JOINT VENTURE/AMI AGREEMENT
JOINT
VENTURE/AMI AGREEMENT
THIS
JOINT VENTURE AGREEMENT
(the
"Agreement") is made and entered into this _______ day of July, 2006 (the
"Effective Date") by and between Epicenter
Oil & Gas, LLC,
an
Illinois limited liability company with offices at _____________________________
(hereinafter referred to as "Epicenter"),
A
N
D
Indigo-Energy,
Inc.,
a
Nevada corporation, with offices at __________________________________
(hereinafter referred to as "Indigo").
Epicenter
and Indigo will sometimes hereafter be referred to individually as a Party
and
collectively as the Parties.
WITNESSETH:
WHEREAS,
the Parties are desirous of forming a joint venture (the "Joint Venture") for
the purpose of exploring and developing oil and/or natural gas from oil and
gas
horizons below the base of the New Albany Shale in
__________________________________ Counties, Illinois; and
WHEREAS,
the Parties have identified approximately ________ gross oil and gas leasehold
acres, described on Exhibit "A--1"
hereto
and depicted on the map attached as Exhibit "B-1" hereto, as containing oil
and
gas horizons below the base of the New Albany Shale geologic formations that
are
to be dedicated to the Joint Venture, which, together with other oil and gas
leasehold acreage that may be hereafter jointly or severally acquired by the
Parties hereto during the term of the Joint Venture within
_______________________________________ Counties, Illinois, shall collectively
comprise the "Contract Area", as that term may be used from time to time in
this
Agreement and in a Joint Operating Agreement between the Parties hereafter,
a
copy of which is attached as Exhibit "C" hereto (the "Operating Agreement").
Further the Parties agree to establish an Area of Mutual Interest ("AMI")
encompassing _____________________________________________________ Counties,
Illinois and depicted on the map attached as Exhibit "B-2".
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NOW
THEREFORE, for and in consideration of the premises and the mutual benefits
and
obligations described and contemplated herein, the Parties agree as
follows:
ARTICLE
I
Consideration
1.1
Payment.
At the
time of the execution of this Agreement between the Parties, Indigo will pay
Epicenter $_________________, such payment is consideration for expenses
incurred by Epicenter, its 3rd
party
vendors and others in researching, bidding for and purchasing leases in the
Contract area. In addition Indigo shall be responsible for 100% of all costs
incurred in the leasehold acquisition phase of the Joint Venture, whether
currently incurred or within the three (3) year term of this
Agreement.
1.2
Application
of Payments.
The
fees paid by Indigo to Epicenter pursuant to Paragraph 1.1 herein, shall
collectively constitute the consideration to be paid by Indigo to Epicenter
in
exchange for Indigo's acquisition of a one-half (1/2) interest in the Joint
Venture created pursuant to this Joint Venture Agreement and a corresponding
one-half (1/2) interest in the assets of the Joint Venture. The assets of the
Joint Venture are defined as one hundred (100%) percent of the oil and gas
leasehold acres as described on Exhibit "A-1" hereto as well as leasehold acres
acquired pursuant to this Joint Venture
Agreement.
ARTICLE
II
Area
of Mutual Interest
2.1
Creation
of the AMI.
Pursuant to this Joint Venture Agreement the Parties hereby create an Area
of
Mutual Interest, which shall include all oil and gas interests below the base
of
the New Albany Shale geologic formations within ______________________ Counties,
Illinois. The oil and gas leasehold acres described on Exhibit "A" hereto and
depicted on the map attached as Exhibit "B-1", together with other oil and
gas
leasehold acreage that may be hereafter jointly or severally acquired by the
Parties hereto during the term of the Joint Venture within
______________________ Counties, Illinois, shall collectively comprise the
"Contract Area", as that term may be used from time to time in this Agreement
and in the Operating Agreement. In all respects, during the term of the Joint
Venture, the Parties hereto shall own an equal fifty (50%) percent interest
in
the Area of Mutual Interest and each shall be entitled to participate in any
oil
and gas leasehold, mineral, royalty, overriding royalty and related interests
heretofore or hereafter acquired by the Parties during the term of the Joint
Venture within
the AMI on an equal fifty (50%) percent basis.
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2.2
After
Acquired Interests.
During
the term of this Joint Venture Agreement, should either Party hereto (the
"Acquiring Party") acquire any oil and gas leases or any interests therein,
any
unleased mineral interest or any farmouts or other contracts with respect
thereto which affect lands and minerals lying within the AMI (the "Interests"),
the Acquiring Party shall promptly advise the other Party (the "Offeree") of
such acquisition. Each Offeree shall have the right to acquire its proportionate
interest in such Interest in accordance with the other provisions of this AMI.
Promptly upon acquiring such Interest, the Acquiring Party shall, in writing,
advise the Offeree of such acquisition. The notice shall include a copy of
all
instruments of acquisition including, by way of example but not of limitation,
copies of the leases, plats or maps of the leased lands, and any assignments,
subleases, farmouts or other contracts affecting the Interests. The Acquiring
Party shall also include an itemized statement of the actual costs and expenses
incurred by the Acquiring Party in acquiring such Interest, excluding the costs
and expenses of its own personnel (the "Acquisition Costs"), provided however,
should the Acquiring Party utilize its personnel to perform field lease
broker/contract land services beyond the normal administrative services
performed by staff land personnel, their costs and expenses directly
attributable to the acquisition of a Interest may be included in the Acquisition
Costs, provided that such costs and expenses are commensurate with the normal,
customary and prevailing rate for like services performed by contract land
service providers. The Offeree shall have a period of thirty (30) days after
receipt of such notice within which to furnish the Acquiring Party written
notice of its election to acquire its proportionate interest in the offered
Interest. If, however, a well in search of oil or gas from the horizons below
the base of the New Albany Shale geologic formations, is being drilled by a
third-party within one mile of the acquired interest, either within the AMI,
or
at a location within one (1) mile of the AMI or the receipt of seismic data
is
imminent, of which the result could be expected to materially affect the value
of the offered Interest, the Offeree shall have a period of forty-eight (48)
hours after receipt of the notice within which to elect to acquire its
proportionate Interest in the Interest so offered. It is provided, however,
that
the forty-eight (48) hour election period shall not apply unless the Acquiring
Party shall give the written notice to the Offeree within forty-eight (48)
hours
after the date on which the Acquiring Party acquired the Interest so offered.
In
addition thereto, the Acquiring Party shall also:
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(i)
furnish the Offeree with the approximate location of the well then being drilled
and the name of the Operator or drilling contractor drilling the well,
and/or
(ii)
advise the Offeree of the specific seismic data which when received may confirm
or condemn the offered Interest, and/or
(iii)
specifically advise the Offeree that the Offeree shall have a period of
forty-eight (48) hours within which to elect an interest in the offered
Interest.
The
above
information shall be in addition to the information and copies of instruments
provided for above in connection with usual notices of acquisition of an
Interest. If the Acquiring Party shall not have received actual written notice
of the election of the Offeree to acquire its proportionate interest within
the
thirty (30) day or forty-eight (48) hour period, as the case may be, such
failure shall constitute an election by Offeree not to acquire its interest
in
the Interest. Upon the Offeree's election to acquire its proportionate interest
in the Interest, the Acquiring Party shall invoice the Offeree for its
proportionate part of the Acquisition Costs. The Offeree shall immediately
reimburse the Acquiring Party for its share of the Acquisition Costs, as
reflected by the invoice. Upon receipt of such reimbursement the Acquiring
Party
shall execute and deliver an appropriate assignment to the Offeree. If the
Acquiring Party does not receive the amount due from the Offeree within thirty
(30) days after the receipt by the Offeree of the invoice for its costs, the
Offeree shall have no further right to acquire an interest in the offered
Interest, and the Acquiring Party shall be free to develop the offered Interest
without any right of participation by the Offeree and such Interest shall not
become a part of the Contract Area.
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2.3
Assignments
of Interests.
Any
assignment made by the Acquiring Party shall be made without warranty of title,
either express or implied, even with regard to the return of the purchase price;
however, with full substitution and subrogation of Offeree in and to all
representations and warranties of every kind and character theretofore given
or
made to the Acquiring Party and Acquiring Party's predecessors in title by
others with respect to the Interest assigned, and shall be free and clear of
any
reservations, burdens, liens or encumbrances whatsoever by, through or under
the
Acquiring Party. The assignment shall be made and accepted subject to, and
Offeree shall expressly assume its portion of, all of the obligations of the
Acquiring Party. The delivery and recordation of such assignment shall conform
to the terms and provisions of any third-party agreements that may limit,
restrict or prohibit such assignment.
2.4
Partial
Interests Outside the AMI.
If the
Interest covers lands both within and without the AMI, the Acquiring Party
will
offer the entire Interest to the Offeree. If the entirety of the premises
covered the Interest is accepted by Offeree, the lands lying outside the AMI
shall become a part of the AMI provided for in this Agreement, as well as the
Contract Area under the Operating Agreement, but the AMI shall not thereby
be
enlarged.
2.5
Rejection
of Interests.
Any
interest not subscribed for will be retained by the Acquiring Party.
Additionally, such Interest shall no longer be subject to this Agreement.
Provided however, that if such Interest or a portion thereof is included in
a
well spacing and drilling unit created pursuant to any regulation and/or rule
of
the Oil and Gas Conservation Commission of the Department of Environmental
Protection of the Commonwealth of Illinois under the Oil and Gas Conservation
Law, then and in such event Exhibit "A" to the Operating Agreement shall be
revised to reflect the proportionate ownership of the Parties on an acreage
basis within such unit.
2.6
Term
of the AMI.
The AMI
created hereunder shall remain in effect for a period of three (3) years from
the date hereof unless sooner terminated or extended by mutual written consent
of the Parties. Immediately following the expiration of the term of the Joint
Venture, the Parties shall designate in writing the oil and gas leasehold,
mineral, royalty, overriding royalty and related Interests that comprise the
Contract Area, including any and all Interests that either Party, has acquired
(as an Acquiring Party pursuant to Paragraph 2.2 herein). In the event that
the
term of the AMI is not extended, the oil and gas leasehold, mineral, royalty,
overriding royalty and related Interests that comprise the Contract Area,
together with any other Interests that either Party has acquired from the other
Party pursuant to Paragraph 2.2 herein, shall constitute the Contract Area
at
the expiration of the AMI, and shall be held by the Parties pursuant to
Paragraph 2.7 herein.
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2.7
Development
of the Contract Area.
The
Operating Agreement shall govern the drilling of all ▇▇▇▇▇ within the Contract
Area.
2.8.
Additional
Contract Areas.
The
Parties hereto may, upon mutual agreement in writing, establish one or more
additional contract areas (the "Additional Contract Areas") within or without
the Commonwealth of Illinois, and, as determined by the parties hereto in
writing, developed by the Parties pursuant to this Joint Venture Agreement
or
pursuant to one or more separate joint ventures to be established by the Parties
hereto by written agreement. Each additional contract area shall be developed
pursuant to separate joint operating agreements to be prepared following the
creation of each Additional Contract Area.
ARTICLE
III
Working
Interest Ownership
3.1
Data.
The
Parties hereto acknowledge that Epicenter has heretofore made available to
Indigo upon execution of the Letter of Intent, copies of all lease agreements,
farmouts, assignments, title opinion reports, geological, seismic and
engineering reports, title abstracts and supporting invoices for all related
expenses regarding all applicable ▇▇▇▇▇ for which permits have been issued
and
for which permits have been applied and all other leasehold interests subject
to
this Agreement.
3.2
Initial
Assignments.
Upon
execution of this Joint Venture Agreement and the Operating Agreement, Epicenter
shall assign, without warranty of title, to assign to Indigo an undivided fifty
(50%) percent interest to the oil and gas below the base of the New Albany
Shale
geologic formations in all leases owned by Epicenter within the AMI. Likewise,
Indigo shall assign to Epicenter, without warranty of title, an undivided fifty
(50%) interest to the oil and gas below the base of the New Albany Shale
geologic formations in all leases owned by Indigo within the AMI. The leasehold
estates shall comprise an eighty-one and twenty-five one-hundredths (81.25%)
percent net revenue interest to the oil and gas therein. The Parties shall
not
further burden the leaseholds. For leases which have a net revenue interest
of
less than this percentage, the Parties may accept or decline to develop such
lease pursuant to the Operating Agreement. If a Party declines, in writing,
the
owner of the lessee's leasehold estate under said lease shall be free to develop
said lease separate and apart from the transactions contemplated by the
Operating Agreement.
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3.3
Assignments
of Epicenter's Interests.
Epicenter may assign its Interests in this Joint Venture and/or the Operating
Agreement with the consent of Indigo. Such consent will not unreasonably be
withheld. Epicenter expressly reserves the right to assign any of its working
interests to any of its investors in any well contemplated under this Agreement
so long as it is in the ordinary course of Epicenter’s business. As a condition
of their consent to the assignment of this Agreement and/or Operating Agreement,
the proposed assignee of Epicenter shall be required to execute and deliver
to
Indigo, in a form and content acceptable to Indigo, a confidentiality agreement
regarding the proposed well sites, leasehold estates and/or geological, seismic,
title and/or other information regarding the oil and gas development project
which is the subject of this Agreement and the Operating Agreement.
3.4
Third
Party Recordable Assignments. Following the drilling and completion of any
oil
and gas well to be drilled pursuant to this Joint Venture Agreement and the
Operating Agreement, Epicenter shall execute, deliver and record written
assignments to any third party who subsequently acquires an Interest as provided
in Paragraph 3.3 herein, and in accordance with Paragraph 5.3 herein, reflecting
the working interest of each working interest owner in any such
well.
ARTICLE
IV
Geologic
and Geophysical Services
and
Seismic Data Acquisition
4.1
Geologic
and Geophysical Services.
At
Operator's request Indigo shall through its employees, consultants and
contractors provide and direct all geologic and geophysical services for the
drilling of the ▇▇▇▇▇ contemplated in Article VI of this Joint Venture
Agreement. Those services shall be billed to the joint account through Epicenter
on an actual cost basis.
4.2
Ownership
of Geologic and Geophysical Information.
Epicenter and Indigo shall each own an undivided fifty (50%) percent in all
geologic and geophysical information and data, including without limitation
all
seismic information, within the Contract Area(s) and AMI.
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4.3
After
Acquired Seismic Information.
The
acquisition of any new seismic data shall require the mutual agreement of
Epicenter and Indigo. The costs of all new seismic data shall be borne equally
between Epicenter and Indigo. The sale of any or all such proprietary seismic
information shall further require the mutual consent of Epicenter and
Indigo.
4.4
Jointly
Acquired Seismic Information.
All
future seismic licensed by the Parties from third parties will be owned by
Indigo but will be made available to the Parties at any time they request it
in
compliance with the applicable license agreement; however, should the Parties
elect to acquire the data through a joint license agreement both Parties shall
obtain their own license to the jointly owned data.
ARTICLE
V
Operating
Agreement
5.1
The
Operating Agreement.
The
Parties hereto shall execute the Operating Agreement attached as Exhibit "C"
contemporaneously with the execution of this Joint Venture Agreement. Article
VI
of the Operating Agreement is intended by the Parties to contain their full
and
complete understanding with respect to the development of the Contract Area
and
with respect to all oil and gas ▇▇▇▇▇ to be drilled by the Parties within the
Contract Area. The Parties further agree to enter into separate Operating
Agreements in the same form as Exhibit "C" for any Additional Contract Areas
developed by the Parties.
5.2
Operator.
For all
▇▇▇▇▇ drilled pursuant to the Operating Agreement, Epicenter shall be the
operator of record, and pursuant thereto, shall obtain all necessary drilling
and operating permits and bonds for any well to be drilled by the Parties
hereto, and shall oversee and be responsible for all aspects of the drilling
and
completion of said ▇▇▇▇▇. All costs to be charged to the working interest owners
for the drilling and operating of ▇▇▇▇▇ drilled pursuant to the Operating
Agreement shall be determined in accordance with the Accounting Procedure
attached to the Operating Agreement as Exhibit "C". In the event that Epicenter
should resign as Operator, Indigo shall have the first-right-of-refusal to
become Operator.
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5.3
Third-party
Nonoperators.
The
Operating Agreement shall be a master operating agreement covering all of the
▇▇▇▇▇ to be drilled within the Contract Area and shall provide for the
respective duties and responsibilities of the operator and the working interest
owners for each well to be drilled pursuant to the Operating Agreement. Should
there be any working interest owners other than Epicenter and Indigo for any
particular well, the Operating Agreement may provide for the execution and
delivery by Epicenter and all of the working interest owners of a separate
operating agreement having substantially the same terms and provisions as the
Operating Agreement attached as Exhibit "C", but governing only one particular
well or one particular group of ▇▇▇▇▇.
5.4
Third-party
Confidentiality.
As
provided in the Operating Agreement, no prospective working interest
owner/investor will receive any information regarding any proposed well site
or
sites, the leasehold estates to be utilized therefore, and/or any geological,
seismic, title and/or other information regarding such well site(s), until
such
prospective working interest owner/investor has executed a confidentiality
agreement in form and content acceptable to Indigo and Epicenter.
5.5
Separate
Interests.
Epicenter and Indigo and any other working interest owner shall own its working
interest in each well pursuant to the Operating Agreement separate from the
other working interest owners and shall have the right to encumber such owner's
working interest in the well(s) only. None of the working interest owners shall
have the right to encumber the interests of the other working interest owners
in
any well. Should any lien or encumbrance or charging order be filed upon the
working interest of the party hereto, the working interest owners, or any one
of
them, shall have the option, but not the obligation, to pay or discharge said
lien and encumbrance or the judgment which forms the basis for said charging
order, and, thereafter, be subrogated to the position of the lien
creditor/judgment creditor of the debtor working interest owner.
ARTICLE
VI
Development
of the AMI
6.1
Ownership
of ▇▇▇▇▇.
The
ownership of all oil and gas ▇▇▇▇▇ to be drilled pursuant to this Joint Venture
Agreement, and the working interest of the Parties therein, shall be determined
in accordance with Exhibit "A" to the Operating Agreement between the Parties
hereto.
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6.2
Initial
Exploratory Well.
The
Parties agree that the initial test well ("Initial Well") shall be commenced
or
caused to be commenced within twelve (12) months of the date of this Agreement,
but in no event, later than August 1, 2007 at a mutually agreeable location.
Epicenter shall be Operator of this Initial Well. If the Initial Well is not
drilled within the time period allowed, this Agreement shall terminate unless
extended by the mutual agreement of Epicenter and Indigo.
6.3
Subsequent
▇▇▇▇▇.
All
subsequent ▇▇▇▇▇ proposed by the Parties shall be proposed and drilled in
accordance with Section B of Article VI of the Operating Agreement.
ARTICLE
VII
Confidentiality
7.1
Confidentiality
Agreement.
All
information regarding any prospects or leads within the AMI, including, without
limitation, any geologic and geophysical data, shall be held by each of the
Parties (a) in accordance with the terms of all validly existing third-party
license or other agreements, and (b) on a confidential basis as and shall remain
confidential for three (3) years from the date hereof; provided that nothing
herein shall prevent either Party from disclosing any such information in its
possession (i) to any institutional entity or its affiliates that lends or
proposes to lend funds to either Party hereto, providing that the institutional
entity or its affiliate excluding banking institutions, executes a
confidentiality agreement as provided in Paragraph 7.2 herein, (ii) upon the
order of any court or administrative agency, (iii) upon the demand of any
regulatory agency, stock exchange or authority having jurisdiction over such
Party, (iv) that is or may hereafter enter the public domain without breach
of
this Agreement, (v) in connection with the exercise of any right or remedy
hereunder, (vi) to any independent geologic, geophysical or reservoir
consultants working under contract to such Party hereto, or (vii) that is
furnished for evaluation purposes to bona fide prospective purchasers,
participants, farmoutees or consultants; provided that any persons furnished
information pursuant to (i), (vi) or (vii) of this Article VII agrees in writing
not to communicate such information to, any other party or to use it for such
persons' own benefit in a manner adverse to the other Party during the period
that the Parties are required to keep such information confidential.
Notwithstanding anything to the contrary contained in this Agreement, it is
recognized and agreed that either Party may retain mental recollections or
other
impressions as a result of having reviewed the information regarding any
prospects or leads in the area of the AMI.
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7.2
Third-party
Confidentiality.
Any
party who acquires an Interest in the Contract Area as per Paragraph 3.3 of
this
Agreement shall sign a Confidentiality Agreement similar to the attached
Confidentiality Agreement attached hereto as Exhibit "D".
ARTICLE
VIII
Dispute
Resolution
8.1
Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
Commonwealth of Illinois, in every respect, without reference to choice of
law
principles.
8.2
Injunctive
Relief.
The
Parties hereto agree that the federal district court and/or any state court
having venue over the geographical area comprising the Contract Area of the
Joint Venture shall have exclusive jurisdiction over any proceeding for
injunctive relief that either Party may seek with respect to any matter relating
to the Joint Venture or to their rights and obligations under this Joint Venture
Agreement or the Operating.
8.3
Arbitration.
All
other disputes between the Parties hereto, shall be submitted to arbitration
before the American Arbitration Association subject to its rules then prevailing
for commercial arbitration, before three (3) arbitrators, one (1) of whom shall
be appointed by each Party, and the two (2) arbitrators thus appointed shall
chose the third (3rd)
arbitrator. In the event that the two (2) arbitrators selected by the Parties
are unable to agree on the appointment of the third (3rd)
arbitrator, the remaining arbitrator shall be appointed by the American
Arbitration Association upon written request of either Party hereto. The
location of the arbitration proceedings shall be established by the
arbitrators.
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ARTICLE
IX
Miscellaneous
9.1
Integration.
This
Joint Venture Agreement embodies the entire agreement between the Parties,
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof, and may be amended only by an instrument in writing
executed jointly by an authorized agent of each Party and supplemented only
by
documents delivered or to be delivered in accordance with the express terms
hereof. In the event of any conflict between any terms of the Joint Venture
Agreement or the Operating Agreement attached as Exhibit "C" hereto, the terms
of the Joint Venture Agreement shall control.
9.2
Notices.
All
notices or demands to be given under this Agreement shall be in writing and
shall be deemed to have been given (i) three (3) business days after being
sent
by registered mail or certified mail, postage prepaid, or (ii) on the day sent,
if hand-delivered or sent by facsimile (telecopy), in each case addressed as
follows or to such other address as may have been furnished in writing, to
the
other Party herein in accordance with Paragraph 9.2:
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If
to Epicenter:
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If
to Indigo:
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Epicenter
Oil & Gas, LLC
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9.3
Paragraph
Headings.
The
headings of the Articles in this Agreement are for convenience and reference
only and do not form a part hereof or modify, interpret or construe the
understanding of the Parties hereto.
9.4
Binding
Effect.
The
terms and provisions hereof shall be binding upon and inure to the benefit
of
each of the Parties hereto and their respective heirs, legal representatives,
successors and assigns and shall be covenants running with the land and
leasehold covering same.
9.6
Severability.
Any
provision of this Joint Venture Agreement which is invalid, illegal or
unenforceable in any respect in any jurisdiction shall be, as to such
jurisdiction, ineffective to the extent of such invalidity, illegality or
unenforceability without in any way affecting the validity, legality or
enforceability of the remaining provisions hereof, and any such invalidity,
illegality or unenforceability in any jurisdiction shall not invalidate or
in
any way affect the validity, legality or enforceability of such provision in
any
other jurisdiction.
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9.7
Waivers.
The
failure of either Party to seek redress for violation of or to insist upon
the
strict performance of any covenant or condition of this Joint Venture Agreement
shall not prevent a subsequent act, which would have originally constituted
a
violation, from having the effect of any original violation.
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9.8
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Cumulative
Rights and Remedies.
The rights and remedies provided by this Joint Venture Agreement
are
cumulative and the use of any one right or remedy by either Party
shall
not preclude or waive its right to use any or all other remedies.
Said
rights and remedies are given in addition to any other rights such
Party
may have by law, statute, ordinance or
otherwise.
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9.9
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Counterparts.
This Agreement may be executed in one or more counterparts, which
together
shall constitute a fully executed
original.
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IN
WITNESS WHEREOF, the Parties hereto have duly executed this Joint Venture
Agreement the day and year above set forth.
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EPICENTER
OIL & GAS, LLC
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by:
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▇▇▇▇▇▇
▇▇▇▇▇▇▇
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INDIGO
RESOURCES, INC.
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by:
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