, such counterparts together shall constitute a valid
and binding agreement, and notwithstanding the date of execution shill he
deemed to bear the date as set forth first above written.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date
and year first above written.
VENDOR PURCHASER
HAWKEYE DRILLING CO. UNIVERSAL DOMAINS INCORPORATED
By: /s/ Allen Keith Robertson By: /s/ Alan Brown
---------------------------------- ----------------------------------
Allen Keith Robertson, President Alan Brown, President
WITNESS: WITNESS:
/s/ Jefferson D. Stewart /s/ Kit H. Lui
- -------------------------------------- --------------------------------------
Jefferson D. Stewart Kit H. Lui
Purchase and Sale Agreement
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