SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 9, 2007
BASELINE OIL & GAS CORP.
(Exact Name of Registrant as Specified in its Charter)
Nevada 333-116890 30-0226902
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State of Commission IRS Employer
Incorporation File Number I.D. Number
11811 N. Freeway (I-45), Suite 200, Houston, Texas 77060
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Address of principal executive offices
Registrant's telephone number: (281) 591-6100
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Agreement.
On August 9, 2007, Baseline Oil & Gas Corp. ("we" or the "Company")
entered into an Asset Purchase and Sale Agreement (the "Purchase Agreement")
with DSX Energy Limited, LLP ("DSX"), Kebo Oil & Gas, Inc., Sanchez Oil & Gas
Corp., Sue Ann Operating, L.L.C., and twenty-three other individuals, trusts,
and companies (collectively, "Sellers"). Reference is made to the Purchase
Agreement, a copy of which is filed as Exhibit 99.1 hereto and incorporated by
reference herein, and the summary of the Purchase Agreement in this Current
Report is qualified in its entirety by reference thereto.
Pursuant to the Purchase Agreement, at the Closing defined below,
and subject to the satisfaction of various terms and conditions, we will
purchase from the Sellers the following assets (collectively, the "Assets"): (i)
one hundred percent (100%) of the working interest, together with all other
interests of every kind and character (except for certain overriding royalty
interests discussed below) of Sellers, in and to oil and gas leases and pooled
units located in the Blessing Field, Matagorda County, Texas (the "Properties");
(ii) twelve (12) producing oil and gas wells located on the Properties (the
"Wells") and all oil, gas, minerals, and other substances produced therefrom;
(iii) all easements, rights-of-way, contracts, and agreements relating to the
Properties and Wells; (iv) all surface and subsurface machinery and equipment,
supplies, facilities, and other personal property on or used in connection with
the Properties and Wells; and (v) all geological, geophysical, reserve
engineering, and other scientific and technical information, reports and data
(including, without limitation, conventional two-dimensional and
three-dimensional seismic data) that relate exclusively to the Properties, the
transfer or disclosure of which is not restricted by agreement with third
parties. Upon the Closing, Baseline will become the operator of all of the
Properties and Wells.
The interests of the Sellers in the Properties and Wells are subject
to existing overriding royalty interests, or obligations to assign overriding
royalty interests, that will result in the delivery by Sellers to the Company of
a net revenue interest attributable to a one hundred percent (100%) working
interest of seventy percent (70%) with respect to all of the Properties and
Wells except for the East Blessing Unit, for which the net revenue interest will
be seventy-five percent (75%). To permit the Sellers to satisfy all remaining
obligations to assign overriding royalty interests that are undischarged as of
the Closing Date, the conveyance of the Assets delivered by the Sellers to the
Company at the Closing will provide for the reservation by DSX of an overriding
royalty of sufficient magnitude to cause the net revenue interest in the
Properties delivered by the Sellers to the Company at Closing to be seventy-five
percent (75%) for the East Blessing Unit and seventy percent (70%) for the rest
of the Properties.
The closing of the purchase (the "Closing") is scheduled to occur on
October 30, 2007, or such earlier date as we and Sellers may determine (the
"Closing Date"). Although the transfer of ownership of the Assets will occur at
the Closing, it will be effective as of June 1, 2007 (the "Effective Date").
Generally, the Sellers will be entitled to amounts realized from and accruing to
the Assets, and shall be liable for expenditures relating to the Assets, prior
to the Effective Date, and we will be entitled and liable for the same on and
after the Effective Date.
The purchase price we agreed to pay for the Assets at the Closing is
$100,000,000.00 in cash (the "Purchase Price"), subject to certain adjustments
set forth in the Purchase Agreement. We also agreed to assume certain
obligations related to the Assets, including, without limitation, (i)
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obligations related to the ownership and operation of the Assets and the
production and marketing of hydrocarbons allocable thereto, in each case
accruing on or after the Effective Date; (ii) obligations accruing after the
Effective Date under the terms of all oil and gas leases, contracts, and
agreements affecting the Assets and in existence on the Effective Date; and
(iii) obligations related to the plugging, abandonment, removal, disposal, site
clearance, and similar activities with respect to the Wells. We have also agreed
to assume all environmental obligations and liabilities relating to the Assets
(except for certain liabilities related to the off-site disposal of hazardous
substances, if any), regardless of when the act, omission, or event that gives
rise to the environmental liability or obligation occurred.
On August 13, 2007, we paid a performance deposit of $2,500,000 to
the Sellers (the "Performance Deposit"), which will be credited against the
Purchase Price paid at the Closing. We obtained the Performance Deposit from our
senior lenders pursuant to the terms of a letter agreement dated August 9, 2007
(the "Letter Agreement"), a copy of which is filed as Exhibit 99.2 hereto. Under
the Letter Agreement, our senior lenders increased our borrowing base under our
April 12, 2007 Credit Agreement and advanced us the $2,500,000. This advance
will bear interest at the Term Loan Rate (as defined in the Credit Agreement)
until such time as it is repaid. In the event that the purchase transaction
contemplated by the Purchase Agreement does not occur prior to October 31, 2007,
we will be required to make a prepayment of $2,300,000 on or before the
Termination Date (as defined in the Letter Agreement). As consideration for
advancing us the $2,500,000, we (i) agreed to pay our senior lenders a fee of
$250,000 (the "Bridge Fee") and (ii) granted them seven-year warrants,
exercisable for up to 260,000 shares of our common stock, at an exercise price
of $0.52 per share (the closing market price on the date we executed the Letter
Agreement).
If the Sellers terminate the Purchase Agreement prior to the Closing
due to our breach of or failure to perform the Purchase Agreement, or our
failure to satisfy certain pre-Closing conditions, the Sellers will be entitled
to retain as liquidated damages the Performance Deposit. If we terminate the
Purchase Agreement prior to the Closing due to the Sellers' breach of or failure
to perform the Purchase Agreement, or the Sellers' failure to satisfy certain
pre-Closing conditions, we will be entitled to the return of the full amount of
the Performance Deposit, and we will be entitled to seek damages from the
Sellers not to exceed $2,500,000.00.
We have engaged the consulting petroleum engineering firm of Cawley,
Gillespie & Associates, Inc. ("Cawley Gillespie"), to prepare an independent
reserve and economic evaluation of the Properties that will be made effective as
of June 1, 2007, employ the reserve definitions and follow the reporting
requirements of the SEC under applicable securities laws and regulations, and
employ SEC-mandated assumptions regarding commodity prices, determined as of
December 31, 2006. If the Cawley Gillespie reserve report is completed by August
23, 2007, and shows estimated total proved hydrocarbon reserves for the Sellers'
net revenue interest in the Properties to be less than 40 billion cubic feet of
gas equivalent, then we will have the right, exercisable no later than August
27, 2007, to terminate the Purchase Agreement. If we so terminate the Purchase
Agreement, we will be entitled to the return of the Performance Deposit, less
$200,000.00 to be retained by the Sellers as consideration for them taking the
Assets off the market while the Cawley Gillespie reserve report is being
prepared.
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The Company intends to finance the Purchase Price through the
issuance of a combination of debt and a convertible instrument. There can be no
assurance that we will be successful in our efforts to obtain such financing. If
we fail to obtain the financing necessary to enable us to close the transaction
by October 30, 2007, the Sellers will be entitled to terminate the Purchase
Agreement and retain as liquidated damages the full amount of the Performance
Deposit. We have agreed to pay Alan Gaines, our vice-chairman, a transaction
bonus equal to 0.25% of the gross proceeds raised in such financing.
If any Asset is damaged prior to the Closing ("Casualty Loss"), the
Sellers may repair or replace the damaged Asset. If any Casualty Loss remains
unrepaired at the Closing, we will purchase the damaged Asset and receive either
(i) a reduction of the Purchase Price if permitted as described in the next
paragraph or (ii) an assignment from Sellers of all insurance proceeds and
claims against third parities relating to the unrepaired Casualty Loss.
The Purchase Agreement provides for a due diligence period beginning
on the date the Purchase Agreement is executed and ending on September 21, 2007.
As part of our due diligence, we will examine title to the Properties and Wells
to identify any title defects and conduct inspections and tests on the
Properties and Wells to determine whether there exist any environmental defects.
Title defects and environmental defects may be asserted only the extent that (i)
the value of a title defect is greater than $25,000, and (ii) the estimated cost
to remediate an environmental defect exceeds $50,000. The Sellers have the
option, in the event of any such defects, to cure or contest the defect or elect
an appropriate adjustment to the Purchase Price at Closing. Any such defect will
be deemed waived by us if we have not duly notified the Sellers of the same
during the due diligence period. Regarding environmental defects, other than the
express remedies provided for in the Purchase Agreement, we are acquiring the
Assets in "as is, where is" condition. The Purchase Price will be reduced with
respect to uncured title defects, unremedied environmental defects, and Casualty
Losses if, and only the extent that, the sum of the aggregate values for all
uncured title defects, plus the aggregate amounts to remediate all unremedied
environmental defects, plus the aggregate amount of all Casualty Losses prior to
the Closing exceeds $5,000,000.00 (the "Deductible"). Either the Sellers or we
may terminate the Purchase Agreement if the sum of the aggregate values of all
uncured title defects, plus the aggregate amounts to remediate all unremedied
environmental defects, plus the amounts of all Casualty Losses prior to the
Closing, all as finally agreed upon by the Sellers and the Company or determined
by arbitration, would result in reductions to the Purchase Price, without regard
to the Deductible, equal to or in excess of $15,000,000. If the Purchase
Agreement is thus terminated, we will be entitled to the return of the full
amount of the Performance Deposit.
A copy of our press release dated August 15, 2007 announcing our entry
into the Purchase Agreement is filed as Exhibit 99.3 hereto.
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Item 9.01 Financial Statements and Exhibits.
Exhibit No. Description
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99.1 Purchase Agreement with DSX and the Sellers Named Therein
99.2 Letter Agreement with our Senior Lenders
99.3 Press Release Dated August 15, 2007 announcing Entry into
Purchase Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 15, 2007
BASELINE OIL & GAS CORP.
By: /s/ Thomas Kaetzer
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Thomas Kaetzer
Chief Executive Officer
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Exhibit Index
Exhibit No. Description
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99.1 Purchase Agreement with DSX and the Sellers Named Therein
99.2 Letter Agreement with our Senior Lenders
99.3 Press Release Dated August 15, 2007 announcing Entry into
Purchase Agreement