FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT TRINITY BAY, REDFISH REEF, FISHERS REEF, NORTH POINT BOLIVAR FIELDS IN GALVESTON AND CHAMBERS COUNTIES, TEXAS
FIRST
AMENDMENT TO PURCHASE AND SALE AGREEMENT
TRINITY
BAY,
REDFISH
REEF,
FISHERS
REEF,
NORTH
POINT
▇▇▇▇▇▇▇
▇▇▇▇▇▇
IN
GALVESTON AND
▇▇▇▇▇▇▇▇
COUNTIES,
TEXAS
THIS
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
(the
“First Amendment”) is dated effective as of November 13, 2006, and is made by
and between Masters
Resources, LLC,
and
Masters
Oil & Gas, LLC,
both
Texas limited liability companies having their respective principal places
of
business at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (collectively,
“Masters”), and Tekoil
& Gas Corporation,
a
Delaware corporation having its principal place of business at ▇▇▇▇ ▇▇. ▇▇▇▇▇▇▇▇
▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (“Buyer”) (Masters and Buyer are
sometimes called collectively the “parties” and individually
“party”).
RECITALS
On
November __, 2006, the parties executed and delivered Purchase and Sale
Agreement (the “Original Agreement”) covering the Assets. The parties now desire
to amend the Original Agreement in certain respects. Accordingly, the parties
agree as set out in this First Amendment. (Unless otherwise noted, defined
terms
used in this First Amendment shall have the meanings set out in the Original
Agreement.)
I. AMENDMENTS
A.
Section
2.1 of the Original Agreement is deleted in its entirety and the following
is
inserted in lieu thereof:
2.1
Purchase
Price
The
Purchase Price for the Assets will be Forty-Seven Million Five Hundred Thousand
and No\100 Dollars ($47,500,000.00), plus
500,000
shares of common stock of Buyer, plus
the
reservation at Closing by Masters of the overriding royalty interests described
herein.
(A)
The
monetary portion of the Purchase Price will be paid by Buyer as
follows:
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1.
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Buyer
has delivered Buyer’s check into an interest bearing account (the “Escrow
Account”) at Amegy Bank National Association in the names of Masters and
Buyer the sum of $1 million, as an ▇▇▇▇▇▇▇ money deposit which is
non-refundable, except as expressly set forth in this Agreement (the
“Deposit”), which shall be distributed at the Closing or upon termination
of this Agreement, as further set forth herein (all accrued interest
shall
be paid to the recipient of the Deposit, and to the extent that the
Deposit is applied to the Purchase Price, the accrued interest shall
be
deemed to reduce the balance of the Purchase Price due at
Closing);
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2.
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At
the Closing, Buyer will pay to Masters by wire transfer of the monetary
balance of the Purchase Price, as the same may be adjusted under
Sections
2.1 (A), 2.2 and 2.3 of this Agreement, subject to any post-closing
adjustments.
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Any
provisions to the contrary contained in this Agreement to the contrary
notwithstanding, all adjustments to the Purchase Price in accordance with this
Agreement shall be made to the monetary portions of the Purchase
Price.
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(B)
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At
Closing, Buyer will deliver to Masters 500,000 shares of the common
stock
of Buyer, which shares shall be restricted securities (and legended
as
such) and covered by a separate, customary Subscription Agreement
confirming that Masters is an “Accredited Investor” as that term is
defined in Regulation D promulgated under the Securities Act of 1933
(the
“Securities Act”) and confirming, among other customary items, that prior
to execution of this Amendment, Masters has reviewed all of the filings
made by Buyer under the Securities Exchange Act of 1934 and is accepting
such common stock with no intention to sell or otherwise transfer
the same
except pursuant to a separate Registration Rights Agreement;
and
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(C)
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At
Closing Masters shall reserve overriding royalty interests (collectively
the “ORRI”) as follows:
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(1)
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an
aggregate overriding royalty equal to 6% of 100% of the production
from
those of the ▇▇▇▇▇ shown as (x) “proved undeveloped reserves” and (y)
“proved non-producing reserves” in the reserve estimate (the “Reserve
Report”), dated August 31, 2006, prepared by ▇. ▇. ▇▇▇▇▇▇ and Associates,
Inc., addressed to Masters Resources, LLC, and (z) an overriding
royalty
equal to 6% of 100% of the production from any present or future
well
completed in and producing from any zone or formation not presently
producing or capable of producing and not documented in the Reserve
Report
(collectively, the “Declining ORRI”);
and
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(2)
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an
aggregate overriding royalty equal to 3% of 100% of the production
from
those ▇▇▇▇▇ shown as “proved developed producing” in the Reserve Report
(the “Fixed ORRI”).
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The
ORRI
shall be proportionately reduced to the extent that the working interest of
Masters in any lease burdened thereby to
be
conveyed to Buyer is
less
than 100% or the net revenue interest to which Masters is entitled on any lease
to be conveyed to Buyer is less than 80%. As examples:
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(a)
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If
the working interest of Masters in a lease described in (C) (1) is
60%,
not 100% (and the net revenue interest is at least 80% of the 100%
working
interest), then the ORRI in that lease shall be 60/100 of 6%, or
3.6%.
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2
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(b)
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If
the net revenue interest in the same lease is less than 80% of the
100%
working interest, then the ORRI shall be reduced proportionately,
meaning
that, if the net revenue interest is, say, 75%, then the ORRI shall
be
reduced by 75/80 x 6%, or 5.625%. If the working interest is less
than
100% and the net revenue interest is less than 80%, then the reduction
of
the overriding royalty shall be implemented for both the working
interest
and the net revenue interest.
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In
addition, upon written notice by Buyer to the owner or owners of the ORRI that
Buyer has paid aggregate payments of $20,000,000 by
virtue
of the ORRI and Buyer’s request for assignment thereof
(subject
to the right of Masters to audit the payments aggregating the sum of
$20,000,000), the owners of the Declining ORRI shall convey to Buyer an
undivided 2% of 100% overriding royalty out of the Declining ORRI so that the
owner or owners of the Declining ORRI shall thereafter be reduced to an ORRI
equal to an aggregate of 4% of 100% of the production from the leases and units
sold to Buyer, and when the aggregate payments on the out of the ORRI equal
$30,000,000 (but not $30 million in addition to the $20 million threshold for
the initial reduction of the ORRI; simply an additional $10 million after $20
million has been reached), upon written notice thereof to the owner or owners
of
each of the Fixed and the Declining ▇▇▇▇▇ (and subject to the same right to
audit in Masters), the owners of the Declining ORRI shall convey to Buyer out
of
the Declining ORRI an additional undivided 2% of 100% overriding royalty so
that
the owner or owners of the Declining ORRI shall thereafter be reduced to an
aggregate 2% of 100% ORRI, which shall remain constant thereafter, and the
owners of the Fixed ORRI shall convey to Buyer out of the Fixed ORRI an
undivided 1% of 100% overriding royalty so that the owner or owners of the
Fixed
ORRI shall thereafter be reduced to an aggregate 2% of 100% ORRI, which shall
remain constant thereafter. The owners of the ORRI shall be entitled, upon
their
written election, to be paid for their respective shares of production from
the
lands burdened by the ORRI directly by the purchaser of production. In addition,
at the election of the owners of the ORRI, they shall be entitled to take the
ORRI share of production in kind and to separately market the same; provided,
however, to the extent that additional facilities are required for the owners
of
the ORRI to take their share of production in kind, the owners of the ORRI
shall
bear the cost and expense of installing such facilities.
B.
With
respect to Section 4.1 (A) of the Original Agreement, and solely to the extent
that the Examination Period applies to any due diligence being performed or
to
be performed by the source of financing for Buyer (“Buyer’s
Financier”),
“December 1, 2006” is deleted and “January 24, 2007” is inserted in lieu
thereof. The materials which are made available to Buyer’s Financier for this
investigation are limited to those which have been available at the offices
of
Scotia ▇▇▇▇▇▇▇ (USA), Inc., together with the reserve estimate dated August
31,
2006, prepared by ▇. ▇. ▇▇▇▇▇▇ and Associates, Inc., addressed to Masters
Resources, LLC, as supplemented by report dated September 1, 2006. Buyer,
through its counsel, has timely delivered to Masters’ counsel letters containing
notices of Title Defects, and Masters acknowledges receipt thereof.
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C.
Section
8.1 of the Original Agreement is deleted and the following is inserted in lieu
thereof:
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“8.1
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Date,
Time and Place of Closing
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Unless
the parties agree otherwise in writing and subject to the provisions in this
Agreement, the completion of the transaction contemplated by this Agreement
(the
“Closing”) will be held on or before February 9, 2007, at 10:00 a.m. Central
Standard Time (or such earlier date or time as the parties may agree). The
Closing will be held at the offices of Masters as set forth in the opening
paragraph of this Agreement. In the event that the Closing does not occur before
the close of business at 5:00 p.m. on February 28, 2007, Masters shall have
the
right to terminate this Agreement and to retain the Deposit.”
D.
In
Section 9.3 of the Original Agreement, “December 31, 2006” is deleted and
“February 28, 2007” is inserted in lieu thereof.
II. MISCELLANEOUS
A.
To
the
extent any provision of the Original Contract conflicts with any provision
of
this First Amendment, the provisions of this First Amendment shall control
and
be used to determine the obligations of the Parties.
B.
The
parties ratify confirm and adopt the Original Contract as amended and
supplemented by this First Amendment.
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Signed:
December 29, 2006.
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MASTERS
RESOURCES, LLC
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TEKOIL
& GAS CORPORATION
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| By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | By: /s/ ▇▇▇▇ ▇. Western | ||
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▇▇▇▇
▇. ▇▇▇▇▇▇, Managing Member
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▇▇▇▇
▇▇▇▇▇▇▇, Chairman and CEO
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MASTERS
OIL & GAS, LLC
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| By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
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▇▇▇▇
▇. ▇▇▇▇▇▇, Managing Member
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